[Federal Register Volume 78, Number 251 (Tuesday, December 31, 2013)]
[Unknown Section]
[Pages 79729-80365]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28210]



[[Page 79729]]

Vol. 78

Tuesday,

No. 251

December 31, 2013

Part II





Bureau of Consumer Financial Protection





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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); Final Rule

  Federal Register / Vol. 78 , No. 251 / Tuesday, December 31, 2013 / 
Rules and Regulations  

[[Page 79730]]


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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: Final rule; official interpretation.

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SUMMARY: Sections 1098 and 1100A of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act) direct the Bureau to 
publish 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 
amending 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 
imposed by the Dodd-Frank Act, the final rule provides extensive 
guidance regarding compliance with those requirements.

DATES: The rule is effective August 1, 2015.

FOR FURTHER INFORMATION CONTACT: David Friend, Jane Gao, Eamonn K. 
Moran, Nora Rigby, Michael Scherzer, Priscilla Walton-Fein, Shiri Wolf, 
Counsels; Richard B. Horn, Senior Counsel & Special Advisor, Office of 
Regulations, Consumer Financial Protection Bureau, 1700 G Street NW., 
Washington, DC 20552 at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final 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 integrate the mortgage loan 
disclosures under TILA and RESPA sections 4 and 5.\1\ Section 1032(f) 
of the Dodd-Frank Act mandated that the Bureau propose for public 
comment rules and model disclosures that integrate the TILA and RESPA 
disclosures by July 21, 2012.\2\ The Bureau satisfied this statutory 
mandate and issued a proposed rule and forms on July 9, 2012 (the TILA-
RESPA Proposal or the proposal).\3\ To accomplish this, the Bureau 
engaged in extensive consumer and industry research, analysis of public 
comment, and public outreach for more than a year. After issuing the 
proposal, the Bureau conducted a large-scale quantitative validation 
study of its integrated disclosures with 858 consumers, which concluded 
that the Bureau's integrated disclosures had on average statistically 
significant better performance than the current disclosures under TILA 
and RESPA. The Bureau is now finalizing a rule with new, integrated 
disclosures (the TILA-RESPA Final Rule or the final rule).\4\ The final 
rule also provides a detailed explanation of how the forms should be 
filled out and used.
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    \1\ Dodd-Frank Act sections 1098 & 1100A, codified at 12 U.S.C. 
2603(a) & 15 U.S.C. 1604(b), respectively.
    \2\ 12 U.S.C. 5532(f).
    \3\ See Press release, U.S. Bureau of Consumer Fin. Prot., 
Consumer Financial Protection Bureau proposes ``Know Before You 
Owe'' mortgage forms (July 9, 2012), available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-know-before-you-owe-mortgage-forms/; see also Blog 
post, U.S. Bureau of Consumer Fin. Prot., Know Before You Owe: 
Introducing our proposed mortgage disclosure forms (July 9, 2012), 
available at http://www.consumerfinance.gov/blog/know-before-you-owe-introducing-our-proposed-mortgage-disclosure-forms/.
    \4\ See part III below for a discussion of the Bureau's 
qualitative testing of prototypes of the forms with more than 100 
consumers, lenders, mortgage brokers, and settlement agents before 
issuing the proposal and its quantitative testing of the forms with 
858 consumers across the country. 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, as well as the Bureau's handling of the over 
2,800 public comments the Bureau received during the public comment 
period that followed the issuance of the proposal and other 
information on the record.
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    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 and Closing Disclosure forms, 
the Bureau has reconciled the differences between the existing forms 
and combined several other mandated disclosures, such as the appraisal 
notice under the Equal Credit Opportunity Act and the servicing 
application disclosure under RESPA. 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.\5\ This should reduce the burden on lenders and others in 
preparing the forms in the future.
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    \5\ This guidance is provided in the regulations and the 
Official Interpretations, which are in Supplement I.
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B. Scope of the Final Rule

    The final rule applies to most closed-end consumer mortgages. It 
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 final rule also 
does not apply to loans made by a creditor who makes five or fewer 
mortgages in a year.\6\
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    \6\ For additional discussion of the scope of the final rule, 
see part V below regarding Sec.  1026.19, Coverage of Integrated 
Disclosure Requirements.
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C. The Loan Estimate

    The Loan Estimate form replaces two current Federal forms. It 
replaces the Good Faith Estimate designed by the Department of Housing 
and Urban Development (HUD) under RESPA and

[[Page 79731]]

the ``early'' Truth in Lending disclosure designed by the Board of 
Governors of the Federal Reserve System (the Board) under TILA.\7\ The 
final rule and the Official Interpretations (on which creditors and 
other persons can rely) contain detailed instructions as to how each 
line on the Loan Estimate form should be completed.\8\ There are sample 
forms for different types of loan products.\9\ The Loan Estimate form 
also incorporates new disclosures required by Congress under the Dodd-
Frank Act.\10\
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    \7\ These disclosures are available at http://www.hud.gov/offices/hsg/rmra/res/gfestimate.pdf &http://ecfr.gpoaccess.gov/graphics/pdfs/ec27se91.024.pdf.
    \8\ The requirements for the Loan Estimate are in Sec.  1026.37. 
Additional discussion of this and other sections of the rule is 
provided in the relevant portion of part V below.
    \9\ Appendix H to the final 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.
    \10\ For a discussion of these disclosures, see part V.B below.
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    Provision by mortgage broker. Recognizing that consumers may work 
more closely with a mortgage broker, under the final rule and similar 
to the current rules, either a mortgage broker or creditor is required 
to provide the Loan Estimate form upon receipt of an application by a 
mortgage broker. However, even if the mortgage broker provides the Loan 
Estimate, the creditor remains responsible for complying with all 
requirements concerning provision of the form.\11\
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    \11\ This provision is in Sec.  1026.19(e)(1)(ii).
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    Timing. The creditor or broker must give the form to the consumer 
no later than three business days after the consumer applies for a 
mortgage loan.\12\ The final rule contains a definition of what 
constitutes an ``application'' for these purposes, which consists of 
the consumer's name, income, social security number to obtain a credit 
report, the property address, an estimate of the value of the property, 
and the mortgage loan amount sought.\13\
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    \12\ This provision is in Sec.  1026.19(e)(1)(iii).
    \13\ The definition of ``application'' is in Sec.  1026.2(a)(3).
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    Limitation on fees. Consistent with current law, the creditor 
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 creditors to charge fees to obtain consumers' 
credit reports.\14\
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    \14\ This provision is in Sec.  1026.19(e)(2)(i).
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    Disclaimer on early estimates. Creditors and other persons may 
provide consumers with written estimates prior to application. The rule 
requires that any such written estimates contain a disclaimer to 
prevent confusion with the Loan Estimate form. This disclaimer is not 
required for advertisements.\15\
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    \15\ This provision is in Sec.  1026.19(e)(2)(ii).
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D. The Closing Disclosure

    The Closing Disclosure form replaces the current form used to close 
a loan, the HUD-1, which was designed by HUD under RESPA. It also 
replaces the revised Truth in Lending disclosure designed by the Board 
under TILA.\16\ The rule and the Official Interpretations (on which 
creditors and other persons can rely) contain detailed instructions as 
to how each line on the Closing Disclosure form should be 
completed.\17\ The Closing Disclosure form contains additional new 
disclosures required by the Dodd-Frank Act and a detailed accounting of 
the settlement transaction.
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    \16\ These disclosures are available at http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf & http://ecfr.gpoaccess.gov/graphics/pdfs/ec27se91.024.pdf.
    \17\ The requirements for the Closing Disclosure are in Sec.  
1026.38(a)(3).
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    Timing. The creditor must give consumers the Closing Disclosure 
form to consumers so that they receive it at least three business days 
before the consumer closes on the loan.\18\ If the creditor makes 
certain significant changes between the time the Closing Disclosure 
form is given and the closing--specifically, if the creditor makes 
changes to the APR above \1/8\ of a percent for most loans (and \1/4\ 
of a percent for loans with irregular payments or periods), changes the 
loan product, or adds a prepayment penalty to the loan--the consumer 
must be provided a new form and an additional three-business-day 
waiting period after receipt of the new form. Less significant changes 
can be disclosed on a revised Closing Disclosure form provided to the 
consumer at or before closing, without delaying the closing.\19\ This 
is a change from the proposal, which would have required that most 
changes cause an additional three-business-day waiting period before 
the consumer could close on the loan. The Bureau received extensive 
public comment raising concerns about this aspect of the proposal, 
especially about its impact to cause frequent closing delays in the 
residential real estate market. In response to the public comments 
received on this issue, the Bureau decided to limit the types of 
changes that will result in an additional three-business-day waiting 
period to the three changes described above. This requirement will 
provide the important protection to consumers of an additional three-
day waiting period for these significant changes, but will not cause 
closing delays for less significant costs that may frequently change.
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    \18\ This provision is in Sec.  1026.19(f)(1)(ii).
    \19\ This provision is in Sec.  1026.19(f)(2).
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    Provision of disclosures. Currently, settlement agents are required 
to provide the HUD-1 under RESPA, while creditors are required to 
provide the revised Truth in Lending disclosure under TILA. Under the 
final rule, the creditor is responsible for delivering the Closing 
Disclosure form to the consumer, but creditors may use settlement 
agents to provide the Closing Disclosure, provided that they comply 
with the final rule's requirements for the Closing Disclosure.\20\ The 
final rule acknowledges settlement agents' longstanding involvement in 
the closing of real estate and mortgage loan transactions, as well as 
their preparation and delivery of the HUD-1. The final rule avoids 
creating uncertainty regarding the role of settlement agents and also 
leaves sufficient flexibility for creditors and settlement agents to 
arrive at the most efficient means of preparation and delivery of the 
Closing Disclosure to consumers.
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    \20\ This provision is in Sec.  1026.19(f)(1).
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E. Limits on Closing Cost Increases

    Similar to existing law, the final rule restricts 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 cannot increase: (1) The creditor's or mortgage broker's 
charges for its own services; (2) charges for services provided by an 
affiliate of the creditor or mortgage broker; and (3) charges for 
services for which the creditor or mortgage broker does not permit the 
consumer to shop. Charges for other services can increase, but 
generally not by more than 10 percent, unless an exception applies.\21\
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    \21\ The limitations and the exceptions discussed below are in 
Sec.  1026.19(e)(3) and (4).
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    The exceptions include, for example, situations when: (1) The 
consumer asks for a change; (2) the consumer chooses a service provider 
that was not identified by the creditor; (3) information provided at 
application was inaccurate or becomes inaccurate; or (4) the Loan 
Estimate expires. When an exception applies, the creditor generally

[[Page 79732]]

must provide an updated Loan Estimate form within three business days.

F. Proposals Not Adopted in the Final Rule

    The proposed rule would have redefined the way the Annual 
Percentage Rate or ``APR'' is calculated. Under the proposal, the APR 
would have encompassed almost all of the up-front costs of the 
loan.\22\ The Bureau explained in the proposal that it believed the 
change would make it easier for consumers to use the APR to compare 
loans and easier for industry to calculate the APR. The proposed rule 
also would have required creditors to keep records of the Loan Estimate 
and Closing Disclosure forms provided to consumers in an electronic, 
machine readable format to make it easier for regulators to monitor 
compliance.\23\
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    \22\ These proposed revisions are discussed below in part V, in 
the section-by-section analysis of Sec.  1026.4.
    \23\ This proposed provision is discussed below in part V, in 
the section-by-section analysis of Sec.  1026.25.
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    Based on public comments it received raising implementation and 
cost concerns regarding these two proposals, the Bureau has determined 
not to finalize these provisions in the final rule. The Bureau 
continues to believe these ideas may have benefits for consumers and 
industry, however, and intends to continue following up on both issues. 
For example, the Bureau intends to work closely with industry on 
private data standard initiatives to promote consistency in data 
transmission and storage. After additional study, the Bureau may 
propose rules on either or both topics.
    The Bureau also decided not to require in the final rule a 
disclosure item that had been mandated by the Dodd-Frank Act, but that 
caused confusion at its consumer testing. Specifically, the Dodd-Frank 
Act requires creditors to disclose, in the case of residential mortgage 
loans, ``the approximate amount of the wholesale rate of funds in 
connection with the loan.'' \24\ To implement this requirement, the 
proposal would have required creditors to disclose the approximate cost 
of funds used to make a loan on the Closing Disclosure.\25\ Because 
consumer testing conducted by the Bureau prior to its issuance of the 
proposal suggested that consumers do not understand the disclosure and 
that it would not provide a meaningful benefit to consumers, the Bureau 
alternatively proposed to exempt creditors from the cost of funds 
disclosure requirement.
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    \24\ 15 U.S.C. 1638(a)(17).
    \25\ This proposed provision is discussed below in part V, in 
the section-by-section analysis of Sec.  1026.38(o)(6).
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    The Bureau considered the comments it received on this disclosure 
in addition to the consumer testing results. The comments echoed the 
Bureau's concerns regarding consumer confusion from this disclosure, 
and also raised implementation, compliance, and cost concerns. The 
Bureau has decided to exempt creditors from the cost of funds 
disclosure requirement. The Bureau believes this approach will simplify 
the disclosure forms, making them more effective for consumers, and 
reduce compliance burden.\26\
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    \26\ However, the Bureau is finalizing the Dodd-Frank Act 
requirement to include the total interest percentage disclosure on 
both the Loan Estimate and Closing Disclosure, because consumers at 
the Bureau's consumer testing were able to understand and use the 
total interest percentage disclosure on both the Loan Estimate and 
Closing Disclosure. This proposed provision is discussed below in 
part V, in the section-by-section analyses of Sec. Sec.  
1026.37(l)(3) and 1026.38(o)(5).
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G. Effective Date

    The final rule is effective on August 1, 2015. The final rule 
applies to transactions for which the creditor or mortgage broker 
receives an application on or after that date, except that new Sec.  
1026.19(e)(2) and the amendments of this final rule to Sec.  
1026.28(a)(1) and the commentary to Sec.  1026.29 become effective on 
that date, without respect to whether an application has been received 
on that date.\27\
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    \27\ For additional discussion regarding the effective date of 
the final rule, see part VI below.
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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 $9.4 trillion in loans outstanding.\28\ 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 to investors. 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.\29\ In the 
last quarter of 2008 and early in 2009, GDP was falling at an annual 
rate of roughly 6 percent.\30\ By the Fall of 2009, unemployment 
reached a peak of 10 percent.\31\ The percentage of loans in the 
foreclosure process reached its peak of 4.63 in both the first and the 
fourth quarters of 2010.\32\ From peak to trough, the fall in housing 
prices is estimated to have resulted in about $7 trillion in household 
wealth losses.\33\ Further, five years after the collapse of Lehman 
Brothers and AIG, the United States continues to grapple with the 
fallout.
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    \28\ Bd. of Governors of the Fed. Reserve Sys., Flow of Funds, 
Balance Sheets, and Integrated Macroeconomic Accounts (June 2013).
    \29\ See Thomas F. Siems, Branding the Great Recession, Fin. 
Insights, May 13, 2012, Vol. 1 Issue 1 at 3, available at http://www.dallasfed.org/assets/documents/banking/firm/fi/fi1201.pdf 
(stating that the [great recession] ``was the longest and deepest 
economic contraction, as measured by the drop in real GDP, since the 
Great Depression.'').
    \30\ Bureau of Econ. Analysis, U.S. Dep't of Commerce, Real 
Gross Domestic Product (Nov. 7, 2013), available at http://research.stlouisfed.org/fred2/series/GDPC1.
    \31\ Bureau of Labor Statistics, U.S. Dep't of Labor, Labor 
Force Statistics from the Current Population Survey (Nov. 19, 2013), 
available at http://data.bls.gov/timeseries/LNS14000000 (Labor Force 
Statistics from 2003 through 2013).
    \32\ Press Release, Mortg. Bankers Ass'n, Short-term 
Delinquencies Fall to Pre-Recession Levels, Loans in Foreclosure Tie 
All-Time Record in Latest MBA National Delinquency Survey (Feb. 17, 
2011), available at http://www.mortgagebankers.org/NewsandMedia/PressCenter/75706.htm.
    \33\ Bd. Of Governors of the Fed. Reserve Sys., The U.S. Housing 
Market: Current Conditions and Policy Considerations, at 3 (2012), 
available at http://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf.
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    The expansion in this market was accompanied by particular economic 
conditions (including an era of low interest rates and rising housing 
prices) and changes within the industry. Interest rates dropped 
significantly--by more than 20 percent--from 2000 through 2003.\34\ 
Housing prices increased dramatically--about 152 percent--between 1997 
and 2006.\35\ Driven by the decrease in interest rates and the increase 
in housing prices, the volume of refinancings increased rapidly, from 
about 2.5 million loans in 2000 to more than 15 million in 2003.\36\
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    \34\ See U.S. Dep't. of Hous. and Urban Dev., An Analysis of 
Mortgage Refinancing, 2001-2003 (2004), available at 
www.huduser.org/Publications/pdf/MortgageRefinance03.pdf; Souphala 
Chomsisengphet & Anthony Pennington-Cross, The Evolution of the 
Subprime Mortgage Market, 88, No. 1 Fed. Res. Bank of St. Louis 
Review, at 48 (Jan./Feb. 2006), available at http://research.stlouisfed.org/publications/review/article/5019 org/publications/review/article/5019.
    \35\ The Financial Crisis Inquiry Commission, The Financial 
Crisis Inquiry Report at 156 (2011) (FCIC Report), available at 
http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
    \36\ An Analysis of Mortgage Refinancing, 2001-2003, at 1.
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    In the mid-2000s, the market experienced a steady deterioration of 
credit standards in mortgage lending, with evidence that loans were 
made solely against collateral, or even against expected increases in 
the value of

[[Page 79733]]

collateral, and without consideration of ability to repay. This 
deterioration of credit standards was particularly evidenced by the 
growth of ``subprime'' and ``Alt-A'' products.\37\ Subprime products 
were sold primarily to consumers with poor or no credit history, 
although there is evidence that some consumers who would have qualified 
for ``prime'' loans were steered into subprime loans as well.\38\ The 
Alt-A category of loans permitted consumers to take out mortgage loans 
while providing little or no documentation of income or other evidence 
of repayment ability. Because these loans involved additional risk, 
they were typically more expensive to consumers than ``prime'' 
mortgages, although many of them had very low introductory interest 
rates. In 2003, subprime and Alt-A origination volume was about $400 
billion; in 2006, it had reached $830 billion.\39\
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    \37\ FCIC Report at 88. These products included most notably \2/
28\ and \3/27\ hybrid adjustable rate mortgages (ARMs) and option 
ARM products. Id. at 106. A hybrid ARM is an adjustable rate 
mortgage loan that has a low fixed introductory rate for a certain 
period of time. An option ARM is an adjustable rate mortgage loan 
that has a scheduled loan payment that may result in negative 
amortization for a certain period of time, but that expressly 
permits 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.'' These products were often marketed to 
subprime customers.
    \38\ For example, the Federal Reserve Board on July 18, 2011, 
issued a consent cease and desist order and assessed an $85 million 
civil money penalty against Wells Fargo & Company of San Francisco, 
a registered bank holding company, and Wells Fargo Financial, Inc., 
of Des Moines. The order addresses allegations that Wells Fargo 
Financial employees steered potential prime-eligible consumers into 
more costly subprime loans and separately falsified income 
information in mortgage applications. In addition to the civil money 
penalty, the order requires that Wells Fargo compensate affected 
consumers. See Press Release, Bd. Of Governors of the Fed. Reserve 
Sys. (July 20, 2011), available at http://www.federalreserve.gov/newsevents/press/enforcement/20110720a.htm.
    \39\ Inside Mortgage Fin., 2011 Mortgage Statistical Annual: 
Mortgage Originations by Product, at 20 (2011).
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    So long as housing prices were continuing to increase, it was 
relatively easy for consumers to refinance their existing loans into 
more affordable products to avoid interest rate resets and other 
adjustments. When housing prices began to decline in 2005, however, 
refinancing became more difficult and delinquency rates on subprime and 
Alt-A products increased dramatically.\40\ More and more consumers, 
especially those with subprime and Alt-A loans, were unable or 
unwilling to make their mortgage payments. An early sign of the 
mortgage crisis was an upswing in early payment defaults--generally 
defined as borrowers being 60 or more days delinquent within the first 
year. Prior to 2006, 1.1 percent of mortgages would end up 60 or more 
days delinquent within the first two years.\41\ Taking a more expansive 
definition of early payment default to include 60 days delinquent 
within the first two years, this figure was double the historic average 
during 2006, 2007 and 2008.\42\ First payment defaults--mortgages taken 
out by consumers who never made a single payment--exceeded 1.5 percent 
of loans in early 2007.\43\ In addition, as the economy worsened, the 
rates of serious delinquency (90 or more days past due or in 
foreclosure) for the subprime and Alt-A products began a steep increase 
from approximately 10 percent in 2006, to 20 percent in 2007, to more 
than 40 percent in 2010.\44\
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    \40\ FCIC Report at 215-217.
    \41\ CoreLogic's TrueStandings Servicing (reflects first-lien 
mortgage loans) (data service accessible only through paid 
subscription).
    \42\ Id.
    \43\ Id.
    \44\ Id. at 217.
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    The impact of this level of delinquencies was severe on creditors 
who held loans on their books and on private investors who purchased 
loans directly or through securitized vehicles. Prior to and during the 
bubble, the evolution of 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 
creditors 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), including 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 
complex mortgage-related investment vehicles through securities and 
derivative products. The private securitization-backed subprime and 
Alt-A mortgage market ground to a halt in 2007 in the face of the 
rising delinquencies on subprime and Alt-A products.\45\
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    \45\ Id. at 124.
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    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.\46\
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    \46\ FCIC Report at 88.
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    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.\47\ 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.\48\
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    \47\ 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.''
    \48\ Id. at 109.
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    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.\49\
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    \49\ Id. at 111.
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    In the wake of this financial crisis, Congress passed the Dodd-
Frank Act to address many of these concerns. In this Act, among other 
things, 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, the Truth in Lending Act (TILA) and the Real Estate 
Settlement Procedures Act (RESPA), in the Bureau.\50\ Congress also 
provided

[[Page 79734]]

the Bureau with supervision authority for certain consumer financial 
protection statutes over certain entities, including insured depository 
institutions with total assets of over $10 billion and their 
affiliates, and certain other non-depository entities, including all 
companies that offer or provide origination, brokerage, or servicing of 
consumer mortgages.\51\
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    \50\ Sections 1011 and 1021 of the Dodd-Frank Act, 12 U.S.C. 
5491, 5511. The Consumer Financial Protection Act is substantially 
codified at 12 U.S.C. 5481-5603.
    \51\ Sections 1024 through 1026 of title X of the Dodd-Frank 
Act, codified at 12 U.S.C. 5514-5516.
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    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.\52\ 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 designed to improve consumer understanding of mortgage 
transactions (which is the subject of this final rule).\53\ In 
addition, the Dodd-Frank Act established other new standards concerning 
a wide range of mortgage lending practices, including compensation for 
mortgage originators \54\ and mortgage servicing.\55\ For additional 
information, see the discussion below in part II.F.
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    \52\ Section 1411 of the Dodd-Frank Act, codified at 15 U.S.C. 
1639c.
    \53\ Section 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.
    \54\ Sections 1402 through 1405 of the Dodd-Frank Act, codified 
at 15 U.S.C. 1639b.
    \55\ 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, & 1639g.
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Size of the Current Mortgage Origination Market
    Even with the economic downturn and tightening of credit standards, 
approximately $1.9 trillion in mortgage loans were originated in 
2012.\56\ In exchange for an extension of mortgage credit, consumers 
promise to make regular mortgage payments and provide their home or 
real property as collateral. The overwhelming majority of homebuyers 
continue to use mortgage loans to finance at least some of the purchase 
price of their property. In 2012, 93.7 percent of all home purchases 
were financed with a mortgage credit transaction.\57\
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    \56\ Moody's Analytics, Credit Forecast 2013 (2013) (Credit 
Forecast 2013), available at http://www.economy.com/default.asp 
(reflects first-lien mortgage loans) (data service accessibly only 
through paid subscription).
    \57\ Mortgage Markets Daily, New Houses by Type of Financing, 
available at http://www.mortgagenewsdaily.com/data/financing-type.aspx.
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    Consumers may obtain mortgage credit to purchase a home, to 
refinance an existing mortgage, to access home equity, or to finance 
home improvement. Purchase loans and refinancings together produced 8.6 
million new first-lien mortgage loan originations in 2012.\58\ The 
proportion of loans that are for purchases as opposed to refinances 
varies with the interest rate environment and other market factors. In 
2012, 72 percent of the market was refinance transactions and 28 
percent was purchase loans, by volume.\59\ Historically the 
distribution has been more even. In 2000, refinances accounted for 44 
percent of the market while purchase loans comprised 56 percent; in 
2005, the two products were split evenly.\60\
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    \58\ Credit Forecast 2013.
    \59\ Inside Mortgage Fin., Mortgage Originations by Product, in 
Inside Mortgage Finance Issue 2013:08 (Mar. 1, 2013) (Inside 
Mortgage Finance Newsletter).
    \60\ Inside Mortgage Fin., 2012 Mortgage Statistical Annual: 
Mortgage Originations by Product: 2000-2013 Data, at 17 (2012). 
These percentages are based on the dollar amount of the loans.
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    With a home equity transaction, a homeowner uses his or her equity 
as collateral to secure consumer credit. The credit proceeds can be 
used, for example, to pay for home improvements. Home equity credit 
transactions and home equity lines of credit resulted in an additional 
$41 billion in mortgage loan originations in 2012.\61\
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    \61\ Inside Mortgage Fin. Newsletter.
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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.\62\ 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.\63\ 
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.\64\
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    \62\ ICF Macro Int'l, Summary of Findings: Design and Testing of 
Truth in Lending Disclosures for Closed-End Mortgages, at 6 (July 
2009) (Macro 2009 Closed-End Report), 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.
    \63\ James Lacko & Janis Pappalardo, Improving Consumer Mortgage 
Disclosures: An Empirical Assessment of Current and Prototype 
Disclosure Forms, at 26 (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.
    \64\ 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-a20090727-bar-gill.pdf.
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    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.\65\ 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.\66\ 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.
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    \65\ Brian K. Bucks & Karen M. Pence, Do Borrowers Know their 
Mortgage Terms?, J. of Urb. Econ. (2008), available at http://works.bepress.com/karen_pence/5.
    \66\ U.S. Gov't Accountability Office, GAO-06-1112T, Alternative 
Mortgage Products: Impact on Default Remains Unclear, but Disclosure 
of Risks to Borrowers Could Be Improved (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

[[Page 79735]]

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. For a given consumer seeking a 
mortgage of a given size, both factors can vary significantly, making 
the home purchase or refinance especially complex. Furthermore, for 
purchase transactions and to a much lesser extent for refinances, 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,\67\ the interest rate, the payment 
amount, and the length of the loan term. 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. Adjustable rate mortgages accounted for 30 percent 
of mortgage loan volume in 2000, and reached a recent high of 50 
percent in 2004.\68\ By contrast, adjustable rate mortgages accounted 
for only 10 percent of the mortgage loan market in 2012 ; \69\ however, 
there is some early indication that adjustable rate mortgages are 
gaining market share again as interest rates for fixed rate mortgages 
are on the rise: the share of new mortgage applications for adjustable 
rate mortgages rose by 75% (from 4% to 7%) from March to August of 
2013.\70\
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    \67\ Types of loan products include a fixed rate loan, 
adjustable rate loan, and interest-only loan.
    \68\ Inside Mortgage Fin., 2012 Mortgage Statistical Annual: 
Mortgage Originations by Product: 2000-2013 Data, at 17 (2012). 
These percentages are based on the dollar amount of the loans.
    \69\ Inside Mortgage Finance Newsletter.
    \70\ Compare Press Release, Mortgage Bankers Assoc., Mortgage 
Applications Decrease in Latest Weekly MBA Survey (Mar. 6, 2013), 
available at http://www.mbaa.org/NewsandMedia/PressCenter/83653.htm 
with Mortgage Bankers Assoc., Mortgage Applications Decrease in 
Latest Weekly MBA Survey (Aug. 28, 2013), available at http://www.mbaa.org/NewsandMedia/PressCenter/85466.htm.
---------------------------------------------------------------------------

    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.\71\ 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. Similarly, in a balloon loan, monthly 
payments are not fully amortizing, requiring the borrower to pay off a 
portion of the principal balance or the remaining principal balance in 
a larger ``balloon payment'' at specific points in the loan term or at 
the end of the loan term, respectively.
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    \71\ Some loans may require a large final payment (or 
``balloon'' payment) in addition to monthly payments.
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    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, settlement services, 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 that accepts applications for 
mortgage loans. There are two different kinds of such 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. Some of these 
mortgage lenders may sell the loan soon after it is originated to an 
investor, and they are referred to as correspondent lenders. 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. A 
mortgage broker will pass this information on to a lender that will 
evaluate the borrower's credit risk using various factors, as described 
below. Consumers can apply to multiple lenders directly or through a 
mortgage broker in order to compare the loans that they are being 
offered. Once he or she has decided to move forward with the loan, the 
applicant notifies the loan originator or lender. An applicant can 
decide to pursue loans at multiple lenders at one time, but could incur 
fees in connection with each application. The loan originator will wait 
to receive notification from the consumer before taking more 
information from the borrower and giving the consumer's application to 
a loan underwriter.
    Mortgage Application Processing. A loan underwriter reviews the 
application and additional information provided by the borrower, and 
verifies certain information in connection with regulatory 
requirements. The

[[Page 79736]]

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, including the loan amount, as 
discussed above, lenders may require borrowers to obtain title 
insurance, homeowner's insurance, private mortgage insurance, and other 
services. The borrower may shop for certain closing services on his or 
her 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 may participate at closing, 
including the borrower, the settlement agent or a notary, and attorneys 
for the borrower, the seller, and the lender.
    The settlement agent ensures that all the closing requirements are 
met, that all closing documents are completed in full, and that all 
fees are collected. 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 and, in some cases, to pay some or all of the 
closing costs, 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.'' 12 U.S.C. 2601(b)(1). In addition to 
providing consumers with appropriate disclosures, the purposes of RESPA 
include, but are not limited to, 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. 12 U.S.C. 2601(b). 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.\72\
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    \72\ Public Law 101-625, 104 Stat. 4079 (1990), sections 941-42.
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    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. 12 U.S.C. 2602(3)(a). 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 . . .'' 12 U.S.C. 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.\73\ 12 U.S.C. 2603. 
The law further requires that the form ``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). Section 5 of RESPA provides for a booklet to help consumers 
applying for federally related mortgage loans to understand the nature 
and costs of real estate settlement services. 12 U.S.C. 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 . . .'' 12 U.S.C. 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-business day period. 
12 U.S.C. 2604(d).
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    \73\ 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).
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    Historically, HUD's Regulation X, 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).\74\ 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 rules regarding the accuracy of the estimates provided 
to consumers. The final rule required redisclosure 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.

[[Page 79737]]

73 FR 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.\75\ HUD issued 
informal guidance regarding the final rule on its Web site, in the form 
of frequently asked questions \76\ (HUD RESPA FAQs) and bulletins \77\ 
(HUD RESPA Roundups).
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    \74\ 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).
    \75\ 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.
    \76\ New RESPA Rule FAQs, available at http://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf.
    \77\ 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.'' 15 U.S.C. 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.'' 15 U.S.C. 1602(g).
    TILA section 128 requires that, for closed-end credit, the 
disclosures generally be made ``before the credit is extended.'' 15 
U.S.C. 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.'' 15 U.S.C. 
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.'' 15 U.S.C. 1638(b)(2)(D).
    Historically, the Board's Regulation Z has implemented TILA. 
Effective July 21, 2011, the Dodd-Frank Act generally transferred 
rulemaking authority for TILA to the Bureau.\78\ See Dodd-Frank Act 
sections 1061 and 1100A.
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    \78\ 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.
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    TILA section 128's requirement that the disclosure statement be 
provided before the credit is extended (final TILA disclosure) is 
implemented in the Bureau's 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).\79\ 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).\80\
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    \79\ 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.
    \80\ 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.
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    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).
    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

[[Page 79738]]

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 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.\81\ 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.\82\
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    \81\ 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.
    \82\ As discussed in the section-by-section 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).
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    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.\83\ 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 added section 129D to 
TILA, 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.
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    \83\ The Board finalized this proposal effective April 1, 2011. 
76 FR 11319 (Mar. 2, 2011).
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    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).
    As noted above, effective July 21, 2011, the Dodd-Frank Act 
generally transferred rulemaking authority for TILA to the Bureau. See 
Dodd-Frank Act sections 1061 and 1100A. 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.

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,\84\ 
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.'' \85\ 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

[[Page 79739]]

same legislation, Congress added 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.\86\
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    \84\ Public Law 104-208, 110 Stat. 3009 (1996).
    \85\ Id., section 2101.
    \86\ Id., section 2102(b).
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    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).\87\ 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.
---------------------------------------------------------------------------

    \87\ 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).\88\ 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.
---------------------------------------------------------------------------

    \88\ 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.'' \89\ 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, as described 
below in part II.E, under sections 1032(f), 1098, and 1100A, mandated 
that the Bureau establish a single disclosure scheme under TILA and 
RESPA and propose for public comment rules and model disclosures that 
integrate the TILA and RESPA disclosures by July 21, 2012. 12 U.S.C. 
2603(a), 5532(f); 15 U.S.C. 1604(b).
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    \89\ 74 FR 43232, 43233.
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    The Bureau issued proposed integrated disclosure forms and rules 
for public comment on July 9, 2012 (the TILA-RESPA Proposal or 
proposal).\90\ The TILA-RESPA Proposal provided for a bifurcated 
comment process. Comments regarding the proposed amendments to Sec.  
1026.1(c) were required to have been received on or before September 7, 
2012. For all other proposed amendments and comments pursuant to the 
Paperwork Reduction Act, comments were required to have been received 
on or before November 6, 2012.\91\ Now, more than 17 years after 
Congress first directed the Board and HUD to integrate the disclosures 
under TILA and RESPA, the Bureau publishes this final rule.
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    \90\ See the Bureau's press release Consumer Financial 
Protection Bureau proposes ``Know Before You Owe'' mortgage forms 
(July 9, 2012), available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-know-before-you-owe-mortgage-forms/; the Bureau's blog post Know Before 
You Owe: Introducing our proposed mortgage disclosure forms (July 9, 
2012), available at http://www.consumerfinance.gov/blog/know-before-you-owe-introducing-our-proposed-mortgage-disclosure-forms/.
    \91\ In its initial Federal Register notice, the Bureau also 
applied the September 7, 2012 deadline to comments on the proposed 
amendments to the definition of finance charge in Sec.  1026.4. On 
August 31, 2012, however, the Bureau issued a notice extending the 
deadline for such comments to November 6, 2012. See the Bureau's 
blog post, More time for comments on proposed changes to the 
definition of the finance charge (Aug. 31, 2012), available at 
http://www.consumerfinance.gov/blog/more-time-for-comments-on-proposed-changes-to-the-definition-of-the-finance-charge/. The 
extension was published in the Federal Register on September 6, 
2012. See 77 FR 54843 (Sept. 6, 2012). It did not change the comment 
period for any other aspects of the TILA-RESPA Proposal, which, as 
noted above, closed on November 6, 2012.
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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 most of 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

[[Page 79740]]

Federal laws found in subtitle H of the Consumer Financial Protection 
Act of 2010.\92\ 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 issued the TILA-
RESPA Proposal pursuant to that mandate and the parallel mandates 
established by the conforming amendments to RESPA and TILA, discussed 
above.
---------------------------------------------------------------------------

    \92\ 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 January 2013, the Bureau issued several other rulemakings 
relating to mortgage credit to implement requirements of the Dodd-Frank 
Act (the Title XIV Rulemakings), and throughout 2013 has issued 
proposed and final rules to amend the rulemakings based on public 
feedback:
    HOEPA: On January 10, 2013, the Bureau issued a final rule 
implementing certain Dodd-Frank Act requirements that expand 
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 (2013 HOEPA Final Rule).\93\ 15 U.S.C. 1602(bb) and 
1639. The rule implements certain Title XIV requirements concerning 
homeownership counseling, including a requirement that lenders provide 
lists of homeownership counselors to applicants for federally related 
mortgage loans, pursuant to RESPA section 5(c), as amended by Dodd-
Frank Act section 1450. 12 U.S.C. 2604(c). On November 8, 2013, the 
Bureau issued a final interpretive rule providing lenders with 
additional instructions on complying with the 2013 HOEPA Final Rule 
requirements.\94\
---------------------------------------------------------------------------

    \93\ 78 FR 6855 (Jan. 31, 2013), finalizing a proposal issued on 
July 9, 2012 (77 FR 54844 (Aug. 15, 2012) (2012 HOEPA Proposal)).
    \94\ Homeownership Counseling Organizations Lists Interpretive 
Rule (Nov. 8, 2013), available at http://files.consumerfinance.gov/f/201311_cfpb_interpretive-rule_homeownership-counseling-organizations-lists.pdf; see also Homeownership Counseling list 
requirements, CFPB Bulletin 2013-13 (Nov. 8, 2013), available at 
http://files.consumerfinance.gov/f/201311_cfpb_bulletin_homeownership-counseling-list-requirements.pdf.
---------------------------------------------------------------------------

    Servicing: On January 17, 2013, the Bureau issued the Real Estate 
Settlement Procedures Act (Regulation X) and Truth in Lending Act 
(Regulation Z) Mortgage Servicing Final Rules (2013 Mortgage Servicing 
Final Rules).\95\ These rules implement Dodd-Frank Act requirements 
regarding force-placed insurance, error resolution, information 
requests, and payment crediting, as well as requirements for mortgage 
loan periodic statements and 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. 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a, 
1639f, and 1639g. These rules establish: (1) Early intervention for 
troubled and delinquent borrowers, and loss mitigation procedures, 
pursuant to the Bureau's authority under section 6 of RESPA, as amended 
by Dodd-Frank Act section 1463; (2) obligations for mortgage servicers 
that the Bureau found to be appropriate to carry out the consumer 
protection purposes of RESPA, as well as its authority under section 
19(a) of RESPA to prescribe rules necessary to achieve the purposes of 
RESPA; and (3) requirements for general servicing standards, policies, 
and procedures and continuity of contact, pursuant to the Bureau's 
authority under section 19(a) of RESPA.
---------------------------------------------------------------------------

    \95\ 78 FR 10901 (Feb. 14, 2013), amending Regulation Z (2013 
TILA Mortgage Servicing Final Rule), and 78 FR 10695 (Feb. 14, 
2013), amending Regulation X (2013 RESPA Mortgage Servicing Final 
Rule). These rules finalized proposals issued on August 20, 2012 (77 
FR 57317 (Sept. 17, 2012), proposing amendments to Regulation Z 
(2012 TILA Mortgage Servicing Proposal) and 77 FR 57200 (Sept. 17, 
2012), proposing amendments to Regulation X (2012 RESPA Mortgage 
Servicing Proposal)).
---------------------------------------------------------------------------

    Loan Originator Compensation: On January 20, 2013, the Bureau 
issued a final rule to implement provisions of the Dodd-Frank Act 
requiring certain creditors and loan originators to meet certain duties 
of care, pursuant to TILA sections 129B and 129C as established by 
Dodd-Frank Act sections 1402, 1403, and 1414(a) (2013 Loan Originator 
Final Rule).\96\ 15 U.S.C. 1639b, 1639c. The rule sets forth certain 
qualification requirements; requires the establishment of certain 
compliance procedures by depository institutions; prohibits loan 
originators, creditors, and their affiliates from receiving 
compensation in various forms and from sources other than the consumer 
(with specified exceptions); and establishes restrictions on mandatory 
arbitration and the financing of single-premium credit insurance. On 
May 29, 2013, the Bureau issued a final rule delaying the effective 
date of a prohibition on creditors financing credit insurance premiums 
in connection with certain consumer credit transactions secured by a 
dwelling from its original effective date of June 1, 2013 to January 
10, 2014.\97\ The delay is meant to permit the Bureau to clarify the 
provision's applicability to transactions other than those in which a 
lump-sum premium is added to the loan amount at closing.
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    \96\ 78 FR 11279 (Feb. 15, 2013), finalizing a proposal issued 
on August 17, 2012 (77 FR 55271 (Sept. 7, 2012) (2012 Loan 
Originator Proposal)).
    \97\ 78 FR 32547 (May 31, 2013), finalizing a proposal to delay 
the effective date of the prohibition issued May 7, 2013 (78 FR 
27308 (May 10, 2013)).
---------------------------------------------------------------------------

    Appraisals: On January 18, 2013, the Bureau, jointly with Federal 
prudential regulators and other Federal agencies (the Agencies), issued 
a final rule to implement Dodd-Frank Act requirements concerning 
appraisals for higher-risk mortgages, pursuant to TILA section 129H as 
established by Dodd-Frank Act section 1471 (2013 Interagency Appraisals 
Final Rule).\98\ 15 U.S.C. 1639h. For mortgages with an annual 
percentage rate that exceeds the average prime offer rate by a 
specified percentage, the final rule requires creditors to obtain an 
appraisal or appraisals meeting certain specified standards, provide 
applicants with a notification regarding the use of the appraisals, and 
give applicants a copy of the written appraisals used. On July 10, 
2013, the Agencies issued a proposal to amend the final rule to provide 
exemptions for: (1) Transactions secured by existing manufactured homes 
and not land; (2) certain ``streamlined'' refinancings; and (3) 
transactions of $25,000 or less.\99\
---------------------------------------------------------------------------

    \98\ 78 FR 10637 (Feb. 13, 2013), finalizing a proposal issued 
on September 5, 2012 (77 FR 54721 (Sept. 9, 2012) (2012 Interagency 
Appraisals Proposal)).
    \99\ 78 FR 48548 (Aug. 8, 2013).
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    On the same day it issued the 2013 Interagency Appraisal Final 
Rule, the Bureau issued a final rule to implement section 701(e) of the 
Equal Credit Opportunity Act (ECOA), as amended

[[Page 79741]]

by Dodd-Frank Act section 1474 (2013 ECOA Appraisals Final Rule). 15 
U.S.C. 1691(e). That rule requires 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 and notify applicants in writing that copies of appraisals 
will be provided to them promptly.
    Ability to Repay: On January 10, 2013, the Bureau finalized a 
proposal issued by the Board to implement provisions of the Dodd-Frank 
Act (1) requiring creditors to determine that a consumer has a 
reasonable ability to repay covered mortgage loans and establishing 
standards for compliance, and (2) establishing certain limitations on 
prepayment penalties, pursuant to TILA sections 129C as established by 
Dodd-Frank Act sections 1411, 1412, and 1414 (2013 ATR Final 
Rule).\100\ 15 U.S.C. 1639c. Concurrent with the issuance of the 2013 
ATR Final Rule, the Bureau issued a concurrent proposed rule amending 
certain aspects of the 2013 ATR Final Rule (2013 ATR Concurrent 
Proposal), which proposal was finalized on May 29, 2013 (May 2013 ATR 
Final Rule).\101\ That rule provides exemptions for certain nonprofit 
creditors and certain homeownership stabilization programs, provides an 
additional definition of a ``qualified mortgage'' for certain loans 
made and held in portfolio by small creditors, and modifies the 
requirements regarding the inclusion of loan originator compensation in 
the points and fees calculation.
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    \100\ 78 FR 6407 (Jan. 30, 2013), finalizing a proposal issued 
by the Board on May 11, 2011 (76 FR 27389 (May 11, 2011) (2011 Board 
Ability to Repay Proposal)).
    \101\ 78 FR 35429 (Jun. 12, 2013), finalizing the concurrent 
proposal issued on January 10, 2013 (78 FR 6622 (Jan. 30, 2013)).
---------------------------------------------------------------------------

    Escrows: On January 10, 2013, the Bureau finalized a proposal 
issued by the Board to implement provisions of the Dodd-Frank Act that 
require escrow accounts to be established for higher-priced mortgage 
loans and to create an exemption for certain loans held by creditors 
operating predominantly in rural or underserved areas, pursuant to TILA 
section 129D as established by Dodd-Frank Act section 1461 (2013 
Escrows Final Rule).\102\ 15 U.S.C. 1639d. On April 18, 2013, the 
Bureau published a proposal setting forth certain clarifying and 
technical amendments to the 2013 Escrows Final Rule, including a 
clarification of how to determine whether a county is considered 
``rural'' or ``underserved.'' \103\ The final rule was published on May 
23, 2013.\104\
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    \102\ 78 FR 4726 (Jan. 22, 2013), finalizing a proposal issued 
by the Board on March 2, 2011 (76 FR 11597 (Mar. 2, 2011)).
    \103\ 78 FR 23171 (Apr. 18, 2013).
    \104\ 78 FR 30739 (May 23, 2013).
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    In addition to the foregoing, the Bureau proposed and finalized 
three additional sets of amendments to the Title XIV Rulemakings. The 
first set of amendments, proposed in April 2013 and published on July 
24, 2013, clarify, correct, or amend provisions on the relation to 
State law of Regulation X's servicing provisions; implementation dates 
for adjustable rate mortgage servicing; exclusions from requirements on 
higher-priced mortgage loans; the small servicer exemption from certain 
servicing rules; the use of government-sponsored enterprise and Federal 
agency purchase, guarantee or insurance eligibility for determining 
qualified mortgage status; and the determination of debt and income for 
purposes of originating qualified mortgages.\105\
---------------------------------------------------------------------------

    \105\ 78 FR 44685 (July 24, 2013), finalizing a proposal issued 
on April 19, 2013 (78 FR 25638 (May 2, 2013)).
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    The second set of amendments, proposed on June 21, 2013, was 
published on October 1, 2013.\106\ These amendments focus primarily on 
clarifying, revising, or amending provisions on loss mitigation 
procedures under Regulation X's servicing provisions; amounts counted 
as loan originator compensation to retailers of manufactured homes and 
their employees for purposes of applying points and fees thresholds 
under the Home Ownership and Equity Protection Act and the Ability-to-
Repay rules in Regulation Z; exemptions available to creditors that 
operate predominantly in ``rural or underserved'' areas for various 
purposes under the mortgage regulations; application of the loan 
originator compensation rules to bank tellers and similar staff; and 
the prohibition on creditor-financed credit insurance. The amendments 
also adjusted the effective dates for certain provisions of the loan 
originator compensation rules, and incorporated technical and wording 
changes for clarification purposes to Regulations B, X, and Z.
---------------------------------------------------------------------------

    \106\ 78 FR 60382 (Oct. 1, 2013); 78 FR 39902 (Jul. 2, 2013).
---------------------------------------------------------------------------

    The third set of amendments was published on October 23, 2013.\107\ 
These amendments focus primarily on clarifying the specific disclosures 
that must be provided before counseling for high-cost mortgages can 
occur, and proper compliance regarding servicing requirements when a 
consumer is in bankruptcy or sends a cease communication request under 
the Fair Debt Collection Practices Act. The rule also makes technical 
corrections to provisions of the other Title XIV Rulemakings.
---------------------------------------------------------------------------

    \107\ 78 FR 62993 (Oct. 23, 2013).
---------------------------------------------------------------------------

    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 has carefully coordinated the 
development and implementation of the proposals and final rules 
identified above in an effort to facilitate compliance. As an example, 
in developing the TILA-RESPA Proposal and Final Rule, the Bureau took 
care to ensure common terms, such as ``prepayment penalty'' and 
``balloon payment'' are defined consistent with the Title XIV 
Rulemakings, as described in more detail below. In addition, each 
rulemaking includes regulatory provisions to implement the various 
Dodd-Frank Act mandates and 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.

III. Summary of the Rulemaking Process

    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; 12 U.S.C. 2603(a), 15 U.S.C. 1604(b). 
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 authority 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

[[Page 79742]]

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. For 
example, as part of this outreach, in December 2010, the Bureau held a 
mortgage disclosure symposium that brought together consumer advocacy 
groups, industry representatives, marketing professionals, designers, 
and other interested parties to discuss various possible concepts and 
approaches for integrating the 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 similar 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.\108\ Also, HUD contracted with Kleimann to assist 
in the design and consumer testing for its revised RESPA GFE and RESPA 
settlement statement forms.\109\
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    \108\ 72 FR 14940, 14944 (Mar. 29, 2007); 74 FR 62890, 62893 
(Dec. 1, 2009).
    \109\ 73 FR 14030, 14043 (Mar. 14, 2008); 73 FR 68204, 68265 
(Nov. 17, 2008).
---------------------------------------------------------------------------

    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.\110\ 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.\111\ 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.\112\ 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.\113\ 
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 caused many problems with the 
process.\114\
---------------------------------------------------------------------------

    \110\ 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).
    \111\ 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).
    \112\ 74 FR 43232, 43234.
    \113\ See Macro 2009 Closed-End Report at 19. For additional 
discussion regarding information overload, see the section-by-
section analysis of proposed Sec.  1026.37(l).
    \114\ 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.\115\ According 
to the Senate Committee on Banking, Housing and Urban Affairs, this 
legislation arose in part because:
---------------------------------------------------------------------------

    \115\ 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.\116\
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    \116\ 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 seeking, 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 required under applicable law, such 
as the Special Information Booklet required by section 5 of RESPA, 
through other means. In addition, the Bureau anticipated 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

[[Page 79743]]

would obviate the need to place educational material directly on the 
disclosures.
    The Bureau believed and continues to believe that 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. With such a design, the first page could potentially be 
used by some consumers as a one-page mortgage shopping sheet. 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 disclosure 
to be provided in connection with a consumer's application integrating 
the RESPA GFE and the early TILA disclosure (the Loan Estimate). The 
Bureau planned to develop the disclosure provided in connection with 
the closing of the mortgage loan that integrates the RESPA settlement 
statement and the final TILA disclosure (the Closing Disclosure) after 
development and testing of the prototype design for the Loan Estimate. 
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 
companies and mortgage brokers) and, for the Closing Disclosure, 
settlement agents.

B. Pre-Proposal 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 were 
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).\117\ 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.
---------------------------------------------------------------------------

    \117\ 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 additional public feedback on the prototype disclosure 
forms.\118\ 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/or 
identifying additional information that should be included.\119\
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    \118\ See http://www.consumerfinance.gov/knowbeforeyouowe/.
    \119\ 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, 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 the 
supplemental feedback received through the KBYO process, the Bureau 
would revise the prototype disclosure forms for the subsequent rounds 
of testing. This iterative process helped the Bureau develop forms that 
better enable consumers to understand and compare mortgage loans and 
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 posted on its Web site and on Regulations.gov 
in connection with the TILA-RESPA Proposal.\120\
---------------------------------------------------------------------------

    \120\ 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. 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

[[Page 79744]]

the supplemental 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. Proposal Stakeholder Outreach

    While developing the proposed forms and rules to integrate the 
disclosures, and throughout its 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 final 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, in response to the Bureau's posting of the 
prototype integrated disclosures on the KBYO Web site, 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 the TILA-RESPA Proposal, the Bureau also considered 
comments provided in response to its December 2011 request for 
information 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 
RFI). That request for information 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 proposed to do so in 
the TILA-RESPA Proposal. In addition, other relevant comments received 
in response to the 2011 Streamlining RFI were addressed in the TILA-
RESPA Proposal and 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).\121\ 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.\122\ 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.\123\ The Bureau considered 
these findings and recommendations in preparing the TILA-RESPA Proposal 
and addressed certain specific examples in the proposal, as well as 
below in this final rule.
---------------------------------------------------------------------------

    \121\ 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 Public 
Law 110-28, sec. 8302 (2007)).
    \122\ Available at http://www.consumerfinance.gov/blog/sbrefa-small-providers-and-mortgage-disclosure/.
    \123\ 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 industry 
representatives regarding the Small Business Review Panel Outline. The 
Bureau considered feedback provided by roundtable participants in 
preparing the proposal.

E. The Bureau's Proposal

    As described above in part II.D, in July 2012, the Bureau proposed 
for public comment a rule amending Regulation Z to implement sections 
1032(f), 1098, and 1100A of the Dodd-Frank Act, which direct the Bureau 
to combine the mortgage disclosures required under TILA and RESPA. See 
77 FR 51116 (August 23, 2012). Consistent with those provisions, the 
proposed rule would have applied to most closed-end consumer mortgages. 
The proposed rule would not have applied 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. The proposed rule 
also would not have applied to loans made by a creditor who makes five 
or fewer mortgages in a year. In addition, the proposed rule would have 
amended portions of Regulation X, for consistency with the proposed 
amendments to Regulation Z.
    As discussed above, to accomplish the Dodd-Frank Act's mandate to 
combine the disclosures required under TILA and RESPA, the Bureau 
engaged in extensive consumer and industry research and public outreach 
for more than a year. Based on that input, the Bureau proposed a rule 
with new, combined forms. The proposed rule also would have provided a 
detailed explanation of how the forms should be filled out and used. In 
developing the proposed forms, the Bureau reconciled the differences 
between the existing forms and combined several other mandated 
disclosures.

[[Page 79745]]

    The first proposed form (the Loan Estimate) was designed to provide 
disclosures that would be helpful to consumers in understanding the key 
features, costs, and risks of the mortgage for which they are applying. 
This form would have been provided to consumers within three business 
days after they submit a loan application. The Loan Estimate would have 
replaced two current Federal forms: the RESPA GFE and the early TILA 
disclosure. The proposed rule and commentary would have contained 
detailed instructions as to how each line on the Loan Estimate would be 
completed, and also would have contained sample forms for different 
types of loan products. In addition, the Loan Estimate would have 
incorporated new disclosures required under the Dodd-Frank Act. Under 
the proposed rule, the creditor would have been permitted to rely on a 
mortgage broker to provide the Loan Estimate, but the creditor also 
would have remained responsible for the accuracy of the form. The 
creditor or broker would have been required to give the form to the 
consumer within three business days after the consumer applies for a 
mortgage loan, and the proposed rule would have contained a specific 
definition of what constitutes an ``application'' for these purposes. 
The proposed rule would have permitted creditors and brokers to provide 
consumers with written estimates prior to application, but would have 
required that any such written estimates contain a disclaimer to 
prevent confusion with the Loan Estimate.
    The second proposed form (the Closing Disclosure) was designed to 
provide disclosures that would be helpful to consumers in understanding 
all of the costs of the transaction. This form would have been provided 
to consumers three business days before they close on the loan. The 
form would have used 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 form also would have 
provided 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. The proposed Closing 
Disclosure would have replaced the RESPA settlement statement and the 
corrected TILA disclosure. The proposed rule and commentary would have 
contained detailed instructions as to how each line on the Closing 
Disclosure would be completed. In addition, the Closing Disclosure 
would have contained additional new disclosures required by the Dodd-
Frank Act and a detailed accounting of the settlement transaction.
    Under the proposed rule, the creditor would have been required to 
give consumers the Closing Disclosure at least three business days 
before the consumer closes on the loan. Generally, if changes occurred 
between the time the Closing Disclosure is given and the closing, the 
consumer would have been provided a new form and also would have been 
given three additional business days to review that form before 
closing. However, the proposed rule would have contained an exception 
from the three-business-day requirement for some common changes, such 
as changes resulting from negotiations between buyer and seller after 
the final walk-through and for minor changes which result in less than 
$100 in increased costs. The Bureau proposed two alternatives for who 
would be required to provide consumers with the Closing Disclosure. 
Under the first option, the creditor would have been responsible for 
delivering the Closing Disclosure form to the consumer. Under the 
second option, the creditor would have been able to rely on the 
settlement agent to provide the form. However, under the second option, 
the creditor also would have remained responsible for the accuracy of 
the form.
    Similar to existing law, the proposed rule would have restricted 
the circumstances in which consumers can be required to pay more for 
settlement services than the amount stated on their Loan Estimate. 
Unless an exception applies, charges for the following services would 
not have been permitted to increase: (1) The creditor's or mortgage 
broker's charges for its own services; (2) charges for services 
provided by an affiliate of the creditor or mortgage broker; and (3) 
charges for services for which the creditor or mortgage broker does not 
permit the consumer to shop. Also unless an exception applies, charges 
for other services generally would not have been permitted to increase 
by more than 10 percent. The proposed rule would have provided 
exceptions, for example, when: (1) The consumer asks for a change; (2) 
the consumer chooses a service provider that was not identified by the 
creditor; (3) information provided at application was inaccurate or 
becomes inaccurate; or (4) the Loan Estimate expires. When an exception 
applies, the creditor generally would have been required to provide an 
updated Loan Estimate within three business days.
    In addition to proposing rules and model forms for the Loan 
Estimate and Closing Disclosure, the proposed rule would have redefined 
the way the Annual Percentage Rate or ``APR'' is calculated and would 
have required creditors to keep records of compliance, including 
records of compliance with the requirements to provide the Loan 
Estimate and Closing Disclosure to consumers in an electronic, machine 
readable format.

F. Feedback Provided to the Bureau

    The Bureau received over 2,800 comments on the TILA-RESPA proposal 
during the comment period from, among others, consumer advocacy groups; 
national, State, and regional industry trade associations; banks; 
community banks; credit unions; financial companies; mortgage brokers; 
title insurance underwriters; title insurance agents and companies; 
settlement agents; escrow agents; law firms; document software 
companies; loan origination software companies; appraisal management 
companies; appraisers; State housing finance authorities, counseling 
associations, and intermediaries; State attorneys general; associations 
of State financial services regulators; State bar associations; 
government sponsored enterprises (GSEs); a member of the U.S. Congress; 
the Committee on Small Business of the U.S. House of Representatives; 
Federal agencies, including the staff of the Bureau of Consumer 
Protection, the Bureau of Economics, and the Office of Policy Planning 
of the Federal Trade Commission (FTC staff), and the Office of Advocacy 
of the Small Business Administration (SBA); and individual consumers 
and academics. In addition, the Bureau also considered other 
information on the record.\124\ Materials on the record are publicly 
available at http://www.regulations.gov. This information is discussed 
below in this part, the section-by-section analysis, and subsequent 
parts of this notice, as applicable.
---------------------------------------------------------------------------

    \124\ The Bureau's policy regarding ex parte communications can 
be found at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------

    As discussed in further detail below, the Bureau sought comment in 
its 2012 HOEPA Proposal on whether to adopt certain adjustments or 
mitigating measures in its HOEPA implementing regulations if it were to 
adopt a broader definition of ``finance charge'' under Regulation Z, as 
proposed in the TILA-RESPA Proposal. Subsequently, the Bureau published 
a notice in the Federal Register making clear that it would defer its 
decision on whether to adopt the more inclusive finance charge

[[Page 79746]]

proposal, and therefore any implementation thereof, until it finalized 
the TILA-RESPA Proposal. 77 FR 54843 (Sept. 6, 2012). Accordingly, the 
Bureau's 2013 HOEPA Final Rule deferred discussion of comments to the 
2012 HOEPA Proposal addressing proposed mitigating measures to account 
for a more inclusive finance charge under HOEPA. In addition, the 
Bureau deferred discussion of comments received regarding a more 
inclusive finance charge definition and potential mitigating measures 
in connection with the proposals finalized by the 2013 ATR Final Rule, 
the 2013 Escrows Final Rule, and the 2013 Interagency Appraisals Final 
Rule, which also would have been affected by a broader definition of 
the finance charge. Comments regarding such potential mitigating 
measures and the Bureau's proposal of a more inclusive definition of 
the finance charge are addressed collectively in the section-by-section 
analysis of Sec.  1026.4, below.
    The Bureau has considered the comments and ex parte communications 
and has decided to modify the proposal in certain respects and adopt 
the final rule as described below in the section-by-section analysis.

G. Post-Proposal Consumer Testing

    While developing the proposed integrated disclosures, the Bureau 
received feedback from stakeholders regarding additional testing they 
believed would be necessary for the integrated disclosures. For 
example, during the Small Business Review Panel, several small business 
representatives recommended that the Bureau explore the feasibility of 
conducting testing of the integrated disclosures on actual loans before 
issuing a final rule. See Small Business Review Panel Report at 28. In 
addition, several comments to the proposal suggested that the Bureau 
conduct additional testing of the integrated disclosures on actual 
loans in the marketplace. Based on this feedback and public comments 
and consistent with the Small Business Review Panel's recommendation, 
the Bureau has considered what additional testing would be appropriate, 
including the feasibility of testing the integrated disclosures on 
actual loans.
    The Bureau determined that testing the integrated disclosures on 
actual loans would not be feasible in the course of this rulemaking, 
nor would it provide the Bureau with significantly better information 
compared to the information that would be obtained from qualitative and 
quantitative consumer testing of the integrated disclosures. The length 
of time that would be necessary to develop and conduct such a study 
would be extensive. To conduct such a study involving actual loans in 
the marketplace, the Bureau would need to: develop the methodology of 
such a study; submit the methodology and any additional information 
necessary to OMB to obtain prior approval to conduct the study under 
the Paperwork Reduction Act; recruit and identify industry stakeholders 
in the lending, title insurance, and settlement industries willing to 
participate in such a study; assist such industry participants in 
developing unique systems to produce disclosures in conformity with the 
TILA-RESPA Proposal; provide sufficient legal protections to such 
industry participants involved in the study; and collect data from such 
transactions throughout the application through closing stages, which 
period of time can last 90 days in many cases. Also, the Bureau had not 
yet finalized a policy under section 1032(e) of the Dodd-Frank Act 
during the course of finalizing the proposal, which would set forth 
standards and safeguards for conducting such a program and providing 
waivers from Federal disclosure requirements, and thus, formal 
processes for such a study were not in place.\125\ In addition, in a 
controlled setting in a testing facility, the Bureau was able to 
conduct a study with a large number of participants (858 participants) 
in a short period of time (fielded in approximately two months), with a 
control group using the current disclosures, under which participants 
in both groups were exposed to the same loans, environment, and minimal 
level of distractions. The Bureau believes such a controlled setting 
has enabled the Bureau to obtain data that isolates the performance 
differences between the current and integrated disclosures. In 
addition, the Bureau believes that commenters and industry stakeholders 
suggesting that the Bureau should conduct consumer testing in actual 
loans in the marketplace are, in part, interested in such testing 
because of its ability to identify compliance issues with the proposed 
rule and disclosures. The Bureau believes such compliance issues have 
been identified through other means, such as through its analysis of 
the public comments received, review of past disclosure rulemakings 
(including HUD's 2008 RESPA Final Rule), and extensive outreach prior 
to issuing the proposal.
---------------------------------------------------------------------------

    \125\ See 78 FR 14030 (Oct. 29, 2013) (finalizing Policy to 
Encourage Trial Disclosure Programs under section 1032(e) of the 
Dodd-Frank Act); 77 FR 74625 (Dec. 17, 2012) (seeking comment on a 
proposed ``Policy to Encourage Trial Disclosure Programs'' under 
section 1032(e) of the Dodd-Frank Act); see also 78 FR 36532 (June 
18, 2013) (seeking comment under the Paperwork Reduction Act on the 
proposed policy).
---------------------------------------------------------------------------

    However, as described further below, the Bureau has conducted 
additional qualitative testing of certain revisions the Bureau made to 
the integrated disclosures based on public comments, as well as of 
Spanish translations of the integrated disclosures and modified 
versions of the integrated disclosures for transactions without sellers 
(in particular, refinance transactions). The Bureau has also conducted 
a large scale quantitative test of the integrated disclosures to 
confirm that they aid consumers' understanding of mortgage transactions 
and evaluate the performance of the integrated disclosures against the 
current RESPA GFE, RESPA settlement statement, and early and final TILA 
disclosures. The Bureau again contracted with Kleimann (the research 
firm with which the Bureau originally contracted to assist with the 
development of the integrated disclosures and to conduct the pre-
proposal qualitative testing) to conduct this post-proposal testing. 
This qualitative testing after issuance of the proposal utilized 
identical methodology as the pre-proposal qualitative testing, except 
that the testing did not include industry participants because of the 
targeted focus of the testing on consumer understanding of particular 
aspects of the integrated disclosures.
Spanish Language Testing
    There are many consumers in the U.S. for whom English is not their 
primary language.\126\ Spanish speakers make up approximately 62 
percent of the people in the United States that speak a language other 
than English in their homes.\127\ During the early stages of the 
development of the proposed integrated disclosures, the Bureau received 
informal feedback requesting that the Bureau develop Spanish language 
versions of the integrated disclosures. Accordingly, as described in 
the TILA-RESPA Proposal, the Bureau's consumer testing included two 
rounds of testing with Spanish-speaking consumers of Spanish-language 
prototype integrated disclosures to determine whether co-development of 
a non-English version of

[[Page 79747]]

the integrated disclosures would be beneficial to consumers. The Bureau 
wanted to determine whether there were any structural issues in the 
prototype designs that could cause differences in performance for 
speakers of Spanish.
---------------------------------------------------------------------------

    \126\ 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. 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.
    \127\ Id.
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    After two rounds of consumer testing in Spanish, the Bureau 
determined that co-development of a separate Spanish 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. The 
Bureau also believed that the differences in language would not 
necessitate changes to the design of the disclosure given that the 
Bureau intentionally pursued a more graphic than textual design for the 
Loan Estimate, which used as few words as possible. However, the Bureau 
was still interested in developing Spanish language versions of the 
integrated disclosures, as it believed consumers who speak only Spanish 
or speak a limited amount of English would benefit from improved 
understanding of their mortgage transactions. While the proposed rule 
only included English-language disclosure sample forms, it would have 
permitted the translation of these forms. In addition, the Bureau 
stated in the proposal that it planned to review issues concerning 
translations of the integrated disclosures after the proposal and 
solicited comment on whether the final rule should include sample 
Spanish-language or other non-English language forms.
    The Bureau received several comments requesting that the Bureau 
publish disclosures in Spanish or other non-English languages, and 
pursue additional consumer testing of Spanish translations of the 
integrated disclosures. These comments came from an individual loan 
officer, several industry trade associations, a national title 
insurance company, and a consumer advocacy group. The individual loan 
officer commenter, who worked at a non-depository lender, generally 
praised the proposed integrated disclosures, but inquired if non-
English forms would be made available. The commenter suggested that 
many non-English speaking consumers were subject to deceptive practices 
because they could not read the English language disclosures. The 
consumer advocacy group commenter strongly urged the Bureau to publish 
Spanish translations of the integrated disclosures, as well as 
translations in other languages spoken in the U.S., such as Chinese, 
Korean, Russian, and Vietnamese. An industry trade association 
representing banks stated that it would be very useful for the Bureau 
to provide Spanish or other non-English translations of the integrated 
disclosures so that banks could use them when loan transactions occur 
in other languages. The commenter also encouraged the Bureau to test 
these translations to monitor their effectiveness. Several industry 
trade associations representing banks and mortgage lenders stated that 
it would greatly facilitate creditors providing disclosures in 
languages other than English if the Bureau translated the integrated 
disclosures into all major languages. The commenters stated that it 
would be more efficient for the Bureau to translate the disclosures, 
rather than creditors separately translating them, and noted that the 
Bureau could then assure itself that such translations were accurate.
    A national title insurance company stated that providing a blank 
non-English disclosure form would be useful if consumers that speak 
other languages could request it in addition to the English language 
disclosure required under the regulation, because they could compare it 
to the completed Loan Estimate or Closing Disclosure received in 
English. However, the commenter stated that requiring creditors or 
settlement agents to maintain a supply of forms in non-English 
languages would be unduly burdensome with little benefit to the 
consumer, especially for small entities.
    The Bureau contracted with Kleimann to translate the Loan Estimate 
and Closing Disclosure into Spanish, adjust the designs as necessary to 
accommodate any additional space required for the translated text, and 
qualitatively test the translations with Spanish-speaking consumers.
    The Bureau conducted four rounds of testing in Spanish in October 
2012, November 2012, December 2012, and July 2013 in Arlington, 
Virginia; Phoenix, Arizona; Miami, Florida; and Baltimore, Maryland, 
respectively. This post-proposal Spanish qualitative testing included 
29 consumers in total. The first three rounds of Spanish qualitative 
consumer testing used Spanish translations of the integrated disclosure 
substantially as proposed, with modifications to the design to 
accommodate the additional space necessary for the Spanish language 
text and to revise the order of certain disclosures so that they remain 
in alphabetical order, as on the English language versions of the 
integrated disclosures.\128\ The fourth round used prototype integrated 
disclosures that included the potential modifications to the integrated 
disclosures the Bureau was considering based on the public comments to 
the proposed rule, including the modifications to the disclosures 
permitted in this final rule for transactions without sellers, as 
described in the section-by-section analysis below.
---------------------------------------------------------------------------

    \128\ The modifications to the design to accommodate the 
additional space necessary for the Spanish language text 
necessitated the use of a sixth page for the Spanish language 
version of the Closing Disclosure.
---------------------------------------------------------------------------

    The Spanish language qualitative testing focused on translation 
issues, with a particular focus on terms that when directly translated 
into Spanish do not convey the same meaning as in English, such as the 
term ``balloon payment.'' The Bureau conducted this testing to ensure 
that the Spanish translations would be effective for consumers that 
speak different dialects of Spanish used throughout the country. As 
described below in the section-by-section analyses of Sec.  1026.37(o) 
and appendix H to Regulation Z, the Bureau is adopting Spanish language 
samples of the integrated disclosures in this final rule, which are 
based on this Spanish language qualitative testing. For a detailed 
discussion of this testing, see the report prepared by Kleimann, Post-
Proposal Testing of the Spanish and Refinance Integrated TILA-RESPA 
Disclosures (Kleimann Post-Proposal Testing Report), which the Bureau 
is releasing on its Web site in connection with this final rule.\129\
---------------------------------------------------------------------------

    \129\ Kleimann Communication Group, Inc., Post-Proposal Testing 
of the Spanish and Refinance Integrated TILA-RESPA Disclosures 
(November 2013), available at http://files.consumerfinance.gov/f/201311_cfpb_report_tila-respa_testing-spanish-refinancing.pdf.
---------------------------------------------------------------------------

    In addition, as discussed in the section-by-section analysis of 
appendix H to Regulation Z below, the Bureau is adopting Spanish 
language versions of some of the English language versions of the Loan 
Estimates and Closing Disclosures in forms H-24 and H-25 of appendix H, 
which are based on the Bureau's consumer testing. Regarding the 
national title insurance company commenter's concerns regarding the 
burden associated with a requirement to use non-English language 
disclosures, the Bureau is not requiring in this final rule that 
creditors use non-English language versions of the integrated 
disclosures. The final rule permits creditors to translate the 
disclosures into other languages, as discussed in the section-by-
section analysis of Sec. Sec.  1026.37(o) and 1026.38(t). The Bureau 
believes, as suggested by other

[[Page 79748]]

comments, that including in the final rule versions of the integrated 
disclosures in Spanish that the Bureau has tested with consumers will 
assist industry in communicating with Spanish-speaking consumers, and 
facilitate industry compliance with any applicable State laws requiring 
the use of non-English versions of the integrated disclosures.
Quantitative Study
    In the TILA-RESPA Proposal, the Bureau stated that it may conduct 
quantitative testing of the integrated disclosures to confirm that the 
forms aid consumers' understanding of mortgage transactions, if it 
determined such testing to be appropriate. The Bureau understood from 
its work with Kleimann that validation testing, in the form of a 
quantitative study, can be an important phase of the user-centered 
design process. A quantitative test would supplement the Bureau's pre-
proposal qualitative data and validate the results of the Bureau's 
qualitative consumer testing conducted before issuance of the proposal, 
by providing the Bureau with statistical data and evidence about the 
performance of the integrated disclosures. However, generally, these 
studies cannot occur until the disclosure design to be tested has been 
determined, and thus, the Bureau delayed conducting such testing until 
after the proposed rule was issued and it had received public comment 
on the proposed designs. Accordingly, the Bureau determined to 
investigate whether such a study would be appropriate after issuance of 
the proposed rule.
    The Bureau also received several comments to the TILA-RESPA 
Proposal regarding the benefits of conducting a quantitative test of 
the integrated disclosures. The FTC staff commended the Bureau's 
qualitative testing; however, they also highlighted the benefits of 
quantitative testing, stating that such testing would allow the Bureau 
to confirm that the integrated disclosures do, in fact, aid consumer 
understanding. The FTC staff encouraged the Bureau to conduct a 
quantitative test with two key elements: (1) A focus on the actual 
performance of the disclosures, rather than consumers' preferences; and 
(2) a control group in the study using the current disclosure forms, to 
isolate and measure the impact of the integrated disclosures. The FTC 
staff noted that the integrated disclosures may contain more 
information than what is included on the current disclosures, but still 
encouraged the Bureau to conduct such a study to compare the 
information that was the same between the disclosures. A State attorney 
general supported the use of quantitative testing and stated that it 
concurred with the FTC staff's comment letter.
    A State association of financial services regulators commented that 
further quantitative testing of consumer comprehension would be a 
helpful exercise and give the Bureau a more precise idea as to how many 
consumers properly understand mortgage terms, costs and differences 
across products. The commenter suggested that the Bureau's consumer 
testing should be supplemented by more quantitative data and controlled 
testing of comprehension, and that, without statistically sound 
quantitative evaluation, understanding the effect of the integrated 
disclosures would be imprecise.
    The Bureau also solicited comments on conducting such quantitative 
testing under the Paperwork Reduction Act, as it would be an 
information collection requiring the approval of OMB under that 
statute. See 44 U.S.C. 3506(c)(2)(A). In March 2012, the Bureau 
published a notice in the Federal Register soliciting comment for 60 
days, to obtain comments prior to the Bureau's planning the 
quantitative testing. 77 FR 18793 (Mar. 28, 2012). The Bureau did not 
receive any comments in response to that notice. In February 2013, the 
Bureau also published a subsequent notice to solicit comment on the 
Bureau's proposed quantitative testing under the Paperwork Reduction 
Act, which was open for 30 days. 78 FR 8113 (Feb. 5, 2013). In response 
to that notice, the Bureau received six comments from national and 
State industry trade associations. The Bureau addressed those comments 
in the Supporting Statement it submitted to OMB to obtain that agency's 
approval to conduct the quantitative testing under the Paperwork 
Reduction Act. On March 26, 2013, the Bureau received OMB's approval to 
conduct the quantitative testing, which was assigned OMB control number 
3170-0033.
    The Bureau contracted with Kleimann to conduct the quantitative 
test of the integrated disclosures to confirm that the disclosures aid 
consumers' understanding of mortgage transactions and evaluate the 
performance of the forms against the current RESPA GFE, RESPA 
settlement statement, and early and final TILA disclosures (the 
Quantitative Study). The Quantitative Study's goal was to confirm that 
the Bureau's integrated disclosures (the Loan Estimate and the Closing 
Disclosure) aided consumers in understanding mortgage loan 
transactions, including enabling consumers to identify and compare loan 
terms and costs, choose between loans, and identify and compare changes 
between estimated and final amounts. In addition, the goal of the 
baseline test was to confirm that the integrated disclosures perform 
better on those measures than the current disclosures.
    The Quantitative Study design consisted of a sample of 858 consumer 
participants, and a 2 by 2 by 2 by 2 between-subjects experimental 
design. The study factors, or independent variables, included the 
following: (1) Form type (current or integrated disclosures); (2) loan 
type (fixed or adjustable rate loans); (3) difficulty type (relatively 
easier or more challenging loans); and (4) consumer type (experienced 
or inexperienced with mortgage loans). The study consisted of a 60-
minute session in which consumer participants answered questions on a 
written questionnaire about different loan transactions that were 
presented to them. As this was a between-subjects design, consumer 
participants only used either the current or integrated disclosures to 
enable the Bureau to better evaluate the performance differences 
between the two form types. The Bureau conducted the study in 20 
locations across the country (specifically, the continental United 
States), which covered the four Census regions and the Census sub-
regions and included participants from urban, suburban, and rural 
areas. To qualify for the main survey, participants had to be age 18 
years or older, live in a household within 50 miles of the location 
used for the study, have purchased or refinanced a home in the last 
five years or have plans to purchase or refinance in the next two 
years, and agree to participate in the in-person testing session.
    The Quantitative Study used an analysis that examined the accuracy 
of participant responses to the questions in the study for the current 
and the integrated disclosures. This analysis is similar to the 
analysis reported by the FTC staff in a 2007 study evaluating prototype 
mortgage disclosures in comparison to then-current TILA and REPSA 
disclosures.\130\ The Quantitative Study concluded that the proposed 
integrated disclosures, with the minor modifications made in response 
to

[[Page 79749]]

public comments,\131\ performed better than the current disclosures 
based on aggregate measures of the data. That data showed a 
statistically significant performance advantage of around 16 percentage 
points for the proposed disclosures that was consistent across the 
variables of the study: experienced as well as inexperienced consumers, 
relatively easier as well as more challenging loans, and fixed rate as 
well as adjustable rate loans. The integrated disclosures performed 
better than the current disclosures with respect to specific tasks in 
the study as well. The integrated disclosures showed a performance 
advantage of about 24 percentage points for comparing two loans using 
the application disclosures; about 10 percentage points for 
understanding one loan using the application disclosures; about 17 
percentage points for comparing the application and closing 
disclosures; and about 29 percentage points for understanding the final 
loan terms and costs using the closing disclosures. In addition to 
measuring the accuracy of responses to questions about particular 
loans, participants in the Quantitative Study were asked to select 
between two loans using the application disclosures (either early TILA 
disclosures and RESPA GFEs or Loan Estimates), and then asked in an 
open-ended question to provide reasons for their selection. In response 
to the open-ended question, participants using the integrated 
disclosures on average provided a greater total number of reasons for 
their selection of a particular loan, which difference was 
statistically significant and consistent across the variables of the 
study. This result suggests that participants using the integrated 
disclosures were able to articulate and explain more reasons for their 
choice. For a detailed discussion of this testing, see the report 
prepared by Kleimann, Quantitative Study of the Current and Integrated 
TILA-RESPA Disclosures (Kleimann Quantitative Study Report), which the 
Bureau is releasing on its Web site in connection with this final 
rule.\132\
---------------------------------------------------------------------------

    \130\ James Lacko and Janis Pappalardo, Improving Consumer 
Mortgage Disclosures: An Empirical Assessment of Current and 
Prototype Disclosure Forms, Federal Trade Commission, p. 53 (June 
2007), available at http://www.ftc.gov/os/2007/06/P025505MortgageDisclosureReport.pdf.
    \131\ Prior to conducting the Quantitative Study, the Bureau 
made modifications to the proposed integrated disclosures in 
response to public comments to increase consistency within and 
between the Loan Estimate and Closing Disclosure. The Bureau 
revised: The Assumption disclosures under Sec. Sec.  1026.37(m) and 
1026.38(l) so that the language between the two disclosures would 
match; the reference language in the Loan Terms table under 
Sec. Sec.  1026.37(b) and 1026.38(b) so that the reference to the 
estimated total payment monthly payment used the same term as in the 
Projected Payments table under Sec. Sec.  1026.37(c) and 1026.38(c), 
and to put the language in sentence case to increase readability; 
the checkboxes in the Escrow Account disclosure on the Closing 
Disclosure under Sec.  1026.38(l)(7) to delete the ``require or'' 
from the second checkbox; change the ``Agent'' label on page 1 of 
the Closing Disclosure under Sec.  1026.38(a) to ``Settlement 
Agent'' to match the Contact Information table under Sec.  
1026.38(r); removed the word ``Borrower'' from the ``Borrower's Loan 
Amount'' label under Sec.  1026.38(j) to match the term used in the 
Loan Terms table under Sec. Sec.  1026.37(b) and 1026.38(b); and 
changed the labels of the row headings in the Escrow Account 
disclosure on page 4 of the Closing Disclosure under Sec.  
1026.38(l)(7) to include the word ``escrow.'' See the section-by-
section analyses of the respective sections for more information 
regarding these modifications.
    \132\ Kleimann Communication Group, Inc., Quantitative Study of 
the Current and Integrated TILA-RESPA Disclosures (November 2013), 
available at http://files.consumerfinance.gov/f/201311_cfpb_study_tila-respa_disclosure-comparison.pdf. See chapters 4 and 5 
of the report for the results and conclusions of the study.
---------------------------------------------------------------------------

Qualitative Testing of Revisions to the Proposed Disclosures
    The Bureau reviewed comments regarding the design of the proposed 
Loan Estimate and Closing Disclosure. Many of the disclosure-related 
comments were suggestions of minor modifications to the disclosures to 
ensure greater consistency within and between the Loan Estimate and 
Closing Disclosure. The Bureau determined that some of the suggested 
minor modifications to the proposed integrated disclosures were 
appropriate, as described in the section-by-section analyses of the 
respective sections of Sec. Sec.  1026.37 and 1026.38 below.
    However, some comments suggested more substantial modifications to 
the proposed Loan Estimate and Closing Disclosure with respect to the 
Calculating Cash to Close table in refinance transactions and the Cash 
to Close table in all transactions. The Bureau considered these 
comments and feedback and determined that modifications to such 
disclosures may benefit consumer understanding, but because they 
involved more than minor modifications, should be developed and 
evaluated through further qualitative consumer testing, as described in 
more detail below.
    In addition, a joint ex parte letter from three industry trade 
associations suggested that the Bureau's proposed integrated 
disclosures do not accommodate certain types of loans, such as loans 
with buydowns; closed-end second-lien loans originated simultaneously 
with a first-lien loan; refinances and cash-out refinances; refinances 
of loans with a co-borrower added or removed; or loans with a guarantor 
or non-occupant co-borrower. The trade associations also suggested that 
the Bureau conduct further testing of the disclosures for all loan 
products available through the GSEs and FHA. The trade associations 
also suggested that consumers would not be able to identify changed 
information between an original and revised Loan Estimate. The Bureau 
believes that consumers can compare two Loan Estimates and identify 
changes. As described above, in the Bureau's Quantitative Study, the 
Bureau's integrated disclosures showed a performance advantage of 
approximately 24 percentage points over the current disclosures for 
comparing two loans. See Kleimann Quantitative Study Report at 43.
    With respect to the trade associations' suggestion that the 
Bureau's integrated disclosures do not accommodate certain factual 
scenarios or loan products, the letter only stated a conclusion and did 
not explain how the Bureau's proposed disclosures would not accommodate 
such scenarios or products. The Bureau is not aware of any reasons why 
such factual scenarios or loan products would not be accommodated by 
the Bureau's integrated disclosures. Indeed, some of the factual 
scenarios and loan products identified by the letter are specifically 
addressed in current Regulation Z as well as in this final rule, such 
as loans with buydowns, refinance transactions, and loans with multiple 
borrowers. For example, this final rule amends comments 17(c)(1)-3 and 
-4 to provide further guidance regarding buydowns. See the section-by-
section analysis of Sec.  1026.17(c)(1); see also the section-by-
section analysis of Sec.  1026.17(d) (regarding loans with multiple 
borrowers). Further, as described in this part and in the section-by-
section analyses of Sec.  1026.37(d) and (h) and Sec.  1026.38(d) and 
(e) below, the Bureau is making modifications to the integrated 
disclosures that can be used in transactions not involving a seller, 
including refinance transactions.
    Specifically, the Bureau received several comment letters 
questioning the ability of consumers to understand easily from the 
proposed disclosures that they received funds at the consummation of a 
refinance transaction. Accordingly, as noted above, the Bureau 
determined that testing a modification to the integrated disclosures 
for refinance transactions (and other transactions without sellers) 
would be appropriate.
    In addition, as also described below in the section-by-section 
analysis of Sec.  1026.37(d), the Bureau received comments critical of 
the emphasis placed on the cash to close amount on the first page of 
the proposed Loan Estimate and Closing Disclosure. Further, although 
the Bureau learned from the Quantitative Study that the Bureau's 
integrated disclosures generally performed better than the

[[Page 79750]]

current disclosure forms, the Bureau also learned that consumer 
participants performed better at identifying the total estimated 
closing costs using the RESPA GFE and early TILA disclosure than with 
the Loan Estimate.\133\ Accordingly, the Bureau determined that it 
would be appropriate to test a modification to the Cash to Close table 
on the first page of the proposed Loan Estimate to place equal emphasis 
on the cash to close and total estimated closing costs amounts and to 
enable easier identification of the total estimated closing costs.
---------------------------------------------------------------------------

    \133\ See Kleimann Quantitative Study Report at 68-69.
---------------------------------------------------------------------------

    The Bureau contracted with Kleimann to assist in the design, 
research, and qualitative consumer testing of potential modifications 
to the proposed integrated disclosures. The Bureau conducted one round 
of qualitative testing in June 2013, and two rounds in July 2013, in 
Bethesda, Maryland; Baltimore, Maryland; and Richmond, Virginia, 
respectively. This post-proposal qualitative consumer testing included 
21 consumers in total. For a detailed discussion of this testing, see 
the Kleimann Post-Proposal Testing Report.\134\
---------------------------------------------------------------------------

    \134\ Available at http://files.consumerfinance.gov/f/201311_cfpb_report_tila-respa_testing-spanish-refinancing.pdf.
---------------------------------------------------------------------------

H. Delay of Title 14 Disclosures

Title XIV Disclosures
    In addition to the integrated disclosure requirements in title X of 
the Dodd-Frank Act, various provisions of title XIV of the Dodd-Frank 
Act amend TILA, RESPA, and other consumer financial laws to impose new 
disclosure requirements for mortgage transactions (the Title XIV 
Disclosures). 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 TILA-RESPA integrated disclosures required by sections 
1032(f), 1098, and 1100A of the Dodd-Frank Act, and after consummation 
of the loan if certain events occur. Dodd-Frank Act title XIV 
provisions generally take effect within 18 months after the designated 
transfer date (i.e., by January 21, 2013) unless final rules 
implementing those requirements are issued on or before that date and 
provide for a different effective date pursuant to Dodd-Frank Act 
section 1400(c)(3).\135\
---------------------------------------------------------------------------

    \135\ Dodd-Frank Act section 1400(c)(3) is codified at 15 U.S.C. 
1601 note.
---------------------------------------------------------------------------

    The Title XIV Disclosures generally include the following:
     Warning regarding negative amortization features. Dodd-
Frank Act section 1414(a); TILA section 129C(f)(1).\136\
---------------------------------------------------------------------------

    \136\ 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 as competent to provide such 
counseling by HUD. That provision is implemented in the Bureau's 
proposal to implement Dodd-Frank Act requirements expanding 
protections for ``high-cost'' mortgage loans under the Home 
Ownership and Equity Protection Act of 1994 (HOEPA), pursuant to 
TILA sections 103(bb) and 129, as amended by Dodd-Frank Act sections 
1431 through 1433 (the 2012 HOEPA Proposal). 77 FR 49090 (Aug. 15, 
2012). The 2012 HOEPA Proposal 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 
prior to consummation and, for new creditors, after consummation. Dodd-
Frank Act section 1414(d); TILA section 129C(h).
     Disclosure regarding mandatory escrow or impound accounts. 
Dodd-Frank Act section 1461(a); TILA section 129D(h).
     Disclosure prior to consummation regarding waiver of 
escrow in connection with the transaction. Dodd-Frank Act section 1462; 
TILA section 129D(j)(1)(A).
     Disclosure regarding cancellation of escrow after 
consummation. Dodd-Frank Act section 1462; TILA section 129D(j)(1)(B).
     Disclosure of monthly payment, including escrow, at 
initial and fully-indexed rate for variable-rate residential mortgage 
loan 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 
section 128(b)(4).
     Disclosure of aggregate amount of settlement charges, 
amount of charges included in the loan and the amount of such charges 
the borrower must pay at closing, the approximate amount of the 
wholesale rate of funds, and the aggregate amount of other fees or 
required payments in connection with a residential mortgage loan. Dodd-
Frank Act section 1419; TILA section 128(a)(17).
     Disclosure of aggregate amount of mortgage originator fees 
and the amount of fees paid by the consumer and the creditor. 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 fees. 
Dodd-Frank Act section 1475; RESPA section 4(c).
     Disclosure regarding notice of reset of hybrid adjustable 
rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(b).
     Loan originator identifier requirement. Dodd-Frank section 
1402(a)(2); TILA section 129B(b)(1)(B).
     Consumer notification regarding appraisals for higher-risk 
mortgages. Dodd-Frank Act section 1471; TILA section 129H(d).
     Consumer notification regarding the right to receive an 
appraisal copy. Dodd-Frank Act section 1474; Equal Credit Opportunity 
Act (ECOA) section 701(e)(5).
    As noted in the list above, the Title XIV Disclosures include 
certain disclosures that may need to be provided to consumers both 
before and after consummation. For example, the Title XIV Disclosures 
include disclosures regarding a creditor's policy for acceptance of 
partial loan payments both before consummation and, for persons who 
subsequently become creditors for the transaction, after consummation 
as required by new TILA section 129C(h), added by Dodd-Frank Act 
section 1414(d).\137\ In addition, the Title XIV Disclosures include 
disclosures for consumers who waive or cancel escrow services both 
before and after consummation, added by Dodd-Frank Act section 1462. 
Specifically, new TILA section 129D(j)(1)(A) requires a creditor or 
servicer to provide a disclosure with the information set forth under 
TILA section 129D(j)(2) when an impound, trust, or other type of 
account for the payment of property taxes, insurance premiums, or other 
purposes relating to real property securing a consumer credit 
transaction is not established in connection with the transaction (the 
Pre-Consummation

[[Page 79751]]

Escrow Waiver Disclosure). New TILA section 129D(j)(1)(B) requires a 
creditor or servicer to provide disclosures post-consummation with the 
information set forth under TILA section 129D(j)(2) when a consumer 
chooses, and provides written notice of the choice, to close his or her 
escrow account established in connection with a consumer credit 
transaction secured by real property in accordance with any statute, 
regulation, or contractual agreement (the Post-Consummation Escrow 
Cancellation Disclosure). 15 U.S.C. 1639d(j)(1)(A), 1639d(j)(1)(B). The 
statute sets forth an identical set of information for both of these 
disclosures.\138\
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    \137\ As it stated in the TILA-RESPA Proposal, the Bureau 
believes that to give effect to the legislative purpose of section 
1414(d) of the Dodd-Frank Act, the disclosure requirements of TILA 
section 129C(h) should apply without regard to whether the person 
would be a ``creditor'' under TILA and Regulation Z. See 77 FR 
51116, 51265. For these reasons, in the TILA-RESPA Proposal, the 
Bureau proposed to retain the term ``covered person'' under Sec.  
1026.39(a)(1) and its definition, which would subject such covered 
persons to the proposed disclosure requirements. Id. As in the TILA-
RESPA Proposal, in this final rule the Bureau is temporarily 
exempting ``persons'' (as defined in Regulation Z) rather than 
``creditors'' from compliance with the provisions of TILA section 
129C(h), which includes covered persons.
    \138\ The information set forth under TILA section 129D(j)(2) 
includes information concerning any applicable fees or costs 
associated with either the non-establishment of the escrow account 
at the time of the transaction, or any subsequent closure of the 
account; a clear and prominent statement that the consumer is 
responsible for personally and directly paying the non-escrowed 
items, in addition to paying the mortgage loan payment, in the 
absence of any such account, and the fact that the costs for taxes, 
insurance, and related fees can be substantial; a clear explanation 
of the consequences of any failure to pay non-escrowed items, 
including the possible requirement for the forced placement of 
insurance by the creditor or servicers and the potentially higher 
cost (including any potential commission payments to the servicer) 
or reduced coverage for the consumer in the event of any such 
creditor-placed insurance; and other information the Bureau 
determines is necessary for consumer protection. 15 U.S.C. 
1639d(j)(2).
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Board's 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, but also adds disclosure requirements 
and lengthens the period for which escrow accounts are required. 15 
U.S.C. 1639d. On March 2, 2011, the Board proposed amendments to 
Regulation Z implementing certain requirements of sections 1461 and 
1462 of the Dodd-Frank Act. 76 FR 11598 (Mar. 2, 2011) (Board's 2011 
Escrows Proposal). The Board proposed, among other things, to implement 
the disclosure requirements under TILA section 129D(j)(1) in Regulation 
Z under a new Sec.  226.19(f)(2)(ii) and Sec.  226.20(d) of the Board's 
Regulation Z, including both the Pre-Consummation Escrow Waiver 
Disclosure and the Post-Consummation Escrow Cancellation Disclosure.
    The comment period for the Board's 2011 Escrows Proposal closed on 
May 2, 2011. The Board did not finalize the 2011 Escrows Proposal. 
Subsequent to the issuance of the Board's 2011 Escrows Proposal, the 
authority for finalizing the proposal was transferred to the Bureau 
pursuant to the Dodd-Frank Act.\139\
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    \139\ Effective July 21, 2011, the Dodd-Frank Act generally 
transferred rulemaking authority for TILA to the Bureau (except for 
certain rulemaking authority over motor vehicle dealers that remains 
with the Board). See sections 1061 and 1100A of the Dodd-Frank Act.
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TILA-RESPA Proposal To Delay Certain Title XIV Disclosures
    The TILA-RESPA Proposal requested comment on the proposed rules and 
forms to integrate the disclosure requirements of TILA and RESPA, as 
required by sections 1032(f), 1098, and 1100A of the Dodd-Frank 
Act.\140\ In addition, the TILA-RESPA Proposal requested comment on an 
amendment to Sec.  1026.1(c) of Regulation Z, which would have 
temporarily exempted persons from compliance with the following Title 
XIV Disclosures (collectively, the Affected Title XIV Disclosures) so 
that the disclosures could instead be incorporated into the TILA-RESPA 
integrated disclosures that would be finalized in the future:
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    \140\ See the Bureau's press release Consumer Financial 
Protection Bureau proposes ``Know Before You Owe'' mortgage forms 
(July 9, 2012), available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-know-before-you-owe-mortgage-forms/; the Bureau's blog post Know Before 
You Owe: Introducing our proposed mortgage disclosure forms (July 9, 
2012), available at http://www.consumerfinance.gov/blog/know-before-you-owe-introducing-our-proposed-mortgage-disclosure-forms/.
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     Warning regarding negative amortization features. Dodd-
Frank Act section 1414(a); TILA section 129C(f)(1).
     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 
prior to consummation and, for new creditors, after consummation. Dodd-
Frank Act section 1414(d); TILA section 129C(h).
     Disclosure regarding mandatory escrow or impound accounts. 
Dodd-Frank Act section 1461(a); TILA section 129D(h).
     Disclosure prior to consummation regarding waiver of 
escrow in connection with the transaction. 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 residential mortgage 
loan 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 
section 128(b)(4).
     Disclosure of aggregate amount of settlement charges, 
amount of charges included in the loan and the amount of such charges 
the borrower must pay at closing, the approximate amount of the 
wholesale rate of funds, and the aggregate amount of other fees or 
required payments in connection with a residential mortgage loan. Dodd-
Frank Act section 1419; TILA section 128(a)(17).
     Disclosure of aggregate amount of mortgage originator fees 
and the amount of fees paid by the consumer and the creditor. 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 fees. 
Dodd-Frank Act section 1475; RESPA section 4(c).
    The TILA-RESPA Proposal provided for a bifurcated comment process. 
Comments regarding the proposed amendments to Sec.  1026.1(c) were 
required to have been received on or before September 7, 2012. For all 
other proposed amendments and comments pursuant to the Paperwork 
Reduction Act, comments were required to have been received on or 
before November 6, 2012.\141\
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    \141\ In its initial Federal Register notice, the Bureau also 
applied the September 7, 2012 deadline to comments on the proposed 
amendments to the definition of finance charge in Sec.  1026.4. On 
August 31, 2012, however, the Bureau issued a notice extending the 
deadline for such comments to November 6, 2012. See the Bureau's 
blog post, More time for comments on proposed changes to the 
definition of the finance charge (August 31, 2012), available at 
http://www.consumerfinance.gov/blog/more-time-for-comments-on-proposed-changes-to-the-definition-of-the-finance-charge/. The 
extension was published in the Federal Register on September 6, 
2012. See 77 FR 54843 (Sept. 6, 2012). It did not change the comment 
period for any other aspects of the TILA-RESPA Proposal, which, as 
noted above, ended November 6, 2012.
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    Affected Title XIV Disclosures. As described above, the Affected 
Title XIV Disclosures impose certain new disclosure requirements for 
mortgage transactions. Section 1400(c)(3) of the Dodd-Frank Act \142\ 
provides that, if regulations implementing the Affected Title XIV 
Disclosures are not issued on the date that is 18 months after the 
designated transfer date (i.e., by January 21, 2013), the statutory 
requirements will take effect on that date.
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    \142\ Codified at 15 U.S.C. 1601 note.
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    The Bureau provided in the TILA-RESPA Proposal that it believed 
that implementing integrated disclosures that satisfy the applicable 
sections of TILA and RESPA and the Affected Title XIV Disclosures would 
benefit consumers and facilitate compliance for industry with TILA and 
RESPA. The Bureau provided further that consumers would benefit from a 
consolidated

[[Page 79752]]

disclosure that conveys loan terms and costs to consumers in a 
coordinated way, and industry would 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. 
77 FR 51116, 51133.
    However, given the broad scope and complexity of TILA-RESPA 
Proposal and the 120-day comment period provided, the Bureau stated 
that it believed a final rule would not be issued by January 21, 2013. 
The Bureau was concerned that absent a final rule implementing the 
Affected Title XIV Disclosures, institutions would have to comply with 
those disclosures beginning January 21, 2013 due to the statutory 
requirement that any section of Dodd-Frank Act title XIV for which 
regulations have not been issued by January 21, 2013 are self-
effectuating as of that date. The Bureau stated that 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. The Bureau noted that it believed 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, and, moreover, implementing the Affected Title XIV 
Disclosures separately from the TILA-RESPA integrated disclosures would 
increase compliance costs and burdens on industry. The Bureau also 
noted in the TILA-RESPA Proposal that 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.\143\
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    \143\ As the Bureau stated in the TILA-RESPA Proposal, certain 
of the Affected Title XIV Disclosures indicate that Congress did not 
intend for those disclosure requirements and the TILA-RESPA 
integrated disclosures 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, 
the Bureau stated that these sections are directly implicated by the 
integrated TILA-RESPA requirement. 77 FR 51116, 51133.
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    Accordingly, in the TILA-RESPA Proposal, the Bureau proposed to 
implement the Affected Title XIV Disclosures for purposes of Dodd-Frank 
Act section 1400(c) by providing a temporary exemption from the 
requirement to comply with such requirements until the TILA-RESPA 
integrated disclosure requirements become effective.\144\ The Bureau 
proposed the temporary exemption 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. The Bureau explained that fully 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 disclosures for consumers and reduce burden on industry. 
The proposed exemption would be, in effect, a delay of the effective 
date of the Affected Title XIV Disclosures.
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    \144\ Id.
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    The Bureau proposed to delay the Affected Title XIV Disclosures for 
all transactions to which they would otherwise apply, including to 
transactions not covered by the proposed integrated disclosure 
provisions, including open-end credit plans, transactions secured by 
dwellings that are not real property, and reverse mortgages. The Bureau 
specifically solicited comment on the exemption's scope and on whether 
the exemption should sunset on a specific date instead of upon the 
effective date of the final rule for the integrated disclosures.
    Other Title XIV Disclosures. The Bureau proposed to exclude the 
following Title XIV Disclosures from the list of Affected Title XIV 
Disclosures in the TILA-RESPA Proposal, stating they would be 
implemented in separate rulemakings:
     Disclosure regarding notice of reset of hybrid adjustable 
rate mortgage. Dodd-Frank Act section 1418(a); TILA section 128A(b).
     Loan originator identifier requirement. Dodd-Frank section 
1402(a)(2); TILA section 129B(b)(1)(B).
     Consumer notification regarding appraisals for higher-risk 
mortgages. Dodd-Frank Act section 1471; TILA section 129H(d).
     Consumer notification regarding the right to receive an 
appraisal copy. Dodd-Frank Act section 1474; ECOA section 701(e)(5).
     Post-Consummation Escrow Cancellation Disclosure. Dodd-
Frank Act section 1462; TILA section 129D(j)(1)(B).
    The Bureau stated generally that these disclosures were expected to 
be proposed separately in the summer of 2012 and finalized by January 
21, 2013, except for the Post-Consummation Escrow Cancellation 
Disclosure which the Board had already proposed for comment in its 2011 
Escrows Proposal.\145\
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    \145\ 77 FR 51116, 51134.
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    As such, the Bureau proposed, as part of the TILA-RESPA Proposal, 
to provide a temporary exemption from compliance with the Pre-
Consummation Escrow Waiver Disclosure in TILA section 129D(j)(1)(A), 
but not for the Post-Consummation Escrow Cancellation Disclosure in the 
TILA-RESPA Proposal. Absent the Bureau's issuance of a final rule 
implementing TILA section 129D(j)(1)(B) by January 21, 2013, the 
provision would have gone into effect as of such date by operation of 
law under the Dodd-Frank Act section 1400(c)(3).\146\
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    \146\ As described under part IV below, the Bureau considers an 
exemption from the disclosure requirement under TILA section 
129D(j)(1)(B), such as that proposed in the TILA-RESPA Proposal for 
the Affected Title XIV Disclosures, to be the issuance of a 
regulation implementing that provision for purposes of Dodd-Frank 
Act section 1400(c)(3).
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Final Rule Delaying Certain Title XIV Disclosures
    On November 23, 2012, the Bureau issued a final rule delaying 
implementation of the Affected Title XIV Disclosures provisions and the 
Post-Consummation Escrow Cancellation Disclosure by providing an 
exemption in Sec.  1026.1(c) of Regulation Z for persons from these 
statutory disclosure requirements (2012 Title XIV Delay Final 
Rule).\147\ The Bureau issued the final rule implementing the Affected 
Title XIV Disclosures and the Post-Consummation Escrow Cancellation 
Disclosure prior to the statutory provisions becoming self-effectuating 
on January 21, 2013. Accordingly, persons were not required to comply 
with these statutory disclosure requirements beginning on January 21, 
2013, and are exempted from such requirements until such time as the 
Bureau removes the exemptions, which the Bureau is doing for certain 
transactions in this final rule.
---------------------------------------------------------------------------

    \147\ 77 FR 70105 (Nov. 23, 2012).
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    The Bureau stated in the 2012 Title XIV Delay Final Rule that it 
believes that the exemption overall provides a benefit to consumers by 
facilitating a more effective, consolidated disclosure

[[Page 79753]]

scheme. Absent an exemption, the Affected Title XIV Disclosures and the 
Post-Consummation Escrow Cancellation Disclosure would have complicated 
and hindered the mortgage lending process because consumers would have 
received inconsistent disclosures and, likely, numerous additional 
pages of Federal disclosures that would not work together in a 
meaningful, synchronized way. The Bureau also stated it believed that 
the credit process could be more expensive and complicated if the 
Affected Title XIV Disclosures and the Post-Consummation Escrow 
Cancellation Disclosure had taken effect independent of the larger 
TILA-RESPA integration rulemaking because industry would be required to 
revise systems and practices multiple times. The Bureau also considered 
the status of mortgage borrowers in issuing the exemptions, and 
believes the exemption is appropriate to improve the informed use of 
credit. The Bureau stated it did 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 and the Post-
Consummation Escrow Cancellation Disclosure on top of existing mandated 
disclosures would lead to consumer confusion. The Bureau stated in the 
2012 Title XIV Delay Final Rule that the exemption allows the Bureau to 
coordinate the changes in a way that improves overall consumer 
understanding of the disclosures.
    The Bureau also stated that although the Post-Consummation Escrow 
Cancellation Disclosure was not included in the Affected Title XIV 
Disclosures in the TILA-RESPA Proposal, the Bureau nevertheless 
received comment requesting that it delay implementation of the 
disclosure, as described above. Furthermore, as discussed above, the 
Board received similar requests from commenters on the Board's 2011 
Escrows Proposal, which on July 21, 2011 became the Bureau's 
responsibility. The Bureau considered the comments received by the 
Board and the Bureau and concluded that delaying implementation of the 
Post-Consummation Escrow Cancellation Disclosure and coordinating such 
implementation with that of the TILA-RESPA integrated disclosures was 
in the interest of industry and consumers alike. The Bureau noted that 
the Dodd-Frank Act statutory requirements for the content of the Pre-
Consummation Escrow Waiver Disclosure and the Post-Consummation Escrow 
Cancellation Disclosure are the same, and the Bureau tested language 
for the Pre-Consummation Escrow Waiver Disclosure at its consumer 
testing conducted in connection with the TILA-RESPA Proposal and 
proposed to integrate this disclosure into the Closing Disclosure 
(which integrates the final TILA disclosure and the RESPA settlement 
statement).\148\ The Bureau stated that implementing the Post-
Consummation Escrow Cancellation Disclosure along with the TILA-RESPA 
integrated disclosures will allow the Bureau to use feedback it has 
received from consumer testing conducted prior to the TILA-RESPA 
Proposal, the comments on the proposal, and any consumer testing 
conducted subsequent to the proposal to harmonize the content and 
format of the Post-Consummation Escrow Cancellation Disclosure, the 
Pre-Consummation Escrow Waiver Disclosure, and the TILA-RESPA 
integrated disclosures. The Bureau stated that consumers, therefore, 
would benefit from a more fully integrated and synchronized overall 
mortgage disclosure scheme, and industry would benefit from a more 
coordinated implementation of the overall mortgage disclosure scheme 
mandated by the Dodd-Frank Act and implemented by the Bureau.
---------------------------------------------------------------------------

    \148\ See Kleimann Testing Report.
---------------------------------------------------------------------------

    As discussed below in the section-by-section analysis of Sec.  
1026.1(c), the Bureau is now removing the exemptions for the Affected 
Title XIV Disclosures and the Post-Consummation Escrow Cancellation 
Disclosure in Sec.  1026.1(c) for the mortgage transactions for which 
this final rule implements those disclosures. Because Sec.  
1026.1(c)(5), as finalized in the 2012 Title XIV Delay Final Rule, 
exempts persons from the disclosure requirements of the Affected Title 
XIV Disclosures and the Post-Consummation Escrow Cancellation 
Disclosure, and comment 1(c)(5)-1 clarifies that the exemption is 
intended to be temporary, lasting only until regulations implementing 
the integrated disclosures required by sections 1032(f), 1098, and 
1100A of the Dodd-Frank Act become mandatory, the Bureau is amending 
Sec.  1026.1(c)(5) to revoke the temporary exemption for transactions 
subject to the TILA-RESPA Final Rule, but is retaining the exclusion 
for all other transactions subject to the statutory provisions for 
which requirements have not yet been implemented.

IV. Legal Authority

    The final rule was issued on November 20, 2013, in accordance with 
12 CFR 1074.1. The Bureau issued this final 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.\149\ 
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.'' \150\ Title 
X of the Dodd-Frank Act, including section 1061 of the Dodd-Frank Act, 
along with TILA, RESPA, and certain subtitles and provisions of title 
XIV of the Dodd-Frank Act, are Federal consumer financial laws.\151\ 
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.
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    \149\ Public Law 111-203, 124 Stat. 1376, section 1061(b)(7); 12 
U.S.C. 5581(b)(7).
    \150\ 12 U.S.C. 5581(a)(1).
    \151\ 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); 
Dodd-Frank section 1400(b), 15 U.S.C. 1601 note (defining 
``enumerated consumer laws'' to include certain subtitles and 
provisions of Title XIV).
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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

[[Page 79754]]

by sections 4 and 5 of RESPA.\152\ The 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. The 
Dodd-Frank Act did not impose on the Bureau a deadline for issuing a 
final rule to implement the integrated disclosure requirements.
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    \152\ 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).
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    Although Congress imposed this integrated disclosure requirement, 
it did not 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.\153\ 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).
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    \153\ 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 authority to 
issue regulations that reconcile certain provisions of TILA and RESPA 
to carry out Congress' mandate to integrate the statutory disclosure 
requirements. For the reasons discussed in this notice, the Bureau is 
issuing 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 final 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.
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 
therewith. 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 informed by 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 Bureau's 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 \154\ that apply to the high-cost mortgages referred 
to in TILA section 103(bb), 15 U.S.C. 1602(bb).
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    \154\ 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.
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    For the reasons discussed in this notice, the Bureau is issuing 
regulations to carry out the purposes of TILA, including 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, or to facilitate compliance. 
In developing these aspects of the final rule 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.
    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 all or part of 
any class of transactions, other than transactions involving any 
mortgage described in section 1602(aa) of TILA, for which the Bureau 
determines that TILA coverage does not provide a meaningful benefit to

[[Page 79755]]

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:
    (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 issuing 
regulations that exempt certain classes of transactions from the 
requirements of TILA pursuant to its authority under TILA section 
105(f). In developing this final rule under TILA section 105(f), the 
Bureau has considered the relevant factors, published its rationale in 
the proposed rule, and determined that the exemptions are 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 that the Bureau finds to be abusive, 
unfair, deceptive, predatory, necessary, or proper to ensure that 
responsible, affordable mortgage credit remains available to consumers 
in a manner consistent with the purposes of sections 129B and 129C of 
TILA, necessary or proper to effectuate the purposes of sections 129B 
and 129C of TILA, to prevent circumvention or evasion thereof, or to 
facilitate compliance with such sections, or are not in the interest of 
the borrower. In developing rules under TILA section 129B(e), the 
Bureau has considered whether the rules are in the interest of the 
borrower, as required by the statute. For the reasons discussed in this 
notice, the Bureau is issuing 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 in some areas of the country.'' RESPA section 
2(a); 12 U.S.C. 2601(a). In the past, RESPA 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 rules under RESPA section 19(a), the Bureau has 
considered the purposes of RESPA, including to effect certain 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 issuing 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, among other things, 
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, in developing this final rule, the Bureau 
has sought to ensure that it 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, in 
adopting this final rule, the Bureau is exercising its authority under 
Dodd-Frank Act section 1022(b) to prescribe rules under TILA, RESPA, 
and Title X that carry out the purposes and objectives 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. 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.

[[Page 79756]]

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 the final rule under Dodd-Frank Act section 
1032(a), the Bureau has considered available studies, reports, and 
other evidence about consumer 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 consumer 
testing. For the reasons discussed in this notice, the Bureau is 
issuing 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, contains a 
clear format and design, such as an easily 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 analyses of Sec. Sec.  1026.37(o) and 
1026.38(t), the final rule contains certain model disclosures for 
transactions subject only to TILA, and not both TILA and RESPA. For the 
reasons discussed in this notice, the Bureau is issuing 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 a 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 exempt from or modify the disclosure 
requirements of TILA and RESPA.
    In developing rules for residential mortgage loans under Dodd-Frank 
Act section 1405(b), 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 issuing portions of this rule 
pursuant to its authority under Dodd-Frank Act section 1405(b).

V. Section-by-Section Analysis of the Final Rule

    Integrated mortgage disclosure requirements implemented in 
Regulation Z. The Bureau is adopting its proposal to implement this 
final rule in Regulation Z. 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 official interpretations 
regarding disclosures for mortgage transactions, whereas Regulation X 
largely relies on the RESPA GFE and RESPA settlement statement forms 
and their instructions. The Bureau proposed to establish the integrated 
disclosure requirements in Regulation Z, because it believed that the 
additional detail in Regulation Z facilitates industry's 
compliance.\155\ The proposal included conforming and other amendments 
to Regulation X.\156\
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    \155\ 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. In 
addition, the rules and forms adopted in this final rule are 
intended to meet the requirements of sections 1032(f), 1098, and 
1100A of the Dodd-Frank Act that require the Bureau to combine the 
disclosures under TILA and sections 4 and 5 of RESPA into a single, 
integrated disclosure for mortgage loan transactions. 12 U.S.C. 
5532(f), 12 U.S.C. 2603, 15 U.S.C. 1604.
    \156\ The Bureau is proposing to retain established regulatory 
terminology in Regulations X and Z for consistency, such as using 
the term ``borrower'' in Regulation X and ``consumer'' in Regulation 
Z.
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    However, the Bureau solicited comment on whether the level of 
detail in the proposed regulations and official interpretations 
(including the number of examples illustrating what is and is not 
permitted) will make compliance more burdensome and whether the Bureau 
should adopt a less prescriptive approach in the final rule. While most 
industry commenters requested that the Bureau add additional detail and 
illustrations to specific provisions of the final rule, as described in 
their respective section-by-section analyses, some commenters 
criticized the level of detail and illustrations in the proposal.
    One regional trade association representing credit unions suggested 
that the Bureau adopt a less prescriptive approach and issue a notice 
of final rulemaking of a shorter length than the Bureau's notice of 
proposed rulemaking. One individual industry commenter stated that the 
Bureau's final rule should only State the regulatory requirements and 
not include further explanations or guidance; however, the commenter 
also provided suggestions for specific guidance and clarifications to 
include in the final rule. Another individual industry commenter stated 
that the regulations were not well written, and suggested that the 
final rule should instruct a software programmer or data entry employee 
on how to complete the disclosures. An individual consumer commenter 
stated that the proposal had overly extensive guidance.
    As noted above, most industry commenters requested additional 
detail and clarifications in specific provisions of the final rule. In 
addition, some industry commenters commented generally on the level of 
detail. Some commenters specifically stated that the level of detail 
would be beneficial to industry. For example, a title insurance company 
commenter stated that, while

[[Page 79757]]

the level of detail in the proposed regulations and guidance may 
initially make compliance more burdensome, over the longer term the 
level of detail will make compliance less burdensome by addressing many 
situations that will arise and providing guidance and analogies for 
handling other situations that are not expressly addressed. The 
commenter also stated that the level of detail will foster greater 
industry-wide consistency in the implementation of the rule and will 
help prevent increased costs of compliance consulting which can result 
from a less detailed approach. In addition, several other industry 
commenters stated that clear guidance was important for industry, and 
suggested that the proposal's level of detail is preferred. Many 
commenters requested still more clarifying examples and guidance with 
respect to various provisions of the integrated disclosures, as 
discussed in more detail in relation to the applicable sections below.
    In light of the benefits cited by commenters from the level of 
detail in the proposal and requests for additional guidance and 
clarifications, as well as the feedback the Bureau received from the 
Small Business Review Panel regarding the costs faced by small entities 
from the ambiguity in the current rules and requests for clear guidance 
in the final rule, the Bureau has determined to maintain a similar 
level of detail in the final rule as in the proposal, and to provide 
additional guidance and clarifying examples where appropriate.\157\ The 
Bureau believes that the level of detail and guidance in the final rule 
will facilitate compliance with the disclosure requirements of TILA and 
RESPA, which is one of the purposes of the integrated disclosures set 
forth by the Dodd-Frank Act. See Dodd-Frank Act sections 1098 and 
1100A.
---------------------------------------------------------------------------

    \157\ See Small Business Review Panel Report at 19-20.
---------------------------------------------------------------------------

    Liability. TILA provides for a private right of action, with 
statutory damages for some violations, whereas RESPA does not provide a 
private right of action related to the RESPA GFE and RESPA settlement 
statement requirements. Some industry commenters expressed concern that 
if the final rule implements the combined disclosure requirements in 
Regulation Z, consumers would bring lawsuits seeking TILA's remedies 
for RESPA violations. These commenters, which included several trade 
associations, several title companies, two large banks, and a large 
non-bank lender, requested that the Bureau specify which provisions of 
the integrated disclosure rules relate to TILA requirements and which 
relate to RESPA requirements. One title industry trade association 
commenter suggested that the Bureau implement the TILA disclosure 
requirements in Regulation Z and the RESPA disclosure requirements in 
Regulation X to discourage litigation invoking TILA's liability scheme 
for RESPA violations.
    While the final regulations and official interpretations do not 
specify which provisions relate to TILA requirements and which relate 
to RESPA requirements, the section-by-section analysis of the final 
rule contains a detailed discussion of the statutory authority for each 
of the integrated disclosure provisions. As stated in part IV, above, 
the authority for the integrated disclosure provisions is based on 
specific disclosure mandates in TILA and RESPA, as well as certain 
rulemaking and exception authorities granted to the Bureau by TILA, 
RESPA, and the Dodd-Frank Act. The details of the Bureau's use of such 
authority are described in the section-by-section analysis. The Bureau 
believes these detailed discussions of the statutory authority for each 
of the integrated disclosure provisions provide sufficient guidance for 
industry, consumers, and the courts regarding the liability issues 
raised by the commenters.
    The Bureau does not believe that implementing the integrated 
disclosure requirements in two separate regulations is feasible. As 
noted in the proposed rule and in this part, the Bureau is implementing 
the integrated disclosure provisions in Regulation Z because it 
contains detailed regulations regarding disclosures for mortgage 
transactions, which facilitates compliance. The Bureau believes that an 
approach that places a portion of the integrated disclosure rules in 
Regulation Z and a portion in Regulation X would be unworkable and 
would ultimately result in compliance burden for industry with no 
apparent benefits for consumers.
    Scope of TILA and RESPA. 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 have applied 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 by 25 or 
more acres) would have been 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 
have remained solely subject to the existing Regulation Z disclosure 
requirements. Reverse mortgages were excluded from coverage of the 
proposed integrated disclosures and would therefore have remained 
subject to the current Regulation X and Z disclosure requirements until 
the Bureau addressed those unique transactions in a separate, future 
rulemaking. Finally, consistent with the current rules under TILA, the 
integrated mortgage disclosures would not have applied 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.
    The Bureau is adopting the scope of the integrated disclosures as 
proposed as described in the section-by-section analysis for Sec.  
1026.19. Accordingly, reverse mortgage disclosures will continue to be 
governed by Regulation X. The Bureau proposed revisions to the 
disclosure provisions of Regulation X in light of this change in scope, 
as described in more detail below.

A. Regulation X

Section 1024.5 Coverage of RESPA
5(a) Applicability
    For the reasons discussed below under Sec.  1024.5(d), the Bureau 
proposed 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, proposed 
a conforming amendment to Sec.  1024.5(a) to reflect these partial 
exemptions pursuant to the same authority. The Bureau did not receive 
any comments on the proposed revisions to Sec.  1024.5(a) and is 
therefore adopting the revisions to Sec.  1024.5(a) as proposed, with a 
modification to reflect that proposed Sec.  1024.5(c) is being adopted 
as Sec.  1024.5(d), as discussed below.
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 
proposed to exercise its authority under RESPA section 19(a) and, for 
residential mortgage loans, Dodd-Frank Act section 1405(b) to eliminate 
this Regulation X exemption to render the TILA and RESPA regimes more 
consistent. The Bureau believed that most loans that fall

[[Page 79758]]

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). In addition, 
the Bureau believed that this consistency would have improved consumer 
awareness and understanding of transactions involving residential 
mortgage loans and, therefore, would have been in the interest of 
consumers and the public, consistent with Dodd-Frank Act section 
1405(b). Because it was unclear to the Bureau whether any mortgage 
loans are exempt based solely on Sec.  1024.5(b)(1), the Bureau 
solicited comment on the number of loans that may be affected by this 
aspect of the proposal and any reasons for the continued exemption of 
loans on property of 25 acres or more.
    One non-depository rural lender commenter stated that the exemption 
for loans on property of 25 acres or more should be retained because 
approximately 55 percent of its consumer purpose loans did not require 
a RESPA GFE and 61 percent of its closed-end consumer-purpose loans 
secured by real property did not require a RESPA settlement statement 
under this exemption. The commenter gave several examples of consumer 
purposes for these types of loans, such as loans financing the transfer 
of property interests pursuant to divorce settlements, cash-out 
refinancing for nursing home expenses for the borrowers themselves or 
their parents, and financing the purchase of second homes. Other 
commenters generally did not express opposition to the proposed 
elimination of the 25-acres-or-more exemption, but rather requested 
that the final rule reiterate that the test for coverage for the 
integrated disclosures should be whether the primary purpose of the 
loan is for consumer purposes. One industry State trade association 
stated that consumer purpose loans are structured the same whether 
secured by 24 or 25 acres or more and have similar costs, and 
therefore, their members generally do not object to providing the 
integrated disclosures to all consumer purpose loans secured by real 
property, regardless of property size. A title insurance company 
commenter agreed with the Bureau that there is no reason to retain the 
25-acres-or-more exemption because most of those loans would also be 
exempt under the exemption for business, commercial, or agricultural 
purposes.
    Generally, TILA has longstanding requirements for disclosures to be 
provided in connection with loans secured by real property. Dodd-Frank 
Act sections 1032(f), 1098, and 1100A directed the integration of the 
TILA and RESPA forms, implicitly authorizing the Bureau to harmonize 
statutory differences, as discussed above. The Bureau believes that 
consumers of closed-end credit transactions secured by real property of 
25 acres or more should obtain the integrated disclosures provided 
pursuant to Sec.  1026.19 below. In addition, Congress in section 
1032(a) of the Dodd-Frank Act authorized the Bureau to prescribe rules 
to ensure that the features of any consumer financial 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. 12 U.S.C. 5532(a). The 
Bureau believes that consumers of consumer-purpose loans secured by 
property of 25 acres or more should obtain the integrated disclosures, 
as they would be just as useful to such consumers as to consumers of 
loans secured by smaller areas of real property. See section-by-section 
analysis of Sec.  1026.19 in general, below. The Bureau believes such 
disclosure is consistent with section 1032(a) of the Dodd-Frank Act. 
The Bureau therefore exercises its authority under Dodd-Frank Act 
section 1032(a), RESPA section 19(a) and, for residential mortgage 
loans, Dodd-Frank Act section 1405(b) to eliminate the exemption for 
loans secured by property of 25 acres or more in Sec.  1024.5(b)(1) of 
Regulation X. 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).
5(d) Partial Exemptions for Certain Mortgage Loans
    The Bureau proposed Sec.  1024.5(c) to exempt creditors from 
certain RESPA requirements for loans subject to the integrated 
disclosure requirements and also certain federally related mortgage 
loans that satisfy specified criteria associated with certain housing 
assistance loan programs for low- and moderate-income persons. 
Specifically, creditors would be exempt from the requirement to provide 
the RESPA settlement cost booklet, RESPA GFE, RESPA settlement 
statement, and application servicing disclosure statement requirements 
of Sec. Sec.  1024.6, 1024.7, 1024.8, 1024.10, and 1024.21(b) and (c). 
The Bureau proposed this exemption under RESPA section 19(a), Dodd-
Frank Act section 1032(a) and, for residential mortgage loans, Dodd-
Frank Act section 1405(b). This proposed exemption would have cross-
referenced proposed Sec.  1026.3(h), which codifies an exemption issued 
by HUD on October 6, 2010. Under the HUD exemption, lenders need not 
provide the RESPA GFE and RESPA 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.
    To facilitate compliance, the Bureau proposed to codify this 
exemption in Regulations X and Z for the same reasons and under the 
same authority as cited by HUD. Specifically, 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 RESPA settlement statement forms would 
be difficult to complete in a meaningful way and likely would confuse 
consumers who received them. Moreover, because of the limited, fixed 
fees involved with such transactions, the comparison shopping purpose 
of the RESPA 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.
    In addition, the Bureau proposed this exemption based on its 
authority under Dodd-Frank Act section 1405(b) because the Bureau 
believed the proposed exemption would improve consumer awareness and 
understanding of residential mortgage loan transactions of the type 
discussed above and therefore would be in the interest of consumers and 
the public. These exemptions would have created consistency with the 
proposed integrated disclosure requirements under Regulation Z and 
codified a disclosure exemption

[[Page 79759]]

previously granted by HUD. However, the exemptions would have retained 
coverage of affected loans for all other requirements of Regulation X, 
such as provisions implementing the servicing requirements in RESPA 
section 6 (other than the application servicing disclosure statement), 
prohibitions on referral fees and kickbacks in RESPA section 8, and 
limits on amounts to be deposited in escrow accounts in RESPA section 
10.
    The Bureau did not receive any comments on proposed Sec.  
1024.5(c). However, the Bureau adopted a regulation on July 10, 2013 
that added Sec.  1024.5(c) concerning RESPA's relation to State laws. 
78 FR 44686 (July 24, 2013).\158\ Accordingly, the Bureau adopts 
proposed Sec.  1024.5(c) without modification but renumbered as Sec.  
1024.5(d).
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    \158\ The regulation recodified the provisions of Sec.  1024.13 
as Sec.  1024.5(c) in order to clarify the application of State law 
provisions concerning the servicing of mortgage loans in the context 
of RESPA. See 78 FR 44686, 44689-90 (July 24, 2013).
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Section 1024.30 Scope
30(c) Scope of Certain Sections
    The Bureau is adopting a modification to Sec.  1024.30(c) to 
clarify that the servicing disclosure statement requirement of Sec.  
1024.33(a) only applies to reverse mortgage transactions, for the 
reasons discussed in relation to the section-by-section analysis of 
Sec.  1024.33(a) below.
Section 1024.33 Mortgage Servicing Transfers
33(a) Servicing Disclosure Statement
    In the Bureau's 2012 RESPA Mortgage Servicing Proposal, the Bureau 
proposed to limit the scope of the servicing disclosure statement to 
closed-end reverse mortgage transactions to conform Sec.  1024.33(a) to 
the comprehensive amendments to consumer mortgage disclosures proposed 
by the Bureau in the TILA-RESPA Proposal. Because the Bureau intended 
to incorporate the servicing disclosure statement requirements of RESPA 
section 6(a) into the consolidated disclosure forms for the TILA-RESPA 
Proposal, the Bureau had proposed to limit the scope of the servicing 
disclosure statement provisions in new Sec.  1024.33 to closed-end 
reverse mortgage transactions because those transactions would not be 
covered by the TILA-RESPA Proposal.
    After additional consideration, because the TILA-RESPA Proposal 
would not be finalized until after the 2013 RESPA Mortgage Servicing 
Final Rule became effective, in the 2013 RESPA Mortgage Servicing Final 
Rule the Bureau decided not to finalize the language in proposed Sec.  
1024.33(a) that would have limited the scope of the provision to 
closed-end reverse mortgage transactions. Instead, the Bureau finalized 
Sec.  1024.33(a) by conforming the scope to ``mortgage loans'' other 
than subordinate-lien mortgage loans, as discussed in the section-by-
section analysis of Sec.  1024.30(c) of the 2013 RESPA Mortgage 
Servicing Final Rule. Accordingly, in the 2013 RESPA Mortgage Servicing 
Final Rule, the Bureau added language to Sec.  1024.33(a) so that 
applicants for ``first-lien mortgage loans'' must receive the servicing 
disclosure statement, as indicated at Sec.  1024.30(c)(1). Thus, 
applicants for both reverse and forward mortgage loans must receive 
currently the servicing disclosure statement under Regulation X.
    Because the Bureau has incorporated the servicing disclosure 
statement under RESPA section 6(a) into the Loan Estimate, as described 
in the section-by-section analysis of Sec.  1026.37(m) below, the 
Bureau is adopting in this final rule an amendment to Sec.  1024.33(a), 
which limits the requirement to provide the servicing disclosure 
statement to reverse mortgage transactions. The Bureau intends this 
amendment to reflect the requirement that the Loan Estimate include the 
servicing disclosure statement under Sec.  1026.37(m)(6) for 
transactions subject to Sec.  1026.19(e), thereby eliminating a 
duplicative disclosure requirement.
Appendix A--Instructions for Completing HUD-1 and HUD-1A Settlement 
Statements; Sample HUD-1 and HUD-1A Statements
    The Bureau proposed 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 closed-
end transactions covered by RESPA, except for reverse mortgage 
transactions. The Bureau recognized in the proposed rule that the 
manner in which reverse mortgage transactions are disclosed on the 
RESPA settlement statement (the HUD-1 or HUD-1A) under appendix A to 
Regulation X is a source of confusion for creditors and settlement 
agents. HUD attempted to clarify the use of the RESPA settlement 
statement 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 proposed to exercise its authority under 
RESPA section 19(a) to modify appendix A to Regulation X to incorporate 
the guidance provided by the HUD RESPA FAQs regarding reverse mortgage 
loans because, under the proposed rule, the closing of reverse mortgage 
transactions would have continued to be disclosed using the RESPA 
settlement statement. The proposed revisions would have been located in 
the instructions for lines 202, 204, and page 3, loan terms.
    The Bureau believed that incorporating this guidance into appendix 
A to Regulation X would have improved 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 borrower and the 
seller in the real estate transaction, consistent with RESPA section 
19(a).
    One industry trade association commenter supported the revisions 
related to proposed appendix A to Regulation X, but requested that 
compliance with the modifications be considered optional. The proposed 
changes to appendix A to Regulation X were intended merely to 
incorporate the existing disclosure requirements for reverse mortgage 
transactions as clarified by HUD in the HUD RESPA FAQs. The Bureau 
believes that making the revisions optional would detract from the 
intent of clarifying appendix A to Regulation X for reverse mortgage 
transactions and conflict with the purpose of RESPA to provide more 
effective advance disclosure of settlement costs. The Bureau did not 
receive any other comments related to proposed appendix A to Regulation 
X. Accordingly, the Bureau adopts the revisions to appendix A to 
Regulation X as proposed.
Appendix B--Illustrations of Requirements of RESPA
    Illustration 12 in appendix B to part 1024 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 explaining that the mortgage 
broker's fee must be itemized in the RESPA GFE and on the RESPA 
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 RESPA settlement statement and reflect the actual provider 
charge for such services;

[[Page 79760]]

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 RESPA GFE and listed in the 800 series 
of the RESPA 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 proposed 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 Regulation X.
    The Bureau did not receive any comments related to the proposed 
revision to appendix B to Regulation X. Accordingly, the Bureau adopts 
the revision to appendix B to Regulation X as proposed for the reasons 
stated above.
Appendix C--Instructions for Completing Good Faith Estimate (GFE) Form
    The Bureau proposed 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 closed-end 
transactions covered by RESPA, except for reverse mortgage 
transactions. The Bureau recognized that the manner in which reverse 
mortgage transactions are disclosed on the RESPA GFE under appendix C 
to Regulation X is a source of confusion for creditors and other loan 
originators. HUD clarified the use of the RESPA GFE in reverse mortgage 
transactions in the HUD RESPA FAQs. The Bureau proposed to exercise its 
authority under RESPA section 19(a) to modify appendix C to Regulation 
X to incorporate the guidance provided by the HUD RESPA FAQs because, 
under the proposed rule, reverse mortgage transactions would have 
continued to be disclosed using the RESPA GFE. The proposed revisions 
would have been found in the instructions for the ``Summary of your 
loan'' and ``Escrow account information'' sections. The Bureau believed 
that these revisions would have satisfied the purpose of RESPA to 
provide more effective advance disclosure of settlement costs to both 
the consumer and the seller in the real estate transaction, consistent 
with RESPA section 19(a).
    One industry trade association commenter supported the changes 
related to proposed appendix C to Regulation X, but as with the 
proposed modifications to appendix A to Regulation X discussed above, 
requested that compliance with the modifications be considered 
optional. The proposed revisions to appendix C to Regulation X were 
intended merely to incorporate the existing disclosure requirements for 
reverse mortgage transactions, as clarified by HUD in the HUD RESPA 
FAQs. The Bureau believes that making the changes optional would 
detract from the intent of clarifying appendix C to Regulation X for 
reverse mortgage transactions and conflict with the purpose of RESPA to 
provide more effective advance disclosure of settlement costs.
    One industry commenter pointed out that as Regulation Z allows that 
delivery to one consumer is considered to be delivery for all consumers 
in a transaction, whereas Regulation X requires each applicant receive 
the GFE. The commenter suggested that Regulation X be amended so it 
follows the Regulation Z provision for delivery of the RESPA GFE. The 
proposed rule did not include any substantive modification to the 
delivery requirements of Regulation X. In addition, given the nature of 
a reverse mortgage transaction and the potential loss of a residence 
due to a termination event, the Bureau believes more analysis must be 
conducted, as stated above, before any modification of the disclosure 
requirements for reverse mortgages is proposed. The Bureau did not 
receive any other comments related to proposed appendix C to Regulation 
X. Accordingly, the Bureau adopts the revisions to appendix C to 
Regulation X as proposed.

B. Regulation Z

Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement, 
and Liability Statutory Scope
    In the TILA-RESPA Proposal, the Bureau proposed conforming 
amendments to Sec.  1026.1 to reflect the fact that, under the 
proposal, Regulation Z would implement not only TILA, but also certain 
provisions of RESPA. To reflect the expanded statutory scope of 
Regulation Z, the proposed conforming amendments would have revised 
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.
    The Bureau did not receive comment on this aspect of the proposed 
rule. The Bureau adopted the proposed changes to Sec.  1026.1(a) in the 
2012 Title XIV Delay Final Rule that temporarily exempted creditors 
from implementing certain Dodd-Frank Act disclosure requirements 
pending the resolution of the broader rulemaking as discussed below. 
See 77 FR 70105, 70114 (Nov. 23, 2012). The Bureau is now finalizing 
Sec.  1026.1(b), (d)(5),\159\ and (e) as proposed, with a modification 
to Sec.  1026.1(b) for greater clarity and a technical change to Sec.  
1026.1(d)(5) to delete a reference to Sec.  1026.19(g).
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    \159\ Section 1026.1(d)(5) was also amended by the Bureau's 2013 
HOEPA Final Rule to reflect the expanded scope of HOEPA under the 
Dodd-Frank Act. See 78 FR 6856, 6868 (Jan. 31, 2013). Those 
amendments will take effect on January 10, 2014.
---------------------------------------------------------------------------

1(c) Coverage
    The TILA-RESPA Proposal also would have provided a temporary 
exemption from certain disclosure requirements added to TILA and RESPA 
by the Dodd-Frank Act. Specifically, the proposal would have exempted 
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 
(collectively the Affected Title XIV Disclosures), until regulations 
implementing the integrated disclosures required by section 1032(f) of 
the Dodd-Frank Act take effect.\160\ Proposed Sec.  1026.1(c)(5) would 
have implemented 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 would have explained that Sec.  
1026.1(c)(5) implements the above-listed provisions of TILA and RESPA

[[Page 79761]]

added by the Dodd-Frank Act by exempting persons from the disclosure 
requirements of those sections. The comment would have clarified 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 
would have clarified that the exemptions in proposed Sec.  1026.1(c)(5) 
would not exempt any person from any other requirement of Regulation Z, 
Regulation X, or of TILA or RESPA.
---------------------------------------------------------------------------

    \160\ 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).
---------------------------------------------------------------------------

    The Bureau recognized in the TILA-RESPA Proposal that the Affected 
Title XIV Disclosures varied in scope from, and in some cases were 
broader in scope than, the proposed integrated disclosures. For 
example, certain of the Affected Title XIV Disclosures apply to open-
end credit plans, transactions secured by dwellings that are not real 
property, and/or reverse mortgage transactions, which would not have 
been subject to the integrated disclosure requirements of the proposed 
rule. At the same time, because the final scope of the integrated 
disclosures was not known at the time of the proposal, the Bureau chose 
to delay the Affected Title XIV Disclosures to the fullest extent those 
requirements could apply under the statutory provisions. The Bureau 
sought comment on whether the final rule implementing the integrated 
disclosures should implement the Affected Title XIV Disclosures for 
transactions not covered by the integrated disclosures, including open-
end credit plans, transactions secured by dwellings other than real 
property, and reverse mortgages.
    The TILA-RESPA Proposal provided for a bifurcated comment process, 
with comments regarding the proposed amendments to Sec.  1026.1(c)(5) 
receiving a 60-day comment period and all other proposed provisions 
receiving a 120-day comment period. Pursuant to section 1400(c)(3) of 
the Dodd-Frank Act, if regulations implementing the Affected Title XIV 
Disclosures were not issued on the date that is 18 months after the 
designated date of transfer of TILA and RESPA rulewriting authority to 
the Bureau (i.e., by January 21, 2013), the statutory requirements 
would have taken effect on that date. In the TILA-RESPA Proposal, the 
Bureau stated its belief that implementing integrated disclosures that 
satisfy the applicable sections of TILA and RESPA, including the 
Affected Title XIV Disclosures, would benefit consumers and facilitate 
compliance for industry with TILA and RESPA. The Bureau also stated its 
belief that consumers would benefit from a consolidated disclosure that 
conveys loan terms and costs to consumers in a coordinated way and that 
industry would 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. The 
Bureau was concerned that, absent a final rule implementing the 
exemptions, the self-executing statutory requirements would have 
resulted in widely varying approaches to compliance, thereby 
potentially creating confusion for consumers and imposing significant 
burden on industry.
    For the reasons cited in the TILA-RESPA Proposal, on November 16, 
2012, the Bureau issued the 2012 Title XIV Delay Final Rule, adopting, 
among other provisions, proposed Sec.  1026.1(c)(5), pursuant to its 
authority under and consistent with 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). See 77 FR 70105 (Nov. 
23, 2012). As finalized, Sec.  1026.1(c)(5) exempted persons from 
providing the Affected Title XIV Disclosures. The final rule extended 
the exemption to apply also to the Post-Consummation Escrow 
Cancellation Disclosure. The Bureau determined that extending the 
temporary exemption to the Post-Consummation Escrow Cancellation 
Disclosure would benefit consumers and industry after evaluating 
comments the Bureau received requesting that it delay implementation of 
the disclosure, as well as similar requests received by the Board in 
response to its 2011 Escrows Proposal. The final rule also adopted 
comment 1(c)(5)-1, which provided that the exemptions in Sec.  
1026.1(c)(5) are intended to be temporary and that the provision does 
not exempt any person from any other part of TILA, RESPA, or those 
statutes' implementing regulations. Because the Bureau did not receive 
any comments seeking to limit the scope of the proposed exemption, the 
temporary exemptions as adopted applied to all transactions subject to 
the Affected Title XIV Disclosures. The final rule took effect on 
November 23, 2012.\161\ Accordingly, the Affected Title XIV Disclosures 
and the Post-Consummation Escrow Cancellation Disclosure were 
implemented for purposes of Dodd-Frank Act section 1400(c)(3) by Sec.  
1026.1(c)(5) and did not take effect on January 21, 2013.
---------------------------------------------------------------------------

    \161\ Under section 553(d) of the Administrative Procedure Act 
(APA), the required publication or service of a substantive rule 
shall be made not less than 30 days before its effective date, 
except for (1) A substantive rule which grants or recognizes an 
exemption or relieves a restriction; (2) interpretative rules and 
statements of policy; or (3) as otherwise provided by the agency for 
good cause and published with the rule. 5 U.S.C. 553(d). The 
Bureau's final rule provided for a temporary exemption from the 
Affected Title XIV Disclosures and the Post-Consummation Escrow 
Cancellation Disclosure such that they would not become self-
effective on January 21, 2013, and instead would be required at the 
time the TILA-RESPA integrated disclosures become effective. 
Therefore, under section 553(d)(1) of the APA, the Bureau published 
the final rule less than 30 days before its effective date because 
it was a substantive rule which grants or recognizes an exemption or 
relieves a restriction. 5 U.S.C. 553(d)(1).
---------------------------------------------------------------------------

    The TILA-RESPA Final Rule implements the Affected Title XIV 
Disclosures and the Post-Consummation Escrow Cancellation Disclosure 
for consumer credit transactions secured by a first lien on a 
consumer's principal dwelling (other than a consumer credit transaction 
under an open-end credit plan or a reverse mortgage). The Bureau is now 
amending Sec.  1026.1(c)(5) to revoke the temporary exemption for 
transactions subject to the Affected Title XIV Disclosures and the 
Post-Consummation Escrow Cancellation Disclosure as implemented by the 
TILA-RESPA Final Rule: Sec.  1026.19(e) and (f) of the TILA-RESPA Final 
Rule implements sections 128(a)(16) through (19), 128(b)(4), 
129C(f)(1), 129C(g)(2) and (3), 129D(h), and 129D(j)(1)(A) of TILA; 
Sec.  1026.20(e) implements section 129D(j)(1)(B) of TILA; Sec.  
1026.39(d)(5) implements section 129C(h) of TILA; and section 4(c) of 
RESPA. Accordingly, the temporary exemption for those transactions that 
are subject to Sec.  1026.19(e) and (f) is no longer necessary. 
However, if the Bureau were to revoke the temporary exemption for all 
transactions that are not covered by the final rule, the Affected Title 
XIV Disclosures and the Post-Consummation Escrow Cancellation 
Disclosure would become required for open-end credit plans, 
transactions secured by dwellings that are not real property, and 
reverse mortgages.
    The Bureau received several comments from industry objecting to 
this result. For example, a national trade association representing the 
reverse mortgages industry commented in support of continuing to exempt 
reverse mortgages from the Affected Title XIV Disclosures. In addition, 
a national trade association representing banks and bank holding 
companies that provide retail financial services commented that the 
exemption should apply to the fullest extent provided under the 
statute, and not be limited to loans that are subject to the TILA-RESPA 
integrated

[[Page 79762]]

disclosures. The Bureau considered these comments, and was persuaded 
that the exemption should continue to apply for all other transactions 
subject to the statutory provisions for which requirements have not yet 
been implemented. Accordingly, the final rule provides that, except in 
transactions subject to the integrated disclosure requirements in Sec.  
1026.19(e) and (f), no person is required to provide the disclosures 
required by sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1), 
129C(g)(2) and (3), 129D(h), or 129D(j)(1)(A) of TILA, section 4(c) of 
RESPA, or the disclosure required prior to settlement by section 
129C(h) of TILA. Final Sec.  1026.1(c)(5) also provides that, except in 
transactions subject to the Post-Consummation Escrow Cancellation 
Disclosure requirements in Sec.  1026.20(e), no person is required to 
provide the disclosures required by section 129D(j)(1)(B) of TILA. 
Lastly, the final rule provides that, except in transactions subject to 
the partial payment disclosure requirements in Sec.  1026.39(d)(5), no 
person becoming a creditor with respect to an existing residential 
mortgage loan is required to provide the disclosure required by section 
129C(h) of TILA.
    The Bureau is modifying comment 1(c)(5)-1 to clarify that the 
exemptions from the disclosure requirements only apply to certain 
mortgage transactions for which the disclosures are not otherwise 
implemented in Regulation Z. The comment sets forth a list of the 
transactions for which the disclosures are required under Regulation Z. 
The Bureau is no longer referring to the exemption as a temporary 
exemption in the commentary as that term was used primarily to refer to 
the transactions that would be subject to the integrated disclosure 
requirements under the TILA-RESPA Proposal.
    Specifically, the comment clarifies that Sec. Sec.  1026.37 and 
1026.38 implement sections 128(a)(16) through (19), 128(b)(4), 
129C(f)(1), 129C(g)(2) and (3), 129D(h), and 129D(j)(1)(A) of TILA and 
section 4(c) of RESPA for transactions subject to Sec.  1026.19(e) and 
(f). Section 1026.38(l)(5) implements the disclosure requirements of 
section 129C(h) of TILA for transactions subject to Sec.  1026.19(f), 
and Sec.  1026.39(d)(5) implements the disclosure requirements of 
section 129C(h) of TILA for transactions subject to Sec.  
1026.39(d)(5). Section 1026.20(e) implements the disclosure 
requirements of section 129D(j)(1)(B) of TILA for transactions subject 
to Sec.  1026.20(e).
    The details of the regulatory implementation of the statutory 
requirements are discussed below, under the applicable sections of 
Regulation Z. For a discussion of the Bureau's plans to implement 
integrated disclosures for open-end mortgage transactions, dwellings 
not secured by real property, and reverse mortgage transactions that 
are not covered by the TILA-RESPA Final Rule, see the section-by-
section analysis of Sec.  1026.19.
1(d) Organization
1(d)(5)
    As discussed in part I above, the Bureau is adopting rules and 
disclosures that combine the pre-consummation disclosure requirements 
of TILA and sections 4 and 5 of RESPA. The Dodd-Frank Act does not 
impose a deadline for issuing final rules and disclosures in connection 
with its mandate to integrate disclosure requirements or provide a 
specific amount of time for entities subject to those rules to come 
into compliance. As also discussed in part II.E 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. In addition, TILA 
section 105(d) generally provides that a regulation requiring any 
disclosure that differs from the disclosures previously required shall 
have an effective date no earlier than ``that October 1 which follows 
by at least six months the date of promulgation,'' except that the 
Bureau may at its discretion lengthen the period of time permitted for 
creditors or lessors to adjust their forms to accommodate new 
requirements. 15 U.S.C. 1604(d). The Bureau must balance these 
statutory objectives and requirements in considering the length of the 
implementation period.
    As described in part VI below, the final rule applies to 
transactions for which the creditor or mortgage broker receives an 
application on or after August 1, 2015, with the exception of new Sec.  
1026.19(e)(2), and the amendments to Sec.  1026.28(a)(1) and the 
commentary to Sec.  1026.29, which become effective on that date 
without respect to whether an application has been received on that 
date. The Bureau is adding comment 1(d)(5)-1 to provide clarity 
regarding the application of the effective date to transactions covered 
by the final rule. The comment summarizes the effective date, clarifies 
that Sec. Sec.  1026.19(e)(2), 1026.28, and comments 29(a)-2 and -4 in 
the final rule become effective on August 1, 2015, and sets forth 
examples to illustrate the application of the effective date for the 
final rule. The Bureau believes this comment will facilitate compliance 
with the final rule, which is one of the purposes of the integrated 
disclosures, as discussed above.
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
2(a)(3) Application
The Bureau's Proposal
    In the TILA-RESPA Proposal, the Bureau proposed to revise the 
current definition of the term ``application'' that applies to the 
RESPA GFE and early TILA disclosure. Under the final rule, receipt of 
an ``application'' triggers a creditor's obligation to provide the Loan 
Estimate within three business days. Specifically, the Bureau would 
have revised the definition of application to remove the seventh 
``catch-all'' element of the current definition under 12 CFR 1024.2(b), 
that is, ``any other information deemed necessary by the loan 
originator.'' The Bureau believed that deleting this element from the 
definition would enable consumers to receive the Loan Estimate earlier. 
The proposed definition would help ensure that consumers have 
information on the cost of credit while they have bargaining power to 
negotiate for better terms and time to compare other financing options.
    Currently, although neither TILA nor RESPA defines the term 
``application,'' 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). Regulation 
Z does not define this term, but instead provides that creditors may 
rely on the Regulation X definition of application for purposes of the 
provision of the early TILA disclosure. See Sec.  1026.19(a)(1)(i) and 
comment 19(a)(1)(i)-3. The inclusion of the seventh ``catch-all'' 
element in the definition in Regulation X was adopted in response to, 
among other things, concerns that a narrow definition of 
``application'' might inhibit preliminary underwriting. HUD's 2008 
RESPA Final Rule, 73 FR 68210-11.
    The Bureau's proposed definition of application would have 
consisted of two parts. First, the Bureau proposed to add

[[Page 79763]]

Sec.  1026.2(a)(3)(i) to define application as the submission of a 
consumer's financial information for purposes of obtaining an extension 
of credit. This would have established a broad definition of 
application for all transactions covered by Regulation Z, not just 
closed-end mortgage loans. Second, the Bureau proposed to add Sec.  
1026.2(a)(3)(ii) to provide that an application consists of six pieces 
of information, except for purposes of 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). The proposed 
six pieces of information were the consumer's name, income, social 
security number to obtain a credit report, the property address, an 
estimate of the value of the property, and the mortgage loan amount 
sought. The Bureau stated in the proposal that these items of 
information had an established significance in the context of closed-
end loans secured by real property, but could be less significant or 
even inapplicable to other types of credit. Thus, this definition 
limiting the term application to collection of these six pieces of 
information would not have been applied to subpart B, subpart F, and 
subpart G.
    Proposed comment 2(a)(3)-1 would have explained that the submission 
may be in written or electronic format and includes a written record of 
an oral application. The proposed comment would have also explained 
that the definition does not prevent a creditor from collecting 
whatever additional information it deems necessary in connection with 
the request for the extension of credit; however, once a creditor has 
received the six pieces of information listed in Sec.  
1026.2(a)(3)(ii), the creditor has received an application for purposes 
of Sec.  1026.2(a)(3)(ii). The proposed comment also would have 
provided examples of this requirement.
    Proposed comment 2(a)(3)-2 would have explained 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 illustrative purposes, the proposed comment would have 
clarified that 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. The 
Bureau stated in the proposal that the comment would be consistent with 
guidance provided by HUD in the HUD RESPA FAQs p. 7, 14 
(``GFE-General'').
    Proposed comment 2(a)(3)-3 would have clarified that the creditor's 
receipt of a credit report fee does not affect whether an application 
has been received. It would have stated that Sec.  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), and that Sec.  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). The 
proposed comment would have also explained that 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). The proposed comment would also have 
provided an example of this provision.
    As noted above, the Bureau believed that 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. While the Bureau believed that 
creditors should be able to collect information in addition to the six 
specific items of information set forth in the current definition of 
application, the Bureau was concerned that the catch-all item in the 
current definition may permit creditors to delay providing consumers 
with the integrated Loan Estimate, at a point when the consumer has 
much less opportunity to negotiate or compare other options. The Bureau 
stated that it did not believe that this principle conflicted with the 
creditor's critical need to be able to collect the information 
necessary to originate loans in a safe and sound manner, and that the 
proposed definition of application would not define or limit 
underwriting; it instead would establish a point in time at which 
disclosure obligations would begin.
    Based on this premise, the Bureau stated that the proposed 
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, because creditors would be able to 
continue to collect whatever additional information, in the creditor's 
view, is necessary for underwriting the consumer's loan application 
after receiving the six specific items of information that constitute 
an application under proposed Sec.  1026.2(a)(3)(ii). It further stated 
that removing the catch-all item from the current definition could 
ensure that the disclosures are both received early in the loan process 
and based on the information most critical to providing reliable 
estimates. The Bureau also stated that 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). The Bureau 
acknowledged in the proposal that creditors could strategically order 
information collection in a manner that best suits the needs of the 
creditor. But the Bureau believed that even if the creditor did so, the 
proposed definition would still be better than the current definition 
in facilitating consumers' ability to receive reliable estimates early 
in the origination process. The Bureau also believed that the proposed 
change to the definition could facilitate consumer shopping because it 
could ensure that consumers would not be required to disclose sensitive 
information, such as the consumer's social security number or income, 
until after the creditor collects less sensitive information. The more 
sensitive information the consumer provides, the more the consumer may 
feel committed to a loan offer and be less likely to continue shopping. 
The Bureau therefore proposed to remove the catch-all item, but 
believed that the proposal preserved creditors' ability to collect any 
additional necessary information, which it believed would strike the 
appropriate balance between the needs of consumers and the needs of 
industry.
    The Bureau also concluded that the proposed approach would dovetail 
with the requirements of proposed Sec.  1026.19(e), which establishes 
limitations on fee increases for the purposes of determining good faith 
but also establishes exceptions to permit changes that are based on 
changes in the information the creditor relied on in disclosing the 
estimated loan costs. Thus, the Bureau stated that the proposed 
definition of application, which would have required creditors to 
collect any additional information prior to collecting the six pieces 
of information specified in proposed Sec.  1026.2(a)(3)(ii), would 
maintain the flexibility provided by the current definition of 
application in deciding which additional information is necessary for 
providing estimates. The Bureau stated its belief that if a creditor 
chooses to collect a consumer's combined liability information prior to 
collecting the six pieces of information

[[Page 79764]]

specified in Sec.  1026.2(a)(3)(ii), the disclosures provided pursuant 
to Sec.  1026.19(e) may reflect such information.
    The Bureau also noted in the proposal that it received feedback, 
including a comment received in response to the 2011 Streamlining RFI, 
requesting a single definition of application under Regulation Z, 
Regulation B, and Regulation C. Regulation B implements the Equal 
Credit Opportunity Act (ECOA), and Regulation C implements the Home 
Mortgage Disclosure Act (HMDA). The Bureau stated in the proposal that 
while it recognized the potential consistency benefits of a single 
definition of application, it believed that the proposed definition of 
application would provide important benefits to consumers in the 
context of closed-end loans secured by real property.
    During the Small Business Review Panel process, several small 
entity representatives expressed concern about eliminating the catch-
all item from 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 solicited 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.
Comments
    In general. Commenters representing a wide range of the mortgage 
origination industry opposed the removal of the catch-all item from the 
definition of application. In contrast, the only consumer advocacy 
group to comment on this aspect of the proposal expressed support for 
the proposed definition of application.
    A national fair housing consumer advocacy group asserted that the 
current definition of application, because of its lack of uniformity, 
may create confusion for consumers. The commenter stated that predatory 
mortgage brokers and loan originators in the past have depended in part 
on the confusing nature of the loan application process to make 
unaffordable and unsustainable loans to minorities. The commenter 
asserted that the catch-all item in the current definition of 
application was vague and supported its removal from the definition. 
The commenter suggested, however, that the Bureau should move from 
commentary into the regulation itself the statement that a creditor 
that has collected a Tax Identification Number will be deemed to have 
obtained a social security number to obtain a credit report, for 
purposes of Sec.  1026.2(a)(3)(ii). The commenter asserted that this 
change would reduce instances of misinformation or discrimination on 
the basis of race, color, and national origin by creditors.
    Industry commenters opposed the removal of the catch-all item from 
the definition of application, even though some industry stakeholders 
also believed that the catch-all item was vague. For example, a 
national trade association representing credit unions requested that if 
the Bureau retains the current definition of application, it provide 
further guidance on what information is included in ``any other 
information deemed necessary by the lender'' so that credit unions 
could have a clear understanding of the kinds of information they may 
collect before issuing a Loan Estimate. Commenters' specific concerns 
regarding the proposed definition are discussed in more detail below.
    Removal of the catch-all item. Many commenters asserted that 
without the catch-all item, creditors would not be able to obtain 
information critical to their ability to issue reliable and meaningful 
Loan Estimates. These commenters stated that the catch-all item 
currently permits creditors to collect information that could 
significantly impact loan and closing costs, loan pricing in the 
secondary market, and the underwriting decisions they make. Many 
commenters expressed the concern that without the ability to collect 
such information, they would have to follow up with revised Loan 
Estimates as they receive additional information.
    However, there was no consensus among commenters with respect to 
what additional specific information beyond the six items included 
under the proposed definition of application is needed. A number of 
industry commenters asserted that the loan product must be part of the 
definition of application, or otherwise they would not know whether the 
rule would require or permit them to issue more than one Loan Estimate. 
Other commenters asserted that the definition of application must also 
include occupancy status, loan purpose, the loan's term, and, for 
purchase transactions, the sale price of the property the consumer is 
interested in. In joint comments, two State credit union trade 
associations asserted that creditors are required to collect 
information on loan purpose to comply with the Bank Secrecy Act of 1970 
and HMDA. Credit union commenters and their trade associations also 
asserted that credit union membership is information credit unions must 
collect to process an application.
    Several industry commenters, comprising mostly national trade 
associations representing banks and non-bank mortgage lenders, provided 
a list of seventeen pieces of information that, according to the 
commenters, significantly impact loan costs. A State manufactured 
housing trade association and a large non-depository manufactured 
housing lender asserted that creditors making such loans must be able 
to collect information about whether the home will be situated on 
leased land or on land that will secure the loan because the 
distinction would determine whether the obligation to provide the Loan 
Estimate disclosures applies to the creditor. A mortgage company 
commenter asserted that credit score, not just the consumer's social 
security number to obtain the score, should be included in the 
definition of application because the loan terms offered to a consumer 
depend on the consumer's credit score.
    The comments also stated that some creditors require consumers to 
provide a copy of the purchase and sale contract as part of the 
application process. For example, a community bank commenter stated 
that it currently requires the purchase and sale contract as part of 
applications to help determine whether the buyer or seller is 
responsible for various costs and to identify the sale price. Another 
large bank commenter stated that a purchase and sale contract is 
necessary to determine the sales price. The community bank commenter 
stated that the regulations must allow creditors to minimize the burden 
of redisclosure, and that the bank's ability to request the purchase 
and sale contract reduces such burden. A State association of buyer's 
real estate agents, however, expressed concern that the lender practice 
of requiring a purchase and sale contract does not give consumers 
enough time to shop for a mortgage loan and must be changed.
    Impact on industry. Many commenters expressed concern about 
compliance burden and implementation costs. Commenters stated that they 
would have to change their application process so that they could 
collect the information they need before, or at the same time as, they 
collect the six specific pieces of information that would constitute an 
application under the proposal. Some commenters asserted that even if a 
creditor could structure its application process to collect the 
additional information before collecting the six specific pieces of

[[Page 79765]]

information that would make up the application, situations might arise, 
particularly with applications submitted through the internet or 
applications submitted by mail, where consumers submit the six specific 
pieces of information, but not the additional information the creditor 
deems critical to providing accurate and reliable Loan Estimates.
    Some commenters, including a large bank commenter and national 
trade associations representing large banks and large mortgage finance 
companies, sought clarification on how creditors should treat consumer 
information they have retained due to prior or existing customer 
relationships. One of these commenters asked if a creditor would be 
considered to have received an application if a consumer starts filling 
out a mortgage application form online, provides the six pieces of 
information that make up the definition of application, but then saves 
the mortgage application form to complete at a later time. Some 
commenters asserted that the risk of having to issue Loan Estimates 
upon receiving applications that are complete under the Regulation Z 
definition of application, but that are not complete in the creditor's 
determination, would be greater for creditors that use independent 
mortgage brokers.
    A number of commenters expressed concern about the interaction 
among the proposed definition of application, the proposed change to 
the definition of business day for purposes of determining the original 
Loan Estimate delivery requirement, and the proposed tightening of the 
current tolerance rules establishing limitations on fee increases for 
certain settlement costs. These commenters believed that these changes 
together would require a creditor to provide a Loan Estimate subject to 
stricter tolerances in a shorter period of time, with less information 
than it could currently rely on. A national trade association 
representing mortgage bankers asserted that creditors may increase 
their origination costs and estimate third-party charges at higher 
levels to manage the risk of providing estimates in response to the 
combined regulatory impact.
    Some commenters asserted that changing the definition of 
application may not have a significant impact on a creditor's ability 
to delay provision of the Loan Estimate, because a creditor could 
simply sequence its application process to delay collection of some or 
all of the six pieces of information included under the new definition 
of application. Some commenters noted that they were not aware of any 
issues that have arisen since the current definition of application 
became effective in 2010 that would lead the Bureau to conclude that 
the proposed modification was necessary. A trade association 
representing large banks observed that HUD had previously proposed to 
require lenders to provide the RESPA GFE upon the receipt of the six 
items of specific information that would constitute the proposed 
definition of application, but after reviewing the comments, HUD added 
the catch-all item to the definition of application.
    Some commenters expressed concern that, because the proposal would 
have required creditors to honor the charges disclosed on a Loan 
Estimate for ten business days after providing it, creditors would 
either be forced to accept lower fees disclosed when necessary 
information is missing or be required to provide revised Loan Estimates 
to charge the consumer the actual cost of a settlement service. A 
national trade association representing large bank creditors stated 
that the proposed definition could reduce the number of rate locks 
offered at application because creditors may not want to provide such a 
commitment without information they deem necessary. A large bank 
commenter asserted that the proposed definition of application may 
restrict a creditor's ability and reduce the creditor's willingness to 
provide pre-qualification and web-based home shopping services because 
currently, when using those services, consumers often provide the six 
pieces of information that would have constituted an application under 
the proposal. A national trade association representing banks asserted 
that a consumer should be allowed to provide the six specific items of 
information to receive pre-application worksheets, without also 
triggering the obligation for the creditor to issue a Loan Estimate.
    A national trade association representing community-based mortgage 
bankers asserted that creditors need the flexibility to postpone the 
issuance of the Loan Estimate to those consumers who only want non-
binding pre-application worksheets. A mortgage broker commenter 
asserted that there should be two definitions of application: one 
definition to trigger the obligation to provide pre-qualification 
worksheets, and a different definition to trigger the obligation to 
issue a Loan Estimate, which should retain the catch-all item or be the 
same as the definition used in Regulation B.
    Some commenters expressed concern that the six items of information 
that constitute the proposed definition of application would not be 
adequate for a creditor to consider for ability-to-repay purposes, 
because creditors must verify certain borrower information to comply 
with those requirements. Several commenters, including national trade 
associations representing banks and consumer mortgage companies, 
additionally requested clarification that the proposed definition of 
application applies only to Regulation Z, and not to regulations 
implementing ECOA, HMDA, and the Fair Credit Reporting Act (FCRA). Some 
commenters expressed a desire for the Bureau to streamline the 
definition of application so that one definition can be consistently 
applied across those regulations and Regulation Z. A large-bank trade 
association expressed concern that adopting the proposed definition of 
application would add regulatory complexity because the definition 
would be different from the definitions of application under 
regulations implementing ECOA and HMDA at a time when banks are 
struggling to comply with other Dodd-Frank Act requirements.
    The SBA stated that the Bureau should not remove the catch-all item 
from the definition of application because the small entity 
representatives that participated in the Bureau's Small Business Panel 
Review process had mixed reactions to the proposed removal of the 
catch-all item. It additionally suggested that the Bureau should remove 
``property address'' from the list of six specific items that would 
make up the definition of application. The SBA asserted that the 
requirement would be problematic based on its consultation with 
industry representatives and based on the suggestion made by a national 
trade association representing community banks in connection with the 
Small Business Review Panel process. The trade association commenter 
asserted that the ``property address'' should be an optional item in 
the definition of application for purchase transactions because the 
change would enable the consumer to shop for a mortgage loan based on a 
regulated document, the Loan Estimate, rather than unregulated pre-
application worksheets. The commenter made the same assertion in the 
comment letter it submitted in response to the TILA-RESPA Proposal.
    An individual industry commenter echoed SBA's suggestion with 
respect to the property address. The commenter asserted that the 
definition of application should be defined as having been received 
when the creditor has enough information to issue a pre-

[[Page 79766]]

approval letter, or submit the loan for pre-approval, but that the pre-
approval letter must not bind the creditor.
Final Rule
    The Bureau has considered the comments but believes that the 
purpose of the Loan Estimate with respect to consumers that was set 
forth by the Dodd-Frank Act (see Dodd-Frank Act sections 1098 and 
1100A), to aid consumer understanding of the mortgage loan transaction, 
is better served by removing the catch-all item from the definition of 
``application.'' The Bureau understands that the removal of the seventh 
catch-all item from the definition may not have a substantial impact on 
moving the issuance of the Loan Estimate earlier in the transaction. It 
is apparent from the comments received that many creditors would 
sequence the information they receive to obtain information they deem 
necessary in addition to the six items in the definition of 
``application'' before receipt of all six items. However, the Bureau 
believes that there are other important benefits that will be achieved 
from a definition of application that only includes the six specific 
items and not the seventh open-ended catch-all item.
    Under the current definition of application under Regulation X, 
creditors decide when to provide the RESPA GFE and early TILA 
disclosure based on their own definition of what information is 
necessary for an application. The Bureau does not have evidence of 
creditors systematically using the catch-all item after receiving the 
six items in the definition of application to delay issuance of the 
RESPA GFE and the early TILA disclosure after receipt of the six items. 
However, it is apparent from the comments received that creditors use 
this catch-all item in the current definition of application to obtain 
additional information after receiving the six specific items in the 
definition of application. Accordingly, consumers cannot ascertain the 
point in time when they are entitled to receive the Loan Estimate on 
which they can rely.
    The Bureau believes that the final rule, under which consumers must 
receive a Loan Estimate after submitting an application that clearly 
presents the estimated loan terms and costs will provide a significant 
benefit to consumers by enabling them to shop for different financing 
options with clear, reliable estimates. Indeed, as described in the 
section-by-section analysis of Sec.  1026.19(e)(2)(ii) below, the final 
rule requires a statement on pre-disclosure estimates provided to 
consumers informing them that the estimated loan terms and costs can be 
higher, and to ``Get an official Loan Estimate before choosing a 
loan.'' Accordingly, to ensure that consumers understand how to obtain 
a Loan Estimate, the Bureau believes that consumers should be able to 
discern the point of time in the application process of the transaction 
at which the creditor is required to provide them with one. The Bureau 
believes that the fact that under the current definition of application 
creditors can obtain any additional information past the point of 
receipt of the six items conflicts with the ability of consumers to 
understand this aspect of their transaction.
    By providing that the submission of six specific items of 
information constitutes an application, the final rule provides a clear 
point in time for consumers at which the creditor can no longer delay 
issuance of the Loan Estimate. Accordingly, the Bureau believes that 
the definition of application in the final rule will result in 
consumers having a better understanding of the application process of 
the transaction, and of how to obtain the Loan Estimate, as directed by 
the statement required under Sec.  1026.19(e)(2)(ii). The Bureau 
believes a uniform, bright line definition of application will provide 
this consumer benefit. With one standard, objective definition of 
application across all creditors, consumers will more easily understand 
when a creditor is required to provide them with the Loan Estimate. The 
Bureau believes consumer understanding can be further enhanced through 
a consumer education initiative regarding the information the consumer 
should provide to receive a Loan Estimate, and regarding the 
reliability of the Loan Estimate. In addition, the Bureau believes a 
single bright-line definition of application across all creditors will 
facilitate compliance by industry and supervision by Federal and State 
regulatory agencies.
    The Bureau does not believe that the catch-all element is a 
necessary component of the definition of application. The final rule 
permits creditors to collect the information they need to give a 
reliable estimate before they complete collection of the six items of 
information that constitute an application. As discussed above, some 
industry commenters noted that aspect of the Bureau's proposed 
definition when they asserted that the definition of application may 
not have a significant impact on a creditor's ability to delay 
provision of the Loan Estimate, because the creditor could simply 
sequence its application process to delay collection of some or all of 
the six pieces of information that would make up the definition of 
application. Such comments reveal that the catch-all element does not 
need to be part of the definition of application because creditors do 
not need it to collect additional information from consumers. In 
addition, the final rule does not prevent creditors from collecting 
additional information after they receive the six specific pieces of 
information for underwriting purposes.
    The Bureau also believes that it is unnecessary to add specific 
items to the definition of application. The fact that the final rule 
permits creditors to collect the information they need to give a 
reliable estimate before they complete collecting the six items of 
information that constitute an application means that each creditor is 
free to request the particular pieces of information it needs before, 
or at the same time as the creditor collects the six pieces of 
information. In addition, commenters did not uniformly suggest 
particular items to add to the definition. Because creditors can 
collect the additional information they believe is necessary with this 
revised definition of application, the Bureau believes that it is 
unnecessary to add new items to the definition of application to 
replace the catch-all item, as requested by some industry commenters.
    The Bureau does not believe that the deletion of the catch-all item 
will cause creditors to issue a large number of revised Loan Estimates 
that would create consumer confusion and information overload. The 
final rule permits creditors to sequence the application process to 
gather additional items of information, including the potential loan 
product a consumer is considering, which some creditors assert are 
needed to provide reliable estimates. This reduces the likelihood of 
redisclosures. For similar reasons, creditors should not need to 
increase their origination costs, over-estimate third-party fees, or 
reduce rate lock offers. To be sure, the final rule may result in some 
consumers receiving multiple Loan Estimates concurrently with respect 
to multiple loan products the consumer is considering. The Bureau does 
not believe, however, that this will cause confusion. On the contrary, 
the Bureau believes that receiving multiple Loan Estimates furthers the 
goal of facilitating consumer shopping. Further, the Bureau believes 
that it is better that consumers receive Loan Estimates that are 
subject to the good faith requirements of Sec.  1026.19(e)(3) and that 
are subject to the standard or model format

[[Page 79767]]

requirements of Sec.  1026.37(o) than that they receive pre-disclosure 
estimates, which are not subject to those requirements.
    Pre-qualification services. The Bureau also does not believe that 
the definition of application adopted in this final rule will 
discourage creditors from providing pre-approval, pre-qualification, or 
internet-based home-shopping services. The Bureau believes that 
competition among creditors for consumers will be an effective 
countervailing force against any such disincentive. Additionally, the 
Bureau does not believe that the definition of application will 
restrict creditors' ability to provide pre-qualification cost estimates 
or grant pre-approvals. The Bureau believes that creditors could 
provide pre-qualification estimates and grant pre-approvals without 
obtaining all of the six specific items of information that make up the 
definition of application. Specifically, the Bureau believes that there 
is little need for creditors to gather specific information about the 
loan transaction, such as the property address or loan amount sought, 
to make pre-qualification estimates because pre-qualification estimates 
and pre-approvals are not subject to the tolerance rules in Sec.  
1026.19(e)(3) and are generally for a range of loan amounts and 
property values. In fact, comments made by a national trade association 
representing community banks asked that the Bureau designate ``property 
address'' as an optional item in the definition of application for 
purchase transactions. This suggests to the Bureau that creditors may 
not need the ``property address'' to issue pre-qualification estimates.
    Industry compliance. The Bureau considered industry commenters' 
concern that regulatory burden would increase because the final rule 
would change (i) the definition of business day to include Saturday as 
a business day for the original Loan Estimate delivery requirement; 
(ii) the tolerance rules, and (iii) the definition of application. In 
response to these concerns, the Bureau has decided to use the general 
definition of business day in Regulation Z for the integrated Loan 
Estimate delivery requirement. See the section-by-section analysis of 
Sec.  1026.2(a)(6). Further, the Bureau is addressing concerns about 
burden by retaining the six exceptions to the general rule that certain 
settlement charges may not increase from the amounts originally 
disclosed to the consumer under Sec.  1026.19(e)(1)(i), including 
exceptions based on the information the creditor relied on in 
disclosing the estimated loan costs. See the section-by-section 
analysis of Sec.  1026.19(e)(3)(iv).
    As noted above, a number of commenters expressed concerns about 
compliance with other regulations. The definition being adopted today 
does not change the current definitions of application under 
Regulations B and C. The Bureau recognizes the potential benefits of a 
single definition of application, including reduced regulatory burden. 
However, the definition of application in this final rule determines 
when consumers must be given disclosures that enable them to shop for 
and compare different loan and settlement cost options. The definition 
of application in this final rule serves a different purpose than the 
definition of application in Regulations B and C. ``Application'' as 
defined by this final rule triggers a creditor's obligation to provide 
disclosures to aid consumers in shopping for and understanding the cost 
of credit and settlement. On the other hand, a creditor's receipt of an 
application under Regulation B triggers a creditor's duty to make a 
credit decision and notify the borrower within a specified time frame. 
Under Regulation C, receipt of an application triggers a duty to 
collect and report information on the disposition of that application 
and on other aspects of the transaction as well as the applicant's 
characteristics. Accordingly, the Bureau is not expanding the 
definition of application adopted in this final rule to regulations 
that implement ECOA, FCRA, and HMDA, or vice versa. However, the Bureau 
will continue to consider the comments received on this topic as it 
evaluates further follow up to the 2011 Streamlining RFI.
    With respect to the concern that the definition of application may 
make it more difficult to comply with other regulatory obligations, 
given the flexibility the creditor will continue to have under this 
final rule to sequence the information it collects, there is little 
need to delay issuance of the Loan Estimate to comply with other 
regulations. Regulation X currently prohibits creditors from requiring 
the submission of verifying information as a condition of issuing the 
RESPA GFE. The final rule prohibits creditors from requiring the 
submission of verifying information as a condition to issuing a Loan 
Estimate, as discussed below in the section-by-section analysis of 
Sec.  1026.19(e)(2)(iii). However, the final rule does not prevent a 
creditor from fulfilling its obligation to evaluate a borrower's 
ability to repay. Creditors will be able to collect whatever 
information they need to evaluate a borrower's ability to repay so long 
as they sequence the collection of that information to ensure that they 
provide a Loan Estimate when required by Sec.  1026.19(e)(1)(iii) and 
without conditioning the issuance on verifying information.
    The Bureau recognizes that some creditors may have to restructure 
their information collection process, such as by changing the manner in 
which they sequence their information collection and increasing 
communication with independent mortgage brokers. These changes may 
impose some costs on creditors. But the Bureau believes that the final 
rule's bright-line definition of application may provide some benefits 
to industry. Some commenters requested clarification regarding what 
information could be collected by creditors under the catch-all 
element. Because the current definition of application does not contain 
a standard for the additional information that may be collected before 
providing the Loan Estimate, the final rule's bright line definition 
may facilitate industry compliance with the disclosure requirements. In 
addition, a bright line definition may facilitate due diligence reviews 
by creditors' secondary market purchasers, securitizers, or other 
business partners, and thereby reduce overall burden.
    Specific comments on the six items. The Bureau received comments on 
the six items of information, in addition to the removal of the seventh 
catch-all element. The Bureau is not adopting changes to the six 
elements. First, the final rule does not replace ``social security 
number to obtain a credit report'' with ``credit score,'' as a mortgage 
broker commenter suggested. The Bureau believes a creditor would have 
sufficient time to obtain the credit score information before a Loan 
Estimate must be issued. Additionally, for reasons stated above, the 
Bureau does not believe it is necessary to provide that ``property 
address'' is an optional piece of information for purposes of the 
definition of application. As discussed in greater detail below, 
comment 19(e)(3)(iv)(A)-3 explains that creditors are not required to 
obtain the property address before they issue a Loan Estimate. The 
final rule also does not include a separate definition of application 
for pre-approval estimates or worksheets. Creditors are currently able 
to issue such documents at any time before issuing the RESPA GFE and 
the early TILA disclosure, and will continue to be able to do so under 
this final rule. Further, the Bureau believes that creating another 
definition of

[[Page 79768]]

application would create consumer confusion and add to regulatory 
burden.
    Final definition of application. For the reasons discussed above, 
the Bureau is finalizing the removal of the catch-all item from the 
definition of application in this final rule as proposed, pursuant to 
its authority under TILA section 105(a) and its authority under section 
19(a) of RESPA. The definition of application adopted in this final 
rule consists of two parts. First, Sec.  1026.2(a)(3)(i) defines 
application as the submission of a consumer's financial information for 
purposes of obtaining an extension of credit. This establishes a 
general definition for all credit transactions subject to Regulation Z. 
Second, Sec.  1026.2(a)(3)(ii) provides that an application consists of 
six pieces of information for transactions subject to Sec.  1026.19(e), 
(f), or (g) of Regulation Z. The six pieces of information consist of 
the consumer's name, income, social security number to obtain a credit 
report, the property address, an estimate of the value of the property, 
and the mortgage loan amount sought.
    The Bureau acknowledges that in contrast to the proposed Sec.  
1026.2(a)(3)(ii), final Sec.  1026.2(a)(3)(ii) narrows the scope of the 
definition of application to transactions subject to the integrated 
disclosure requirements. The Bureau believes that the modification is 
necessary to facilitate compliance with the final rule. The definition 
of application in proposed Sec.  1026.2(a)(3)(ii) would have applied to 
any type of credit subject to subpart C of TILA, including closed-end 
loans not secured by real property. The Bureau did not intend the 
definition of application set forth in proposed Sec.  1026.2(a)(3)(ii) 
to apply to other types of credit. As the Bureau stated in the 
proposal, the definition of application set forth in proposed Sec.  
1026.2(a)(2)(ii) consisted of elements that had 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.'' 77 FR 51140.
    Comment 2(a)(3)-1 is adopted as proposed, except for adjustments to 
harmonize the comment with adjustments to the scope of the definition 
of application set forth in final Sec.  1026.2(a)(3)(ii). The comment 
provides guidance on when a consumer is considered to have submitted an 
application for purposes of Sec.  1026.2(a)(3). This final rule does 
not require the receipt of the six items that make up the definition of 
an application in a particular order. The final rule permits a creditor 
to set up systems to collect the six items of information that make up 
the definition of application in the order that best suits the 
creditor's needs. Thus, creditors taking applications on paper form, 
over the phone, or on a Web page can sequence the information requested 
from the consumer in any order.
    The Bureau does not believe that additional guidance is necessary 
with respect to the collection of information from consumers with whom 
the creditor has an existing business relationship, or a previous 
business relationship, with the creditor. The definition of application 
refers to the ``submission'' of the six items of information that make 
up the definition, and as such, merely maintaining such information 
from a previous transaction or business relationship would not 
constitute an application for purposes of the definition if the 
consumer has not submitted any information or indicated that he or she 
wishes such information maintained by the creditor to be used for an 
application. Additionally, because the definition of application refers 
to the ``submission'' of the six items of information that make up the 
definition, if a consumer starts filling out a mortgage application 
form online, enters the six pieces of information that constitute the 
definition of ``application,'' but then saves the mortgage application 
form to complete at a later time, the consumer has not submitted the 
items of information.
    Comments 2(a)(3)-2 and -3 are also adopted as proposed. Comment 
2(a)(3)-2 clarifies that if a consumer does not have a social security 
number, the creditor may instead request a unique identifier the 
creditor uses to obtain a credit report. For illustrative purposes, the 
comment provides an example that states that 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. A national fair housing consumer advocacy group 
commenter suggested moving this provision into the regulation. However, 
because the example illustrates how to comply with the requirements of 
Sec.  1026.2(a)(3) if the consumer does not have a social security 
number, the Bureau believes that this example's placement should remain 
in commentary, rather than in the text of the regulation.
    Finally, the Bureau understands that some creditors require a 
purchase and sale agreement prior to issuing the RESPA GFE and the 
early TILA disclosure. While this practice may be permissible under 
current Regulation X in some cases, it would conflict with final Sec.  
1026.19(e)(2)(iii), which prohibits a creditor from requiring verifying 
documentation before issuing a Loan Estimate. See the section-by-
section analysis of Sec.  1026.19(e)(2)(iii).
2(a)(6) Business Day
    The Bureau proposed to apply the specific definition of the term 
``business day'' under Regulation Z, which includes Saturdays, but 
excludes certain public holidays, to the provisions of Sec.  1026.19(e) 
and (f) that would be analogous to Sec.  1026.19(a)(1)(i), (a)(1)(ii), 
and (a)(2), which are the timing requirements for the integrated 
disclosures.
    Although neither RESPA nor TILA defines the term ``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, the specific definition provided under 
Regulation Z applies, which includes 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 specific 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). The Bureau proposed to amend Sec.  
1026.19 to implement analogous requirements for the integrated 
disclosures in new paragraphs (e) and (f) of that section. For 
consistency with the current timing requirements under Sec.  
1026.19(a), and to facilitate compliance with TILA, the Bureau proposed 
to use its authority under TILA section 105(a) to amend Sec.  
1026.2(a)(6) to apply the specific definition of business day to the 
provisions of Sec.  1026.19(e) and (f) that would be analogous to Sec.  
1026.19(a)(1)(i), (a)(1)(ii), and (a)(2). The Bureau also proposed 
conforming amendments to comment 2(a)(6)-2. Under the proposal, in 
addition to other timing requirements for the integrated disclosures, 
the specific definition of business day would have applied to the 
requirement to deliver the Loan Estimate within three business days of 
a creditor receiving an application.

[[Page 79769]]

    The Bureau stated in the TILA-RESPA Proposal that it recognized 
that this issue was previously raised during the Board's 2008-2009 MDIA 
rulemaking. See 73 FR 74989, 74991 (Dec. 10, 2008) and 74 FR 23289, 
23293-23294 (May 19, 2009). However, the Bureau stated that it believed 
applying the specific definition of business day to the integrated 
disclosures would facilitate compliance. The Bureau solicited feedback 
regarding whether the general definition of business day instead should 
apply to the integrated disclosures delivery requirements. The Bureau 
also solicited comment on whether the rules should be analogous to the 
current rules, where the general business day requirement applies to 
some requirements and the specific business day requirement applies to 
other requirements. Finally, the Bureau solicited 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).
Comments
    In joint comments, two large national consumer advocacy groups 
asserted that the Bureau should replace both the general and specific 
definitions of business day currently used in Regulation Z with an 
alternative definition of business day that would exclude Saturdays, 
Sundays, and the legal public holidays specified in 5 U.S.C. 6103(a). 
The consumer advocacy groups asserted that the current specific 
definition of business day is flawed because people generally do not 
consider Saturdays as a ``business day.'' The consumer advocacy groups 
also opposed the general definition of business day. They argued that 
it was subjective, varied entity-by-entity, and could be changed 
without warning. The commenters asserted that they did not believe that 
excluding Saturday from the definition of business day will have a 
significant consumer impact, and that any detriment would be outweighed 
by the benefits of their alternative definition. The consumer advocacy 
groups asserted that their alternative definition of business day would 
simplify compliance and training for businesses and help reduce the 
possibility of errors and litigation that arise from confusion over 
whether a particular day qualifies as a business day.
    Industry commenters had mixed reactions to the proposed application 
of the specific definition of business day for determining the original 
Loan Estimate delivery requirement, although most opposed applying the 
specific definition. A large bank commenter expressed support for using 
the specific definition of business day for purposes of determining the 
amount of time a creditor has to deliver the Loan Estimate after 
receipt of a consumer's application because applying different 
definitions of business day is confusing to creditors, consumers, and 
other participants in the settlement process. A regional bank holding 
company supported applying the specific definition of business day to 
all mortgage-related provisions of Regulation Z based on its belief 
that the general definition of business day is vague. A national trade 
association representing mostly mortgage brokers and a State trade 
association representing similar entities supported the proposed 
application of the specific definition of business day for determining 
the original Loan Estimate delivery requirement. They asserted that 
most creditors operate at least six days a week. A title agent 
commenter supported the specific definition because it was easy to 
understand.
    As noted above, most industry commenters strongly opposed using the 
specific definition of business day to determine the original Loan 
Estimate delivery requirement. The commenters included large banks, 
regional banks, community banks, credit unions, and non-depository 
lenders; several national, regional, and State trade associations 
representing banks, mortgage bankers, consumer mortgage companies, and 
credit unions; settlement and title agents, document preparation and 
software companies, compliance companies, a law firm, SBA, and a 
national trade association representing house financing agencies. The 
comments mostly focused on the compliance burden that would result from 
the adoption of the specific definition, because it would reduce the 
timeframe in which a creditor or mortgage broker would have to prepare 
and deliver the Loan Estimate. Commenters stated that creditors are 
typically not staffed so that they could provide the Loan Estimate 
within a timeframe determined by the application of the specific 
definition of business day to the original Loan Estimate delivery 
requirement. Some commenters stated that they are closed on weekends 
and others stated that they only offer limited service on weekends. 
Commenters also stated that the personnel that typically prepare the 
Loan Estimate do not work on Saturdays. A number of commenters stated 
that even if a creditor is open for business on a Saturday, third-party 
settlement service providers that a creditor must contact to obtain 
information creditors need to prepare the Loan Estimate may not be 
open. Commenters expressed concern that the specific definition of 
business day would increase operating and compliance costs 
substantially for creditors and third-party service providers, 
particularly if they are small entities, increase mistakes on the Loan 
Estimate, and increase redisclosures because it would reduce the 
timeframe in which a creditor or mortgage broker would have to prepare 
the Loan Estimate. Many of these commenters requested that the Bureau 
retain the general definition of business day for the original Loan 
Estimate delivery requirement.
    A number of industry commenters supported establishing a consistent 
definition of business day to promote consistency across the provisions 
of Regulations X and Z that would be impacted by the TILA-RESPA 
Proposal to reduce compliance burdens for creditors. A large non-
depository lender and a State credit union trade association expressed 
a preference for the general definition of business day, because 
applying the specific definition of business day to the preparation of 
the integrated disclosure would increase compliance burden by reducing 
the time available to prepare the integrated disclosures and expose 
creditors to unnecessary liability. A national trade association 
commenter representing mortgage bankers suggested that the general 
definition of business day should be clarified. The commenter appears 
to have sought to narrow the general definition of business day to an 
entity's mortgage origination functions so that at a multiservice 
financial institution, the determination of whether a day is a business 
day under the general definition would be evaluated in the context of 
the financial institution's mortgage origination business and the 
schedule of employees that work in that business segment.
    Some commenters supported a specific definition of business day, 
but did not support the current specific definition of business day in 
Regulation Z, for the reasons discussed above. Some of these commenters 
supported applying an alternative definition of business day that 
excludes all Saturdays, Sundays, and the legal public holidays 
specified in 5 U.S.C. 6103(a), similar to the definition the two 
national consumer advocacy groups suggested, to the regulatory 
provisions that would be impacted by the TILA-RESPA Proposal. Several 
national trade

[[Page 79770]]

associations representing banks, mortgage bankers, and consumer 
mortgage companies stated that it was important to continue to apply 
the specific definition of business day to regulatory provisions that 
prescribe the timeframe a consumer is given to review disclosures, such 
as the waiting period before consummation, the consumer's right to 
rescind, and provisions related to when disclosures are considered to 
be received by the consumer and when fees may be charged, because 
consumers can receive mail on Saturday and review disclosures on 
Saturday. Lastly, one national trade association representing mortgage 
brokers suggested that the Bureau should eliminate the concept of 
business day with respect to any regulatory provision that contains a 
timing requirement related to mortgages. The commenter appeared to 
suggest that a standard based on calendar days would be easiest to 
understand.
Final Rule
    Original Loan Estimate delivery requirement. The Bureau has 
considered these comments and has determined to retain the general 
definition of business day in Regulation Z for determining the original 
Loan Estimate delivery requirement. The Bureau has concluded that 
applying the specific definition of business day to the timing 
requirement to provide the original Loan Estimate within three business 
days of receipt of an application under Sec.  1026.19(e)(1)(iii) would 
impose significant compliance costs on creditors that are not currently 
open for business on Saturdays, especially small creditors. As 
discussed above, many commenters stated that they do not carry on 
business on Saturdays. Further, even those that do would need to 
contact third-party service providers that may not be open for business 
on Saturdays to obtain information about fees to disclose on the Loan 
Estimate. The Bureau is concerned that creditors and settlement service 
providers that currently do not operate on Saturdays, especially 
smaller entities such as community banks, credit unions, and settlement 
agents, could disproportionately bear the operating and compliance 
costs caused by the final rule treating Saturday as a business day for 
the original Loan Estimate delivery requirement. Such entities might 
face significant practical pressure to operate on Saturday under the 
proposed rule, which could significantly increase their operating 
costs.
    The Bureau is also concerned about the unintended consequences to 
consumers of applying the specific definition of business day for 
determining the original Loan Estimate delivery requirement. As 
discussed above, two large national consumer advocacy groups stated 
that they did not believe excluding Saturday from the definition of 
business day would have a significant impact on consumers. But as 
discussed above, many industry commenters expressed concern that the 
specific definition of business day would substantially increase 
operating and compliance costs because their operations are not set up 
to treat Saturday as a business day. Accordingly, the Bureau is 
concerned that an unintended consequence of applying the specific 
definition of business day to the original Loan Estimate delivery 
requirement would be creditors and settlement service providers raising 
origination charges and fees for settlement services to cover their 
increased operation costs. The Bureau believes that this result could 
ultimately harm consumers.
    The Bureau also believes that retaining the general definition of 
business day for the original Loan Estimate delivery requirement would 
facilitate compliance because as proposed, the general definition of 
business day in Regulation Z would have been retained for purposes of 
determining revised Loan Estimate delivery requirement in proposed 
Sec.  1026.19(e)(4)(i). The Bureau believes that applying the same 
definition of business day to the original Loan Estimate delivery 
requirement as the revised Loan Estimate delivery requirement will 
facilitate compliance for industry.
    Consistent definition of business day. The Bureau is also not 
adjusting the general definition of business day, in the manner 
requested by a national trade association representing mortgage 
bankers. As discussed above, the commenter appeared to request that the 
general definition of business day be evaluated in the context of a 
financial institution's mortgage origination business and the schedule 
of employees that work in that business segment. The Bureau believes 
such a definition would not only be discordant with the current 
definition that considers whether a creditor's offices are open to the 
public for carrying on substantially all of its business functions, but 
would also increase the level of difficulty in evaluating compliance.
    The Bureau recognizes that a consistent definition of business day 
throughout Regulation Z could enhance consumer understanding and 
facilitate compliance with Regulation Z. However, the Bureau believes 
such a far reaching amendment to the definition of business day, which 
affects many provisions throughout Regulation Z, is beyond the scope of 
this rulemaking and would be inappropriate in this final rule. The 
Bureau believes it would need to conduct further study of this issue 
before undertaking such a rulemaking. There would be many issues and 
alternatives to consider in such a rulemaking. As discussed above, two 
large national consumer advocacy groups asserted that the Bureau should 
replace both the general and specific definitions of business day with 
a single definition that excludes Saturdays, Sundays, and the legal 
public holidays specified in 5 U.S.C. 6103(a) throughout Regulation Z. 
But as noted above, several national trade associations asserted that 
it was important to maintain the current specific definition of 
business day, which includes Saturday, for provisions such as the 
waiting period before consummation. The commenters also asserted that 
the specific definition should continue to apply to provisions related 
to the consumer's right to rescind in certain mortgage transactions. 
The Bureau believes further study of these issues would be necessary, 
and thus, it would be inappropriate to finalize such an amendment in 
this final rule. However, the Bureau may review such a definition in 
the context of its 2011 Streamlining RFI.
    Final definition of business day. For the reasons discussed above, 
in the final rule, the Bureau is applying the general definition of 
business day for the requirement to deliver the initial disclosures 
within three business days under Sec.  1026.19(e)(1)(iii). The Bureau 
is otherwise finalizing the definition of business day as proposed. 
Specifically, the Bureau is adopting the specific definition of 
business day to the seven-business day waiting period in Sec.  
1026.19(e)(1)(iii)(B), Sec.  1026.19(e)(1)(iv) and Sec.  
1026.19(e)(2)(i)(A). These provisions are analogous to provisions in 
Sec.  1026.19(a) of Regulation Z to which the specific definition of 
business day currently applies, and the Bureau believes such 
consistency will facilitate compliance for industry.
    For reasons set forth in the section-by-section analysis of Sec.  
1026.19(f)(1)(ii)(A), the Bureau is also adopting the aspect of the 
proposal that would have applied the specific definition of business 
day to Sec.  1026.19(f)(1)(ii) and (iii). Further, for reasons 
discussed in greater detail in the section-by-section analyses of 
Sec. Sec.  1026.19(e)(4)(ii) and 1026.20(e)(5), the Bureau is also 
adopting the application of the specific definition of business day to 
these sections, which establish timing requirements for,

[[Page 79771]]

respectively, the receipt of revised Loan Estimates and the Post-
Consummation Escrow Cancellation Disclosure. The Bureau has also made a 
minor modification to comment 2(a)(6)-2 to refer to real estate-secured 
loans as well as dwelling-secured loans, as Sec.  1026.19(e) and (f) 
apply to closed-end credit transactions secured by real property.
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, does not qualify as a ``creditor.'' 
See 12 CFR 1026.2(a)(17)(v). The Bureau's 2011 Streamlining RFI 
requested comment on whether these thresholds should be raised and, if 
so, to what number of transactions. That proposal also solicited 
comment on whether a similar exemption should be applied to the 
integrated disclosures. In response, trade association commenters 
suggested raising the threshold number of transactions in order to 
reduce regulatory burden on 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 requested comment in the TILA-RESPA Proposal on 
whether the five-loan exemption threshold was appropriate for 
transactions that would be subject to this final rule and, if not, what 
number of transactions would be appropriate. The Bureau also solicited 
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.
Comments
    Industry commenters expressed mixed views with respect to whether 
the definition of creditor should be changed to accommodate small 
businesses. On the one hand, some industry commenters requested that 
the Bureau further increase the threshold under Regulation Z for 
defining creditors or adopt an exemption for small businesses. They 
included a national trade association representing escrow and 
settlement agents, two law firm commenters, a community bank commenter, 
and a national trade association representing Federally-chartered 
credit unions.
    On the other hand, other commenters, including a commenter employed 
by a software company, several individual commenters, and settlement 
agents expressed concern that it would be difficult to identify 
criteria for a small creditor definition and that inconsistent 
application of the integrated disclosure requirements across the 
mortgage market would harm consumers because it would impede consumer 
shopping among different creditors. Lastly, a national trade 
association representing mortgage brokers objected to the fact that the 
determination of whether a person is a ``creditor'' is based on the 
person's business volume. The commenter asserted that it makes 
compliance difficult because a creditor would not know in advance how 
many transactions it will process in any given year. The commenter 
stated that if disclosures are unnecessary for small entities, they are 
also unnecessary for large ones.
Final Rule
    The Bureau has considered the comments and has concluded that the 
existing thresholds used to determine whether a person is a creditor 
under Regulation Z in Sec.  1026.2(a)(17)(v) should be retained in this 
final rule. TILA section 103(g) provides that the definition of 
creditor refers to a person who ``regularly extends'' consumer credit. 
The Bureau believes that it does not have information in connection 
with this rulemaking to support a determination that the requirements 
of TILA should not apply to entities that regularly extend consumer 
credit solely because they are small businesses. The Bureau believes 
that the volume-based exemptions in Sec.  1026.2(a)(17)(v) are intended 
to address the potentially significant differences in abilities to 
comply with Regulation Z's disclosures requirements between entities 
that provide disclosures on a frequent basis, because they regularly 
extend consumer credit, and entities that provide disclosures on an 
infrequent basis, because they extend consumer credit on an irregular 
basis. The Bureau did not propose in the TILA-RESPA Proposal new 
thresholds to replace the existing thresholds used to determine whether 
a person is a creditor under Regulation Z, and does not currently have 
information sufficient to support adjusting the existing thresholds. 
Based on the significant effect such an amendment could potentially 
have on the market, especially considering that the definition applies 
to all of Regulation Z, the Bureau believes it would need to obtain 
additional information, possibly through further notice and comment, 
and conduct additional study of the issue before issuing a final rule 
on the issue.
    The Bureau believes the numerical thresholds in the current 
definition of creditor provide clear guidance to determine whether an 
entity is a creditor for purposes of Sec.  1026.2(a)(17)(v), as the 
Board believed when it originally finalized numerical thresholds for 
the definition of creditor in 1981.\162\ As discussed above, current 
Sec.  1026.2(a)(17)(v) provides that the number of transactions that is 
used to determine whether a person is a creditor is based on the number 
from the past calendar year. Because the Bureau believes the numerical 
thresholds in the current definition facilitate compliance with the 
requirements of Regulation Z for industry and because it does not have 
sufficient information on which to base an amendment to such 
thresholds, the Bureau is not amending the definition of creditor in 
this final rule. Lastly, for reasons discussed below in the general 
section-by-section analysis of Sec.  1026.19, the Bureau has also 
concluded that it will not adopt a small business exemption with 
respect to the integrated disclosure requirements being adopted in this 
final rule.
---------------------------------------------------------------------------

    \162\ 46 FR 20848, 20851 (April 7, 1981) (``The Board believes 
these numerical tests will be most useful in cases when a person 
does not extend credit as part of its primary business and therefore 
is genuinely unsure whether it is a `creditor' for Truth in Lending 
purposes'').
---------------------------------------------------------------------------

2(a)(25) Security Interest
    Under the definition of the term ``security interest'' in current 
Sec.  1026.2(a)(25), 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, pursuant to its authority under TILA 
section 105(a), the Bureau proposed a conforming amendment to the 
definition of security interest that would have extended this exemption 
to disclosures required under proposed Sec. Sec.  1026.19(e) and (f), 
and 1026.38(l)(6). The same conforming amendment would have been made 
to comment 2(a)(25)-2. Having received no comments on the conforming 
amendment, the Bureau is adopting the conforming amendment as proposed, 
pursuant to its authority under TILA section 105(a), for consistency 
and to facilitate compliance with TILA. The Bureau received comments 
from a mortgage broker commenter that appeared to seek clarification 
from the Bureau with respect to what makes a particular type of 
property interest a ``security interest'' for purposes of Sec.  
1026.2(a)(25). The Bureau believes that

[[Page 79772]]

this question is adequately addressed by existing comment 2(a)(25)-1.
Section 1026.3 Exempt Transactions
    In the TILA-RESPA Proposal, the Bureau proposed a partial exemption 
from the disclosure requirements of proposed Sec.  1026.19(e), (f), and 
(g) for certain mortgage loans, and accordingly, proposed conforming 
amendments to Sec.  1026.3(h) to reflect this exemption. The Bureau 
also proposed 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 proposed revising 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 TILA-RESPA Proposal amended comment 
3(a)-10 to extend this rationale to more common forms of trusts. 
Specifically, proposed comment 3(a)-10 would have noted 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. Further, 
proposed comment 3(a)-10 would have stated 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. The Bureau proposed 
revising comment 3(a)-9 to cross-reference comment 3(a)-10.
    A number of industry trade association commenters noted that 
proposed comment 3(a)-10 was ambiguous in its application to trusts 
with multiple beneficiaries. Specifically, the commenters asked for 
clarification with respect to which beneficiary should receive the 
disclosures required by proposed Sec.  1026.19(e), (f), and (g), and 
which beneficiary has the right to rescind the transaction under the 
conditions described in Sec.  1026.23. The same commenters also asked 
the Bureau to clarify that only revocable trusts are covered by the 
proposed language, noting that mortgage loans made to other types of 
trusts are niche products that do not meet GSE underwriting guidelines, 
are subject to substantial due diligence and as such should not be 
subject to Regulation Z.
    After consideration of the comments received, the Bureau is 
adopting comments 3(a)-9 and -10 generally as proposed. The proposed 
comments are intended to clarify that the benefits of the disclosures 
required by Sec.  1026.19(e), (f), and (g) extend to any consumer 
involved in a transaction that in substance extends consumer credit, 
regardless of whether that consumer is the direct mortgage obligor or a 
beneficiary of a trust to which such credit has been extended. With 
that rationale in mind, the Bureau believes that the intent of the 
comment is to clarify that those provisions of Regulation Z that apply 
to consumers will also apply to trust beneficiaries who are in essence 
acting as consumers. Accordingly, specific guidance with respect to the 
commenters' requests for clarification can be found in Sec. Sec.  
1026.17(d) and 1026.23(a)(4) and their associated commentary, which 
provide guidance with respect to consumers' rights and benefits in 
transactions that involve multiple obligors and the right to rescind a 
transaction.
    In addition, because the proposed comment clarifies the coverage of 
loans made to trusts under Regulation Z based on the purpose of the 
loan, rather than on the loan's frequency in the market or its 
compliance with GSE underwriting guidelines, the Bureau declines to add 
language to the comment specifying that the trusts covered by the 
proposed comments are limited to revocable trusts. Comments 3(a)-9 and 
(a)-10 are therefore finalized as proposed, except that the Bureau is 
making modifications to comment 3(a)-10 to add the word ``primarily,'' 
in order to bring the language of the comment into conformity with the 
definition of ``consumer credit'' provided in Sec.  1026.2(a)(12), and 
to clarify that the application of the exemption extends to trusts that 
benefit the consumer but are executed by a third-party trustee, such as 
a bank or an attorney. The Bureau believes that trusts in which the 
consumer is a beneficiary but the trustee is a third party, similar to 
trusts in which the consumer is both the trustee and beneficiary, are 
in substance (if not form) consumer credit transactions. The Bureau is 
revising comments 3(a)-9 and -10 accordingly, pursuant to its authority 
under TILA section 105(a), because it believes it will assure a 
meaningful disclosure of credit terms to consumers and promote the 
informed use of credit.
3(h) Partial Exemption for Certain Mortgage Loans
    In the TILA-RESPA Proposal, the Bureau proposed 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) would 
have established the requirement to provide the new integrated 
disclosures for closed-end transactions secured by real property, other 
than reverse mortgages, and proposed Sec.  1026.19(g) would have 
established the requirement to provide a special information booklet 
for those transactions. The partial exemption in proposed Sec.  
1026.3(h) was meant to parallel Sec.  1024.5(c)(3), discussed above; it 
was designed to create consistency with Regulation X and to codify a 
disclosure exemption previously granted by HUD. Thus, under each of the 
two proposed exemptions, lenders would have been exempted from 
providing the integrated disclosures for transactions that satisfy the 
exemption's conditions, even if the transaction otherwise would be 
subject to RESPA.
    The Bureau believed that the proposed exemption created consistency 
with Regulation X and therefore would facilitate compliance with TILA 
and RESPA. In addition, the Bureau believed that the special disclosure 
requirements that covered persons must meet to qualify for the proposed 
exemption helped ensure that the features of these mortgage 
transactions were fully, accurately, and effectively disclosed to 
consumers in a manner that would have permitted consumers to understand 
the costs, benefits, and risks associated with these mortgage 
transactions, consistent with Dodd-Frank Act section 1032(a). The 
proposed exemption would have also improved consumer awareness and

[[Page 79773]]

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 considered the factors in 
TILA section 105(f) and believed that, for the reasons discussed above, 
an exemption was appropriate under that provision. Specifically, the 
Bureau determined 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 determined that the proposed exemption was 
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 determined that, on balance, the 
proposed exemption would have simplified the credit process without 
undermining the goal of consumer protection or denying important 
benefits to consumers.
    The proposed exemption would have applied only to transactions 
secured by a subordinate lien. For the same reasons discussed in the 
section-by-section analysis of proposed Sec.  1024.5(c)(3), the Bureau 
requested 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 sought comment on whether requirements and features 
that may serve as interest substitutes should be considered 
``interest'' and, therefore, be impermissible for loans seeking to 
qualify for this partial exemption. The Bureau also sought comment on 
the types of loan requirements and features that should be similarly 
deemed ``interest'' for purposes of this partial exemption. 
Alternatively, the Bureau sought 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.
    The Bureau proposed several comments in an effort to provide 
additional guidance regarding Sec.  1026.3(h). Proposed comment 3(h)-1 
would have noted that transactions that meet the requirements of Sec.  
1026.3(h) would be exempt from only the integrated disclosure 
requirements and not from any other applicable requirement of 
Regulation Z. The comment would have further clarified that Sec.  
1026.3(h)(6) required 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 would have noted that the consumer 
also had the right to rescind the transaction under Sec.  1026.23, to 
the extent that provision was applicable.
    The Bureau also proposed comment 3(h)-2, which would have explained 
that the two 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 would have further clarified that, although the other 
conditions did not need to be reflected in the credit contract, the 
creditor would need to retain evidence of compliance with those 
requirements, as required by Sec.  1026.25(a). The Bureau solicited 
comment on whether this exemption should be adopted in Regulation Z.
    In comments provided to the Bureau, a Federal government agency and 
a not-for-profit organization, both of which provide housing assistance 
to consumers, requested that the Bureau extend the exemption to apply 
to loans secured by first liens. They reasoned that first-lien loan 
transactions provided to low-income borrowers who do not qualify for 
other sources of credit have the same characteristics as the 
subordinate loan transactions that are exempted in proposed Sec.  
1026.3(h). The not-for-profit organization further commented that the 
Bureau should not consider costs such as mortgage insurance or shared 
equity/shared appreciation to be ``interest substitutes'' for purposes 
of determining whether a transaction qualifies for the exemption, but 
noted that those costs should nonetheless be disclosed by the creditor.
    In response to the requirement that transactions exempted by 
proposed Sec.  1026.3(h) continue to comply with the disclosure 
requirements set forth in Sec.  1026.18, several industry trade 
associations proposed that creditors be given the option of either 
complying with the requirements of Sec.  1026.18 or complying with the 
integrated disclosures.
    With respect to the comment requesting that the Bureau extend the 
exemption to first-lien transactions, the Bureau declines to extend the 
exemption as such. The Bureau understands that some first-lien 
transactions may be extended that satisfy the conditions of this 
exemption other than the requirement that the transaction be secured by 
a subordinate lien. However, the Bureau does not believe that such 
transactions should be exempted from the requirements of Sec.  
1026.19(e), (f), and (g). The disclosure requirements under Sec.  
1026.19(e) and (f), as discussed in the section-by-section analyses of 
Sec. Sec.  1026.37 and 1026.38 below, provide information regarding 
costs that consumers in such transactions may still be required to pay 
with respect to the real property, such as real estate taxes and 
homeowner's insurance. In addition, the special information booklet 
required by Sec.  1026.19(g) may provide valuable information to 
consumers regarding the costs of home ownership. The Bureau has 
conducted consumer testing of the format in which the information is 
presented in the integrated disclosures to ensure that the disclosures 
are effective in aiding consumer understanding of these costs. Unlike 
with an exempted transaction secured by a subordinate lien in which 
consumers would receive an integrated disclosure containing this 
information in connection with the first-lien transaction, consumers in 
a first-lien transaction, if it were exempted, would not receive this 
information in the format the Bureau has tested with consumers. In 
addition, as discussed with respect to the parallel exemption under 
Sec.  1024.5, as discussed above, the Bureau has decided to keep with 
its intent to codify the exemption previously granted by HUD, which 
likewise only applied to subordinate loan transactions. Accordingly, 
the Bureau has determined to adopt the exemption as proposed.
    With respect to the comment that costs such as mortgage insurance 
or shared equity/shared appreciation not be considered interest for 
purposes of the condition that the loan not require the payment of 
interest, but that they be disclosed as non-interest costs in 
connection with exempted transactions, the Bureau has determined not to 
expand the condition to cover such costs. The Bureau points the 
commenter to Sec.  1026.18 and its commentary for the treatment of 
mortgage insurance and shared equity/shared appreciation programs for 
purposes of the closed-end disclosures required under that section.
    With respect to the comment that creditors be given the option of 
either complying with the integrated disclosure requirements or Sec.  
1026.18, the Bureau declines to provide this option. Because the intent 
of the exemption is to codify the exemption as provided by HUD, and 
additionally, decrease the burden of disclosure for creditors involved 
in the covered transactions, the Bureau declines to amend the proposed 
rule and its commentary to include the commenters' suggested 
alternative. For the reasons

[[Page 79774]]

described above, the Bureau is adopting Sec.  1026.3(h)(6) and comments 
3(h)-1 and -2 substantially as proposed, with minor modifications for 
clarity.
Section 1026.4 Finance Charge
Background
    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 
excludes numerous charges from the finance charge. 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. TILA section 106(b), (c); 15 
U.S.C. 1605(b), (c). TILA also specifically excludes from the 
computation of the finance charge certain charges related to the 
perfecting of a 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. TILA section 106(d), (e); 15 U.S.C. 1605(d), (e). Such 
amounts would otherwise be included in the finance charge under the 
general definition.
    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 
excluded 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. In 1995, 
Congress directed the Board to study the finance charge, including the 
feasibility of treating as finance charges all costs required by the 
creditor or paid by the consumer as an incident of the credit.\163\ In 
April 1996, the Board submitted its report to Congress, in which it 
noted both the compliance difficulties associated with the existing 
finance charge definition, but also the potential drawbacks of adopting 
an ``all-inclusive finance charge rule,'' such as the implementation 
costs for industry (which it stated ``would likely be many millions of 
dollars''), the necessity of reeducation regarding the resulting 
increased APRs, and the effects on the usefulness of the APR caused by 
the inclusion of optional services in the finance charge.\164\ The 
Board did not recommend the adoption of an ``all-inclusive finance 
charge rule'' in the report, but instead, stated it believed that 
``further debate must precede the crafting of any proposals for 
statutory changes to finance charge disclosures affecting the APR.'' 
\165\
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    \163\ Public Law 104-29, 109 Stat. 271 (1995).
    \164\ See Bd. Of Governors of the Fed. Reserve Sys., Report to 
the Congress on Finance Charges for Consumer Credit under the Truth 
in Lending Act 10-11 (April 1996), available at http://www.federalreserve.gov/boarddocs/rptcongress/fc_study.pdf.
    \165\ Id. at 12.
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    Following that study, in July 1998, the Board and HUD issued the 
Board-HUD Joint Report, in which the agencies also noted concerns with 
the ``some fees in, some fees out'' approach to the finance 
charge.\166\ 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.\167\ 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.\168\ 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.\169\ The current ``some 
fees in, some fees out'' approach to the finance charge largely 
reflects the creditor's, rather than the consumer's, perspective. The 
Board-HUD Joint Report recommended that the definition of finance 
charge be expanded to what it titled the ``Required Cost of Credit 
Test'' under which the finance charge would include ``the costs the 
consumer is required to pay to get the credit.'' \170\
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    \166\ Bd. Of Governors of the Fed. Reserve Sys. & U.S. Dep't of 
Hous. & Urban Dev., Joint Report to the Congress Concerning Reform 
to the Truth in Lending Act and the Real Estate Settlement 
Procedures Act (July 1998), available at http://www.federalreserve.gov/boarddocs/rptcongress/tila.pdf.
    \167\ Id. at 10.
    \168\ Id.
    \169\ Id.
    \170\ Id. at 13-16. A subsequent joint report issued by HUD and 
the U.S. Department of the Treasury expressly adopted this 
recommendation, concluding that the `` `all in approach' would 
improve the APR's usefulness and at the same time lessen the 
compliance burden for industry.'' U.S. Dep't of Treas. and U.S. 
Dep't of Hous. and Urban Dev., Joint Report on Recommendations to 
Curb Predatory Home Mortgage Lending, available at http://archives.hud.gov/reports/treasrpt.pdf.
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    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 APR's utility 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, the Board's 
2009 Closed-End Proposal would have replaced the ``some fees in, some 
fees out'' approach to the finance charge for mortgage loans with a 
more inclusive approach to ensure that the finance charge and 
corresponding APR disclosed to consumers provide 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 in July 2011.
The Bureau's Proposal
    For the reasons set forth in the Board's 2009 Closed-End Proposal, 
the TILA-RESPA Proposal would have revised the test for determining the 
finance charge in Sec.  1026.4. The Bureau's proposal would have 
largely mirrored the Board's 2009 Closed-End Proposal, with limited 
clarifying changes. 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 proposed rule would have 
amended Sec.  1026.4 to replace the current ``some fees in, some fees 
out'' approach to the finance charge with a 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).

[[Page 79775]]

    Under proposed Sec.  1026.4, the current exclusions from the 
finance charge would have been largely eliminated for closed-end 
transactions secured by real property or a dwelling. Specifically, 
under the proposed rule, a fee or charge would have been 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 have continued 
to exclude fees or charges paid in comparable cash transactions. The 
proposed rule also would have retained a few narrow exclusions from the 
finance charge: late fees and similar default or delinquency charges 
(excluded under current Sec.  1026.4(c)(2)), seller's points (excluded 
under current Sec.  1026.4(c)(5)), amounts required to be paid into 
escrow accounts if the amounts would not otherwise be included in the 
finance charge (excluded under current Sec.  1026.4(c)(7)(v)), and 
premiums for property and liability insurance under certain conditions 
(excluded under current Sec.  1026.4(d)(2)).
Effect on Other Rules
    The Bureau's proposed rule recognized that a more inclusive finance 
charge would affect coverage under other laws, such as higher-priced 
mortgage loan (HPML) and HOEPA protections, and would have implications 
for the Bureau's HOEPA, Escrows, Appraisals, and Ability-to-Repay 
rulemakings under title XIV of the Dodd-Frank Act. These rulemakings 
have since been finalized by the Bureau.\171\
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    \171\ References to the Bureau's rulemakings under title XIV of 
the Dodd-Frank Act are to the final rules issued by the Bureau in 
January 2013. See part II.F for a discussion of these rulemakings.
---------------------------------------------------------------------------

    Specifically, absent further action by the Bureau, the more 
inclusive finance charge would have:
     Caused more closed-end loans to trigger HOEPA protections 
for high-cost loans. The protections include special disclosures, 
restrictions on certain loan features and lender practices, and 
strengthened consumer remedies. The more inclusive finance charge also 
would have affected both the points and fees test (which currently uses 
the finance charge as its starting point) and the APR test (which under 
the Dodd-Frank Act depends on comparisons to the average prime offer 
rate (APOR)) for defining what constitutes a high-cost loan.\172\
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    \172\ Under rules implementing provisions of 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 average 
prime offer ate (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 would have been that more loans might exceed HOEPA's 
points and fees threshold because new categories of charges would 
have been 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 have resulted in some 
additional loans being covered as high-cost mortgages because 
closed-end loans would have had higher APRs. There are currently 
some differences between APR and APOR, the latter of which is 
generally calculated using data that includes only contract interest 
rates and points but not other origination fees. See 75 FR 58539, 
58660-62 (Sept. 24, 2010). 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 have also included most third-party 
charges, would have widened the disparity between the APR and APOR 
and caused more closed-end loans to qualify as high-cost mortgages. 
Similar implications would have applied to each respective 
rulemaking in which coverage depends on comparing a transaction's 
APR to the applicable APOR. The Bureau notes, however, 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 would have applied only 
to closed-end loans. Therefore, the more inclusive finance charge 
would not have affected the potential coverage of open-end credit 
plans under HOEPA.
---------------------------------------------------------------------------

     Caused more loans to trigger Dodd-Frank Act requirements 
to maintain escrow accounts for first-lien HPMLs under the Escrows 
rulemaking. Coverage depends on comparing a transaction's APR to the 
applicable APOR.
     Caused more loans to trigger Dodd-Frank Act requirements 
to obtain one or more interior appraisals under the Interagency 
Appraisals rulemaking. Coverage depends on comparing a transaction's 
APR to the applicable APOR.
     Reduced the number of loans that would otherwise be 
``qualified mortgages'' under the 2013 ATR Final Rule, given that 
qualified mortgages cannot have points and fees in excess of three 
percent of the total loan amount. The changes also would have decreased 
the number of qualified mortgages that receive a safe harbor from 
liability under the ability-to-repay provisions because the 2013 ATR 
Final Rule provides that qualified mortgages that are higher-priced 
receive a rebuttable presumption of compliance with the ability-to-
repay requirements, rather than a safe harbor. In addition, more loans 
would have been required to comply with separate underwriting 
requirements applicable to higher-priced balloon loans, and been 
ineligible for certain exceptions authorizing creditors to offer 
prepayment penalties on fixed rate, non-higher-priced qualified 
mortgage loans.\173\ Again, status as ``higher-priced'' depends on 
comparing APR to the applicable APOR.
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    \173\ Specifically, the Dodd-Frank Act and the 2013 ATR Final 
Rule generally prohibit prepayment penalties on closed-end, 
dwelling-secured mortgage loans, except on fixed rate qualified 
mortgages that are not higher-priced. For balloon loans, the Dodd-
Frank Act and the 2013 ATR Final Rule generally require 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. 78 FR 6408, 6585 (Jan. 
30, 2013). Only consumers with substantial income or assets would 
likely qualify for such a loan.
---------------------------------------------------------------------------

    The Board previously proposed two means of reconciling an expanded 
definition of the finance charge with thresholds for loan APR and 
points and fees. On several occasions, the Board proposed to replace 
the APR with a ``transaction coverage rate'' (TCR) as a transaction-
specific metric a creditor compares to the APOR to determine whether 
the transaction meets the higher-priced loan threshold in current 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).\174\ 
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, the Board stated that both metrics 
would be simpler to compute than APR today using the current definition 
of finance charge.\175\ In addition, the Board proposed to amend the 
definition of points and fees to retain the existing treatment of 
certain charges in the definition of points and fees for purposes of 
determining HOEPA coverage. 75 FR 58539, 58636-38 (Sept. 24, 2010).
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    \174\ The TCR would have been determined in accordance with the 
applicable rules of Regulation Z for the calculation of the APR 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 Board's proposed definition of TCR 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 proposed to use 
the 2011 Escrows Proposal version, which would include charges 
retained by broker affiliates. 77 FR 49090, 49102 (Aug. 15, 2012).
    \175\ To the extent that creditors believed that it would be 
burdensome to calculate two metrics, the Board's proposal stated 
that they could continue to use APR for both coverage and disclosure 
purposes.

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[[Page 79776]]

    In the TILA-RESPA Proposal, the Bureau acknowledged that 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 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 believed 
that it was appropriate to explore alternatives to implementation of 
the expanded finance charge definition for purposes of coverage under 
HOEPA and the other regulatory regimes.
    For this reason, the TILA-RESPA Proposal sought comment on 
potential coverage threshold modifications. In particular, the proposal 
sought comment on the prior Board proposals and other potential methods 
of addressing the impact of a more inclusive approach to the finance 
charge on affected regulatory regimes. The proposal also requested 
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 the affected regulatory 
regimes. With regard to the TCR, the Bureau stated its belief that the 
potential compliance burden associated with the two-calculation 
requirement would be 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. The Bureau also requested comment 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 preferred.
    Finally, the Bureau requested data that would allow it to perform a 
quantitative analysis to determine the impacts of a broader finance 
charge definition on APR thresholds for HOEPA and the other regimes. In 
its 2009 Closed-End Proposal, the Board relied on a 2008 survey of 
closing costs conducted by Bankrate.com that contained 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 were then subject to HOEPA would increase by 0.6 
percent if the definition of finance charge were expanded as proposed. 
In the TILA-RESPA Proposal, the Bureau stated that it was considering 
the 2010 version of that survey, but also sought 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 generally sought 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.
    In addition to the measures proposed by the Board, the Bureau 
proposed language to adopt the TCR and to exclude the additional 
charges from the HOEPA points and fees test in its 2012 HOEPA Proposal. 
77 FR 49090 (Aug. 15, 2012). The 2012 Interagency Appraisals Proposal 
also proposed to adopt the TCR. 77 FR 54722 (Sept. 5, 2012). The 2013 
HOEPA, Escrows, and Appraisals Final Rules did not adopt the TCR or 
changes to the points and fees test to account for the expanded finance 
charge, but those final rules noted the Bureau would consider comments 
on those aspects of the proposals in conjunction with the rule 
addressing the expanded finance charge proposal. See 78 FR 6856 (Jan. 
31, 2013); 78 FR 4726 (Jan. 22, 2013); 78 FR 10368 (Feb. 13, 2013).
Timing of Implementation
    The TILA-RESPA Proposal sought comment on the timing of 
implementation of any changes to the finance charge definition. The 
Bureau noted that there is no statutory deadline for issuing final 
rules to integrate the mortgage disclosures under TILA and RESPA, and 
that the Bureau expected that it may take some time to conduct 
quantitative testing of the forms prior to issuing final rules. 
However, the Bureau also expected to issue several final rules to 
implement provisions of title XIV of the Dodd-Frank Act by January 21, 
2013, including the rules discussed above, that address thresholds for 
compliance with various substantive requirements under HOEPA and other 
Dodd-Frank Act provisions. The Bureau noted that, in some cases, the 
Dodd-Frank Act requires that regulations implementing title XIV of the 
Dodd-Frank Act take effect within one year of issuance. The Bureau 
subsequently issued those rules in January 2013. The rules will take 
effect in January 2014.
    In the proposal, the Bureau stated its belief that it would be 
preferable that any changes to the definition of finance charge and any 
related adjustments to regulatory triggers take effect at the same 
time, to provide for consistency and efficient systems modification. 
The Bureau also believed that it may be advantageous to consumers and 
creditors to make any such changes at 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 the TILA-RESPA rulemaking, which relates primarily to 
disclosures. If the Bureau expanded the definition of finance charge, 
the Bureau believed this approach would likely provide the consumer 
benefits 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 the TILA-RESPA Proposal would have required systems 
and procedures changes, the Bureau noted that there may be advantages 
to delaying any change in the definition of finance charge and any 
related adjustments to regulatory triggers until those changes 
occurred. The Bureau, therefore, requested comment on how to sequence 
the changes, and the benefits and costs to both consumers and industry 
of both approaches.
    After the Bureau issued the TILA-RESPA Proposal, the Bureau 
received informal feedback regarding the timing of implementation and 
determined that it was appropriate to address the expanded finance 
charge proposal in conjunction with the TILA-RESPA Final Rule, rather 
than with the Bureau's Title XIV Rulemakings that were issued in 
January 2013. For this reason, the Bureau extended the comment period 
for comments related to the expanded finance charge and published its 
intention regarding the timing of a final rule related to the finance 
charge definition. See 77 FR 54843 (Sept. 6, 2012).
Comments
    The Bureau received several hundred comments on this aspect of the 
TILA-RESPA Proposal. Industry commenters and one large consumer 
advocacy group commenter generally opposed finalizing the expanded 
finance charge at this time.\176\ While some industry commenters 
supported the idea of

[[Page 79777]]

improving the APR to make it a more useful metric for consumers and 
simplify the calculation, many asserted that the Bureau had not 
sufficiently considered the impact of the proposed provisions in light 
of the significant regulatory changes taking place as a result of the 
Bureau's Title XIV Rulemakings. They also asserted that sweeping 
changes to the finance charge calculation would be overly burdensome in 
light of the Bureau's other rulemakings. One large consumer advocacy 
group commenter, while generally supporting the expanded definition, 
argued that the Bureau should not adopt the expanded finance charge 
definition at this time because of complications that would arise due 
to the Bureau's other rulemakings. That commenter stated also that the 
Bureau should further study the impact of the expanded finance charge 
on its other rulemakings.
---------------------------------------------------------------------------

    \176\ In addition to commenting on the threshold question of 
whether the Bureau should adopt a more inclusive finance charge, 
commenters also argued that certain specific exclusions from the 
finance charge should be retained or removed in the event the Bureau 
moves to a more inclusive finance charge (for example, voluntary 
credit insurance and title insurance charges). Because the Bureau is 
not adopting a more inclusive finance charge definition at this 
time, those comments are not specifically addressed here. The Bureau 
will evaluate those comments separately in the event the Bureau 
decides to propose the more inclusive finance charge at a later 
date.
---------------------------------------------------------------------------

    Industry commenters and one consumer advocacy group commenter also 
cited the effect that a more inclusive finance charge would have on 
coverage thresholds under the HOEPA, HPML, and the ATR-QM rulemakings 
as a significant factor weighing against finalizing the proposal. Such 
commenters also noted the impact an expanded finance charge would have 
on State high-cost lending laws. These commenters asserted that, absent 
adjustments by the Bureau and State legislatures, the proposal could 
reduce access to mortgage credit, particularly for smaller loans and 
for borrowers at the lower end of the credit spectrum. For example, a 
national consumer advocacy group commenter estimated that the expanded 
finance charge would add approximately 0.9 percent to 3.5 percent to 
points and fees, depending on loan size and certain settlement cost 
assumptions, and would cause the APR to rise by roughly 0.10 percent to 
0.52 percent, depending on loan size and interest rate. Small entities, 
including a national trade association of community banks, expressed 
concern that if the proposal resulted in more loans being classified as 
HOEPA loans or HPMLs, they may be forced to exit the mortgage market 
either due to increased compliance costs associated with these loans 
(such as the requirement to maintain escrow accounts for HPMLs) or 
because the loans will not be saleable on the secondary market. These 
concerns were echoed in comment letters from the U.S. House of 
Representatives Committee on Small Business and the Small Business 
Administration Office of Advocacy. Some industry commenters questioned 
whether the Bureau thoroughly considered the implications of the 
expanded finance charge on coverage thresholds as they would be revised 
by the Bureau's Title XIV Rulemakings. Similar concerns were expressed 
by the Small Business Review Panel and industry feedback provided in 
response to the Small Business Review Panel Outline. See Small Business 
Review Panel Report at 25. Some industry commenters also questioned the 
Bureau's authority to remove statutory exclusions from the finance 
charge.
    Industry commenters (including numerous small entities), the U.S. 
House of Representatives Committee on Small Business, and the SBA also 
cited significant upfront implementation costs as a reason not to adopt 
the expanded finance charge definition. These commenters stated that to 
accommodate the changes, institutions would be required to reprogram, 
test, and implement significant changes to current systems, update 
written materials, and train employees. Commenters noted that this 
would be particularly burdensome for small creditors, would potentially 
cause some small creditors to exit the residential mortgage market, and 
could increase the cost of credit. One credit union commenter and a 
State credit union trade association estimated costs of $40,000 or more 
to implement the changes, in addition to the time needed for training. 
An organization that operates an APR calculation engine used by some 
credit unions estimated it would take between 500 and 1,000 hours of 
work time to update that system, in addition to staff training time. In 
addition, industry commenters cited ongoing compliance costs as a 
reason not to finalize the proposal. Numerous industry commenters and a 
national association of State housing agencies argued that the proposed 
finance charge definition would require maintaining separate systems 
for calculating the APR for mortgages and non-mortgages, which would 
increase compliance burdens.
    Some industry commenters stated that including third-party closing 
costs that are not controlled by the creditor in the finance charge may 
increase litigation risk. For example, one industry trade association 
commenter noted that litigation risk would increase due to the 
increased possibility for calculation errors in a material disclosure 
associated with extended rescission rights. Similarly, one consumer 
advocacy group commenter noted that the simplified calculation would 
reduce homeowners' ability to use TILA violations to save their homes 
from foreclosure, presumably due to the fact that a simplified finance 
charge definition would lead to fewer technical violations of the rules 
regarding disclosure of the finance charge and APR, which are material 
disclosures that, if not provided accurately, toll the time limitations 
for invoking the right of rescission.
    Some industry commenters, including national and State trade 
associations, stated that the Bureau has not sufficiently demonstrated 
the benefit of the proposed changes and urged the Bureau to conduct 
further analysis of the benefits of the expanded finance charge before 
finalizing the proposed rule. This is similar to industry feedback 
provided in response to the Small Business Review Panel Outline. For 
example, some commenters noted that the Bureau has not engaged in any 
consumer testing to determine if consumers will better understand the 
finance charge or APR disclosures using an expanded finance charge 
definition than under the current framework and suggested that the 
Bureau engage in further testing before finalizing the rule. Similarly, 
many industry commenters, including a national trade association of 
community banks, argued that a more inclusive finance charge would not 
improve consumer understanding of the APR because consumers do not 
understand the APR and do not use it when comparing loans. Some 
commenters cited the Bureau's own consumer testing and prior Board 
consumer testing cited in the TILA-RESPA Proposal as support for this 
position. They also argued that the aspect of the TILA-RESPA Proposal 
that would have emphasized other disclosures over the APR and finance 
charge disclosures undercuts any assertion by the Bureau that the 
expanded finance charge would aid consumer comprehension. Several small 
entity commenters argued that some consumers would be confused by the 
expanded finance charge because they are accustomed to the current APR.
    On the other hand, most consumer advocacy group commenters and two 
State attorneys general supported the proposed changes to the finance 
charge, generally agreeing with the Board and Bureau analysis that the 
expanded finance charge would more accurately disclose the cost of 
credit and enhance consumers' ability to comparison shop, and would 
therefore benefit consumers. For example, one national non-profit 
organization focusing on low-income consumer issues noted that 
eliminating the numerous exclusions from the current definition of 
finance charge would simplify compliance and

[[Page 79778]]

examinations, while discouraging fee manipulation. The State attorneys 
general likewise agreed that a more inclusive definition of finance 
charge would make it easier for consumers to compare loans and easier 
for lenders to calculate the APR.
    Some industry commenters stated that having separate APR 
calculations for closed-end and open-end credit could contribute to 
consumer confusion, particularly for consumers comparing home equity 
lines of credit (HELOCs) with closed-end home equity loans. Similarly, 
consumer advocacy group commenters stated that the proposed changes 
should apply to all forms of credit or, at a minimum, both to HELOCs 
and closed-end mortgages.
    One industry trade association commenter noted that it is not clear 
that the expanded finance charge would reduce the use of junk fees and 
third-party service providers because upfront fee-rate tradeoffs are 
largely determined in the capital markets and are independent of APR 
considerations. Some industry commenters argued that the proposed 
changes to the finance charge would lead to price fixing and other 
anticompetitive behavior by large institutions with the ability to 
influence settlement service provider fees. In contrast, smaller 
institutions that do not have the ability to assert such influence over 
third-party pricing would be priced out of the market. This would 
reduce consumer choice and raise prices in the long run. However, one 
consumer advocacy group commenter cited the current approach to the 
finance charge, which excludes certain third party charges, as creating 
hundreds of dollars in junk fees for consumers and noted that an 
expanded finance charge definition could reduce costs to consumers.
    Industry commenters generally supported adjustments to coverage 
thresholds to mitigate the impact of an expanded finance charge, if the 
expanded finance charge were adopted. Most such commenters favored 
direct adjustments to the numeric APR-based thresholds over adopting 
the TCR as a new metric. However, one mortgage company commenter stated 
that the TCR is complicated, difficult to document, and would create 
compliance burden. On the other hand, most consumer advocacy group 
commenters and a joint letter from civil rights organizations opposed 
any adjustments to the APR-based thresholds to account for an expanded 
finance charge. Some consumer advocacy group commenters asserted that 
very few loans would be considered high-cost even under the new rules. 
These commenters asserted that creditors in these loans can and should 
reduce their closing costs or interest rate to escape that 
designation.\177\
---------------------------------------------------------------------------

    \177\ Comments regarding the broader definition of the finance 
charge or potential mitigation measures submitted to the other Title 
XIV Rulemakings are not specifically described here because the 
Bureau is not adopting the proposed amendment to the definition of 
the finance charge.
---------------------------------------------------------------------------

Final Rule
    For the reasons set forth below, the Bureau has determined not to 
finalize the proposed change to the definition of finance charge and 
instead to leave the current definition unchanged at this time. The 
Bureau will, instead, revisit this issue in conjunction with the 
assessment that it is required to do of each significant rule it issues 
no later than five years after the effective date of such rules under 
Dodd-Frank Act section 1022(d).
    As described in the TILA-RESPA Proposal, the Bureau believes that 
an expanded finance charge definition could result in disclosures that 
more meaningfully represent the cost of credit, ease compliance and 
examination burdens in the long run, and reduce the cost of credit for 
some consumers by discouraging creditors from shifting costs to fees 
that are excluded from the finance charge. However, before finalizing 
any changes to the finance charge definition, the Bureau believes it is 
appropriate to further study the potential impacts of the expanded 
finance charge under the regulatory regime revised by the Dodd-Frank 
Act, collect additional data on the impact of changes to the finance 
charge definition on APR, and evaluate the effect an expanded finance 
charge definition would have on consumer understanding of the finance 
charge and APR disclosures in light of the TILA-RESPA Final Rule.
    Although changes to the finance charge definition are not being 
finalized at this time, the Bureau is committed to continuing to 
collect data and analyze the consumer benefits of an expanded finance 
charge, as well as the effect of an expanded finance charge on laws 
with coverage thresholds that are dependent on the finance charge and 
APR, including State high-cost loan statutes. As noted, the Bureau 
expects to revisit this issue in conjunction with the mandatory five-
year review of the Bureau's Title XIV Rulemakings and the TILA-RESPA 
Final Rule under section 1022 of the Dodd-Frank Act. As described 
below, the Bureau believes that it may have access to additional data 
within the next five years which could be used to conduct such an 
analysis. To the extent the Bureau concludes that an expanded finance 
charge definition may be appropriate at that time, the Bureau would 
issue a new proposed rule, setting forth any new data relied upon, to 
provide the public an opportunity to comment on that data and on the 
Bureau's analysis of this issue.
    The Bureau believes it is appropriate to postpone any changes to 
the finance charge definition until industry has fully implemented the 
Title XIV Rulemakings and the TILA-RESPA Final Rule and those rules 
have been in effect for a meaningful period of time. This approach 
would allow the Bureau to take into account the effects of those rules 
on the mortgage market and access to credit under the revised 
regulatory regime and allow industry to make changes to systems and 
processes, as appropriate, without being required subsequently to 
factor into such changes the increased finance charge and APRs that 
would result from finalization of the proposed definition of finance 
charge. As discussed above, an expanded finance charge definition would 
impact other rules that depend on the finance charge or APR to define 
coverage, including the Bureau's recently-issued rules related to 
HOEPA, ATR, Escrows, and Appraisals. For this and other reasons, the 
Bureau understands that each of its Dodd-Frank Act mortgage 
rulemakings, including the TILA-RESPA Final Rule, has the potential to 
affect aspects of the mortgage market, including loan pricing and the 
types and amounts of settlement charges and other fees that are 
typically associated with mortgage transactions. For example, the Dodd-
Frank Act's three percent limit on points and fees for qualified 
mortgages may cause some creditors to restructure their current 
business or pricing models in order to remain below that threshold. The 
revised rules related to permissible changes in estimated settlement 
charges discussed below in the section-by-section analysis of Sec.  
1026.19(e) may have a similar effect.
    As noted above, numerous industry commenters and a large consumer 
advocacy group commenter cited the Bureau's other rulemakings and the 
need to evaluate the proposed changes in light of the new regulatory 
regime as a significant factor in their assessment that the Bureau 
should not finalize the expanded finance charge definition at this 
time. The Bureau has considered the potential effects of the Bureau's 
recently-issued rules on the market and the comments received and 
determined it is appropriate to further study the expanded finance 
charge once industry

[[Page 79779]]

has fully implemented the new rules and the market has adapted to those 
changes.
    In addition, the Bureau currently lacks data to model, across a 
wide spectrum of the market, the impact of an expanded finance charge 
on APR. As discussed above, numerous commenters urged the Bureau to 
conduct further study of the impact of the expanded finance charge 
before finalizing that aspect of the TILA-RESPA Proposal. Because the 
Bureau cannot model the effect of an expanded finance charge on APR, 
the Bureau also cannot fully evaluate at this time whether, and to what 
extent, to adopt mitigation measures that would address the effect of 
an expanded finance charge on other rules that use the APR or finance 
charge as a metric to define coverage. Characterizing the impact of the 
expanded finance charge on APR requires an understanding of how the 
cost of fees and services vary with loan size and other observable loan 
characteristics. The relationship between characteristics such as loan 
size and interest rate and the difference between the APR under the 
current definition and the proposed expanded definition cannot be 
described by a simple formula. Changes to the APR using the formula for 
determining the APR under appendix J to Regulation Z are not monotonic. 
For example, the appraisal fee for a low-dollar value rural property 
may be higher than the appraisal fee for a high-dollar value suburban 
home, resulting in a larger associated increase in the APR for the 
lower-dollar value property. This makes the effect of an expanded 
finance charge on APR difficult to model without itemized data that 
spans a wide spectrum of the market.
    As noted above, the Board's 2009 Closed-End Proposal relied on a 
2008 survey of closing costs conducted by Bankrate.com to assess the 
effect an expanded finance charge definition would have on APR. The 
TILA-RESPA Proposal did not provide a similar analysis, but noted that 
it was considering the 2010 version of the Bankrate.com survey as an 
appropriate dataset to model the impacts of the proposal, and requested 
additional data that would provide more representative information 
regarding closing and settlement costs. Since the TILA-RESPA Proposal 
was issued, the Bureau has determined that an analysis of the 2010 
Bankrate.com data is not appropriate because the Bankrate.com survey 
focuses on closing costs for a single type of fixed rate loans, and 
also not feasible because the Bureau does not have access to the 
survey's micro data of itemized charges. In addition, in response to 
the request for data in the TILA-RESPA Proposal, the Bureau did not 
receive data with which it could conduct an analysis of the impact of 
the expanded finance charge on APRs for a wide variety of loans.
    Since the proposal, however, the Bureau received voluntary data 
submissions of electronic RESPA settlement statement information from 
three large lenders, a possibility discussed in the TILA-RESPA 
Proposal. See 77 FR 51116, 51270 (Aug. 23, 2012). This voluntary data 
submission is the only data the Bureau currently has that itemizes fees 
and charges. Using this data, the Bureau was able to take a preliminary 
step in considering the economy-wide impact of the proposed changes on 
the APR and on the coverage of other rules. Analysis of the fixed rate 
first lien loans in the data did not show a strong correlation between 
the increase in the finance charge associated with the proposed 
expanded definition and the APR resulting from such increase, or a 
strong correlation between the increase in the finance charge and the 
loan amount. This is consistent with the fact that increases in the 
finance charge do not result in affine (i.e., correlated or linear) 
transformations of the APR. Also, since the data is from three lenders, 
it is not sufficient for the Bureau to model the effect of the expanded 
finance charge on APRs across the market. For example, to the extent 
that these three lenders operate in particular segments of the market 
or have firm-specific conventions for how they itemize charges and 
fees, the data provided is not representative of the national mortgage 
market. A more thorough analysis of the effect of an expanded finance 
charge definition on APR would require more representative data that 
includes itemized settlement charges, which is not currently available 
to the Bureau.
    The Bureau expects that new sources of data on itemized settlement 
costs may be available in the next five years. For example, the Bureau 
believes that electronic retention of data from the integrated 
disclosure forms may become common practice. If this is the case, more 
robust data may be available to the Bureau for analysis. In addition, 
if particular settlement charges are discernible from new data 
standards required to be reported under HMDA by Dodd-Frank Act section 
1094 (which amended section 304 of HMDA), the distribution of these 
charges for HMDA reporters may be leveraged to construct estimates of 
the impacts of including or excluding these costs from the APR.\178\ 
These sources of data may assist the Bureau in conducting an analysis 
of the effect of changes to the finance charge on APR and on coverage 
thresholds.
---------------------------------------------------------------------------

    \178\ Section 1094 of the Dodd-Frank Act amends HMDA to expand 
the scope of information relating to mortgage applications and loans 
that must be compiled, maintained, and reported under HMDA, 
including the ages of loan applicants and mortgagors, information 
relating to the points and fees payable at origination, the 
difference between the annual percentage rate associated with the 
loan and benchmark rates for all loans, the term of any prepayment 
penalty, the value of real property to be pledged as collateral, the 
term of the loan and of any introductory interest rate for the loan, 
the presence of contract terms allowing non-amortizing payments, the 
origination channel, and the credit scores of applicants and 
mortgagors. The Bureau is in the prerule stage of incorporating 
these amendments to HMDA into its Regulation C, 12 CFR part 203, 
which implements HMDA.
---------------------------------------------------------------------------

    As noted in the proposal, the Bureau believes that creditors could 
ultimately benefit from a streamlined finance charge definition that is 
simpler to calculate than the current definition, particularly given 
the increased significance of coverage thresholds under the Title XIV 
Rulemakings. However, the Bureau does not believe it is appropriate to 
finalize such changes before the Bureau has had the opportunity to 
study the effect of the expanded finance charge and APR across the 
mortgage market and using the coverage thresholds as revised by the 
Dodd-Frank Act and the Bureau's recently-issued Title XIV Rulemakings.
    Further, postponing consideration of any changes to the expanded 
finance charge definition would allow the Bureau to continue to study 
the effect of the expanded finance charge on consumer understanding of 
the APR disclosure. As described in the TILA-RESPA Proposal, the Bureau 
believes that an expanded finance charge definition could increase 
consumer understanding of the APR disclosures by more accurately 
reflecting the cost of credit to consumers. However, the Bureau also 
recognizes concerns by some commenters that, even under an expanded 
finance charge definition, the APR is limited in its usefulness as a 
measure of the cost of credit. For example, it is not always the case 
that a loan with a lower APR is the ``best'' loan for a consumer 
because consumers have different time horizons with respect to their 
financing decisions and because loans with different interest rate-
point combinations will have different APRs. A consumer who expects to 
sell or refinance a property within a short time horizon may benefit 
from making a different rate-point tradeoff than a consumer who expects 
to hold the loan long term. For this reason,

[[Page 79780]]

the Bureau believes that a rule adopting an expanded finance charge 
definition would likely need to be accompanied by a broader initiative 
to assist consumer understanding of the APR. Postponing changes to the 
finance charge definition will allow the Bureau to study consumer 
understanding of the disclosures further and, if appropriate, develop 
other measures to aid consumer understanding that could supplement a 
revised finance charge definition.
    In addition, because of consumer testing that shows that consumers 
do not rely primarily on the APR when shopping for a loan, and the 
statutory mandate to combine the disclosures required by TILA and 
RESPA, the TILA-RESPA Final Rule emphasizes on the first page of the 
Loan Estimate and Closing Disclosure information that consumers more 
readily understand (such as the interest rate and the cash to close 
amount). To reduce potential confusion between the APR and the interest 
rate and to focus on more readily understandable information, the APR 
is on the final page of the integrated disclosures. See the section-by-
section analysis of Sec. Sec.  1026.37(l)(2) and 1026.38(o)(4). The 
Bureau believes it is appropriate to evaluate consumer benefits of an 
expanded finance charge in light of these changes to the disclosure. 
However, the Bureau has not tested the APR disclosure on the integrated 
forms using an expanded finance charge definition, so the Bureau may 
determine it is appropriate to conduct additional testing of the 
integrated disclosures with an expanded finance charge before making a 
determination as to whether changes to the finance charge definition 
are appropriate.
    The Bureau also recognizes that the proposed change to the 
definition of finance charge would create upfront implementation costs 
for creditors required to update systems and train staff on the new 
calculations. As discussed above, numerous commenters suggested that 
these burdens are significant, particularly for small institutions, and 
would be especially burdensome in light of the costs and burdens of 
implementing the Bureau's Title XIV Rulemakings and the TILA-RESPA 
Final Rule. These commenters stated that industry is under enormous 
strain to absorb and implement the Bureau's Title XIV Rulemakings, 
which are required by the Dodd-Frank Act, and that the Bureau should 
delay discretionary changes to the rules until industry has implemented 
the required changes. Upfront implementation costs could also be 
increased if the Bureau were to adopt certain mitigation measures to 
address the effect of an expanded finance charge on coverage thresholds 
for other rules. As discussed in the TILA-RESPA Proposal, the Bureau 
believes that the costs to update systems could be mitigated for some 
creditors if undertaken in conjunction with implementation of the TILA-
RESPA Final Rule. However, some commenters have stated, and the Bureau 
has heard from other feedback from small creditors, that small 
creditors may exit the residential mortgage market if upfront 
implementation costs are too burdensome, which could increase the cost 
of credit for some consumers. For this reason, the Bureau believes it 
is appropriate to postpone finalizing any changes to the finance charge 
definition until the Bureau's other mortgage-related Dodd-Frank Act 
rulemakings are fully implemented and to evaluate the potential 
benefits and implementation burdens at that time.
    Finally, postponing consideration of changes to the finance charge 
definition will allow the Bureau to study an additional expansion of 
the finance charge definition for HELOCs, which could result in a 
single APR for mortgage credit. This could aid comparison of closed-end 
and open-end mortgage credit for consumers and address concerns 
expressed by some commenters that having one APR calculation for open-
end mortgage credit and a separate definition for closed-end mortgage 
credit could impair consumers' ability to compare closed-end home 
equity loans with HELOCs and increase compliance costs for creditors.
    For the aforementioned reasons, the Bureau is not finalizing the 
expanded definition of the finance charge at this time. The Bureau will 
study the issue in connection with its five-year review of the TILA-
RESPA Final Rule and its other Title XIV Rulemakings under Dodd-Frank 
Act section 1022. In the event the Bureau determines it may be 
appropriate to move forward with an expanded finance charge definition, 
the Bureau will issue a new proposal and publish for public comment any 
new data in support of that proposal before issuing a final rule.
Section 1026.17 General Disclosure Requirements
    In the TILA-RESPA Proposal, the Bureau proposed conforming 
amendments to 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, in proposed Sec. Sec.  1026.37 and 1026.38.
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 proposed to revise the introductory language to 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 proposed to implement the grouping and 
segregation requirements of TILA section 128(b)(1) in Sec. Sec.  
1026.37(o) and 1026.38(t). Further, for the reasons set forth in the 
section-by-section analyses of Sec. Sec.  1026.37(l)(3) and 
1026.38(o)(2) and (4), the Bureau proposed 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), (f), and (g). Proposed comment 17-1 would have stated 
that, for the disclosures required by proposed Sec.  1026.19(e), (f), 
and (g), rules regarding the disclosures' form are found in Sec. Sec.  
1026.19(g), 1026.37(o), and 1026.38(t). In addition, proposed comment 
17(a)(1)-7 would have reflected the special disclosure rules for 
transactions subject to Sec.  1026.18(g) or (s).
    The Bureau did not receive comments regarding the proposed changes 
to the introductory language to Sec.  1026.17(a) or

[[Page 79781]]

proposed comments 17-1 and 17(a)(1)-7. For the reasons discussed and 
using the authority described in the proposed rule, the Bureau is 
finalizing Sec.  1026.17(a) and comments 17-1 and 17(a)(1)-7 
substantially as proposed.
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 proposed 
special timing rules for the disclosures required by Sec.  1026.19(e), 
(f), and (g) in those provisions. Proposed Sec.  1026.17(b) would have 
reflected 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 would have stated that, for to the 
disclosures required by Sec.  1026.19(e), (f), and (g), rules regarding 
timing are found in those sections.
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(b) or proposed comment 17-1. For the reasons discussed 
in the proposed rule, the Bureau is finalizing Sec.  1026.17(b) and 
comment 17-1 substantially as proposed. However, as discussed below in 
the section-by-section analysis of Sec.  1026.20(e), the Bureau is 
finalizing separate rules regarding the timing of the Post-Consummation 
Escrow Cancellation Disclosure required by that section. For that 
reason, the Bureau is also revising Sec.  1026.17(b) and comment 17-1 
to reflect the fact that special rules apply to the disclosure required 
by Sec.  1026.20(e). As adopted, Sec.  1026.17(b) provides that it does 
not apply to the disclosures required by Sec.  1026.19(e), (f), and (g) 
and Sec.  1026.20(e).
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 of 
Sec. Sec.  1026.37 and 1026.38, the Bureau proposed 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 
creditor. Accordingly, the Bureau proposed 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 
would have clarified 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 would have extended 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 proposed amendments to the commentary to Sec.  
1026.17(c)(1) to address areas of industry uncertainty regarding TILA 
disclosures. First, the Bureau proposed 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 addition, the 
Bureau proposed 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 proposed 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 did not receive comments on comments 17(c)(1)-1, -3, or 
-4. Therefore, for the reasons discussed in the proposed rule, the 
Bureau is finalizing those comments as proposed. However, the Bureau is 
finalizing an additional change to comment 17(c)(1)-1 to make clear 
that the Post-Consummation Escrow Cancellation Disclosure required by 
Sec.  1026.20(e) must reflect the credit terms to which the parties are 
legally bound when the disclosure is provided, rather than at the 
outset of the transaction, because that disclosure is provided to 
consumers after consummation. This clarification is consistent with the 
comment's existing treatment of the post-consummation disclosure 
required by Sec.  1026.20(c) (variable-rate adjustments) and the 
comment's treatment of the post-consummation disclosure required by 
Sec.  1026.20(d) (initial interest rate adjustment notice) under the 
Bureau's 2013 Mortgage Servicing Final Rule amending Regulation Z which 
will take effect on January 10, 2014.\179\ For a discussion of the 
Post-Consummation Escrow Cancellation Disclosure, see the section-by-
section analysis of Sec.  1026.20(e), below.
---------------------------------------------------------------------------

    \179\ See 78 FR 10902, 11017 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau also proposed 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 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 buydowns 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 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,

[[Page 79782]]

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. 74 FR 43417 (proposed comment 
38(e)(5)(iii)-2).
    In the TILA-RESPA Proposal, the Bureau stated its agreement with 
the Board's reasoning in proposing the 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 noted, 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 annual 
percentage rate, 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 
proposed to place the guidance in the commentary to Sec.  
1026.17(c)(1), as that section is the basis for the underlying 
principle that the impact of premiums and rebates depends on the terms 
of the legal obligation.
    Several industry trade association commenters noted that there is 
no clear definition of what is considered a ``premium or a rebate'' 
under proposed comment 17(c)(1)-19. Those commenters noted that it is 
not clear whether any amount that a creditor would pay to a consumer is 
considered a premium or rebate. For example, if a credit that may be 
used to pay closing costs is subject to the comment, it is not clear 
whether the comment requires considering the credit to be applied first 
to finance charges and then to closing costs that are not finance 
charges. One such commenter noted that, without uniformity to these 
terms, borrowers may have difficulty comparing competing offers. Other 
such commenters recommended clarifying that if a creditor provides a 
specific credit against a charge that is included in the finance 
charge, the credit should reduce the total finance charge; whereas if a 
creditor provides a general credit that the consumer can use to pay 
closing costs, whether or not those closing costs are included in the 
finance charge, the credit should lower the finance charge.
    The Bureau has considered the comments received regarding new 
comment 17(c)(1)-19. However, as noted above, comment 17(c)(1)-19 is 
intended only to clarify existing 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. Accordingly, 
the Bureau is finalizing comment 17(c)(1)-19 as proposed.
    Among the proposed conforming amendments, which are noted above, 
was an amendment to comment 17(c)(1)-10 to reflect the special rules 
under Sec.  1026.19(e) and (f). Comment 17(c)(1)-10 provides that, in 
determining the index value used to calculate the disclosures when 
creditors set an initial interest rate that is not calculated using the 
index or formula for later adjustments, the disclosures should reflect 
a composite annual percentage rate based on the initial rate for as 
long as it is charged, and for the remainder of the term, the rate that 
would have been applied using the index or formula at the time of 
consummation. The rate at consummation need not be used if a contract 
provides for a delay in the implementation of changes in an index 
value. The comment uses a 45-day look-back period as an example. 
Although not specifically addressed in the proposed rule, several 
industry trade association commenters noted that, because Dodd-Frank 
Act section 128A requires an early notice of the first adjustment on 
hybrid adjustable rate mortgages, it is likely that, for some 
adjustable rate mortgages, the look-back period for the first 
adjustment may be longer than the look-back period for subsequent 
adjustments. For that reason, the commenters asserted that it would be 
helpful for commentary to permit the use of the longer look-back 
period.
    After consideration of the comments received, the Bureau is 
adopting comment 1026.17(c)(1)-10 generally as proposed. The Bureau 
notes that comment 1026.17(c)(1)-10 is broad and does not specifically 
prohibit or permit creditors to use a particular look-back period where 
a transaction is structured to have multiple adjustments with varying 
look-back periods, so it is not clear that additional commentary 
regarding the use of specific look-back periods is necessary. Further, 
the Bureau did not propose changes or solicit comment on comment 
1026.17(c)(1)-10 in the TILA-RESPA Proposal with respect to how it 
might relate the disclosure requirements of Dodd-Frank Act section 
128A, so the Bureau does not believe that it would be appropriate to 
finalize such a change at this time. However, the Bureau is making 
certain technical changes to proposed comment 1026.17(c)(1)-10 to 
clarify that the composite rate would apply to the ``in five years'' 
disclosure pursuant to Sec.  1026.37(l)(1) and the total interest 
percentage disclosure pursuant to Sec. Sec.  1026.37(1)(3) and 
1026.38(o)(5), in addition to the disclosures required by Sec.  
1026.18(g) and (s) and Sec. Sec.  1026.37(c) and 1026.38(c), which were 
included in the proposed conforming amendments.
17(c)(2)
    Current Sec.  1026.17(c)(2) and its commentary contain general 
rules regarding the use of estimates. The Bureau proposed 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 would have provided guidance to creditors on 
the basis for estimates. The proposed rule would have amended 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 would 
have revised 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 of 
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 would have revised 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 would have clarified 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, would have provided that the creditor 
shall disclose the actual amount of per diem interest that will be 
collected at consummation, subject only

[[Page 79783]]

to the disclosure rules in Sec.  1026.19(e) and (f).
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(c)(2). For the reasons discussed in the proposed rule, 
the Bureau is finalizing Sec.  1026.17(c)(2) as proposed. However, the 
Bureau is revising comment 17(c)(2)(i)-2 to clarify that the use of the 
Closing Disclosure form H-25 of appendix H satisfies the requirement 
that the disclosure state clearly that it is an estimate. Under 
proposed Sec.  1026.19(f), creditors would have been required to 
disclose the actual terms of the transaction on the Closing Disclosure. 
For the reasons discussed below in the section-by-section analysis of 
Sec.  1026.19(f), however, the final rule requires creditors to 
disclose the actual terms of the transaction on the Closing Disclosure, 
but also provides that if any information necessary for disclosure of 
the actual terms is unknown to the creditor, the creditor shall make 
such disclosure based on the best information reasonably available at 
the time the disclosure is provided to the consumer. To account for the 
fact that the Closing Disclosure may reflect some estimated terms 
pursuant to Sec.  1026.19(f), comment 17(c)(2)(i)-2, as adopted, 
provides that, for the disclosures required by Sec.  1026.19(e) or (f), 
use of the Loan Estimate form H-24 of appendix H to Regulation Z 
pursuant to Sec.  1026.37(o) or the Closing Disclosure form H-25 of 
appendix H to Regulation Z pursuant to Sec.  1026.38(t), as applicable, 
satisfies the requirement that the disclosure state clearly that the 
disclosure is an estimate.
17(c)(4)
    The proposed rule would have revised 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.
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(c)(4). For the reasons discussed in the proposed rule, 
the Bureau is finalizing Sec.  1026.17(c)(4) as proposed.
17(c)(5)
    Current Sec.  1026.17(c)(5) and its commentary contain general 
rules regarding the disclosure of demand obligations. The proposed rule 
would have revised comment 17(c)(5)-2, which addresses obligations 
whose maturity date is determined by a future event, to reflect the 
fact that special rules would have applied to the disclosures required 
by Sec.  1026.19(e) and (f). In addition, the proposal would have 
revised 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 would have revised comment 17(c)(5)-4, regarding balloon 
payment mortgages, to reflect the fact that special rules would have 
applied to the disclosure of balloon payments in the projected payments 
tables required by Sec. Sec.  1026.37(c) and 1026.38(c).
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(c)(5). For the reasons discussed in the proposed rule, 
the Bureau is finalizing Sec.  1026.17(c)(5) as proposed.
17(d) Multiple Creditors; Multiple Consumers
    Current Sec.  1026.17(d) addresses transactions that involve 
multiple creditors or consumers. The proposed rule would have revised 
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, would have been 
required to be given before consummation to each consumer who has the 
right to rescind, including any such consumer who is not an obligor. As 
stated in the proposal and in the Board's 2010 Mortgage Proposal, the 
purpose of the TILA section 128 requirement that creditors provide 
early and final disclosures is to ensure that consumers have 
information specific to their loan to use while shopping and evaluating 
their loan. See 75 FR 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 would have required 
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.
    Several industry trade association commenters noted that it is not 
clear under proposed comment 17(d)-2 whether the Closing Disclosure 
required by proposed Sec.  1026.19(f) would be required to be provided 
to one consumer, or whether the fact that Sec.  1026.19(f) is not 
specifically mentioned in the comment means that the Closing Disclosure 
must be provided to all consumers. The commenters noted that giving the 
Closing Disclosure to all consumers would be an operational burden, and 
requested clarification regarding the requirements of 1026.17(d) with 
regard to the Closing Disclosure.
    The proposed changes to comment 17(d)-2 were intended only to 
clarify how the existing rule regarding multiple consumers applies to 
the integrated disclosures and were not intended to alter existing 
guidance in comment 17(d)-2. However, after consideration of the 
comments received, the Bureau is finalizing revised language in comment 
17(d)-2 to provide further clarification regarding the provision of the 
Closing Disclosure. Specifically, comment 17(d)-2 provides that when 
two consumers are joint obligors with primary liability on an 
obligation, the early disclosures required by Sec.  1026.19(a), (e), or 
(g), as applicable, may be provided to any one of them. In rescindable 
transactions, the disclosures required by Sec.  1026.19(f) must be 
given separately to each consumer who has the right to rescind under 
Sec.  1026.23. In transactions that are not rescindable, the 
disclosures required by Sec.  1026.19(f) may be provided to any 
consumer with primary liability on the obligation. With respect to 
commenters' concerns that providing the Closing Disclosure to all 
consumers would be an operational burden, the Bureau notes that 
separate disclosures must be provided to each consumer only in 
rescindable transactions and that the commentary is consistent with 
existing guidance in comment 17(d)-2. In addition, the fact that 
material disclosures are to be provided to all consumers with a right 
to rescind would mean that creditors would otherwise be required to 
provide these disclosures separately, using a separate document, if 
they did not provide them using the Closing Disclosure. As such, 
providing a duplicate Closing Disclosure to all consumers with a right 
to rescind may in fact reduce operational burden, because creditors 
would not need to create a separate document for such disclosures. The 
Bureau also acknowledges that some creditors may desire that each 
obligor to a transaction subject to Sec.  1026.19(f) receive a Closing 
Disclosure, to obtain a signature of customary recitals or 
certifications that

[[Page 79784]]

are appended to the disclosure pursuant to Sec.  1026.38(t)(5).
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 would have revised comment 17(e)-1 to clarify that 
special rules apply to transactions subject to proposed Sec.  
1026.19(e) and (f). The Bureau did not receive comments regarding the 
proposed changes to Sec.  1026.17(e). For the reasons discussed in the 
proposed rule, the Bureau is finalizing Sec.  1026.17(e) as proposed, 
with a minor modification for clarity to refer to the post-consummation 
disclosure requirements under Sec.  1026.19(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 analyses of Sec.  1026.19(a), (e), 
and (f), under the proposal, special timing requirements would have 
applied for transactions subject to those sections. Accordingly, Sec.  
1026.17(f) would have been revised to reflect the fact that the general 
early disclosure rules in Sec.  1026.17(f) would be subject to the 
special rules in Sec.  1026.19(a), (e), and (f). In addition, comments 
17(f)-1 through -4 would have been revised to conform to the special 
timing requirements under proposed Sec.  1026.19(a) or (e) and (f).
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(f). For the reasons discussed in the proposed rule, 
the Bureau is finalizing Sec.  1026.17(f) as proposed.
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 analyses of 
Sec.  1026.19(a), (e), and (f), the Bureau proposed special timing 
requirements for transactions subject to those provisions. Accordingly, 
the Bureau proposed 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) or (e) and (f).
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(g). For the reasons discussed in the proposed rule, 
the Bureau is finalizing Sec.  1026.17(g) as proposed, with technical 
changes to Sec. Sec.  1026.17(g) and (h) to clarify that those sections 
do not apply to mortgage disclosures made in compliance with Sec.  
1026.19(e), (f), and (g), and to comment 17(g)-1 to clarify that Sec.  
1026.17(g) does not apply to transactions subject to Sec.  1026.19(a) 
or (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 analyses of 
Sec.  1026.19(a), (e), and (f), the Bureau proposed special timing 
requirements for transactions subject to those provisions. Accordingly, 
the Bureau proposed 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), (f), and (g).
    The Bureau did not receive comments regarding the proposed changes 
to Sec.  1026.17(h). For the reasons discussed in the proposed rule, 
the Bureau is finalizing Sec.  1026.17(h) as proposed, with a technical 
change to 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).
Section 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 proposed 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). For 
that reason, the Bureau proposed to amend Sec.  1026.18's introductory 
language to provide that its disclosure content requirements would 
apply only to closed-end transactions other than mortgage transactions 
subject to proposed Sec.  1026.19(e) and (f).
    The Bureau did not receive comments on this proposed amendment to 
the introductory language to Sec.  1026.18, although the Bureau did 
receive comments regarding the proposed scope of the integrated 
disclosures required by Sec. Sec.  1026.37 and 1026.38, which are 
discussed in the section-by-section analysis of Sec.  1026.19, below. 
For the reasons discussed in the proposed rule, the Bureau is 
finalizing the revisions to the introductory language to Sec.  1026.18 
as proposed.
    The Bureau also proposed to add a new comment 18-3 which would have 
clarified that, because of the proposed exclusion for transactions 
subject to Sec.  1026.19(e) and (f), the disclosures required by Sec.  
1026.18 would have applied 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 also would have clarified 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 58470, 
58482-84. The comment would have included a cross-reference to comments 
18(g)-6 and 18(s)-4 for additional guidance on the applicability to 
different transaction types of Sec.  1026.18(g) or (s) and proposed 
Sec.  1026.19(e) and (f). Finally, the comment would have clarified 
that, because Sec.  1026.18 would not have applied 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 a dwelling and is not also secured by real property 
and to reverse mortgages, as applicable.
    The Bureau did not receive comments on this aspect of the proposed 
rule. For the reasons discussed in the proposed rule, the Bureau is 
finalizing comment 18-3 as proposed.
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 the section-
by-section analysis of Sec.  1026.17(c)(1), above, the Bureau proposed 
to remove comment 18(b)-2 and place revised guidance regarding rebates 
and loan premiums in proposed comment 17(c)(1)-19.
    Several industry commenters requested clarification regarding the 
definition of ``premium'' or ``rebate'' in proposed comment 17(c)(1)-
19. For a discussion of those comments, see the

[[Page 79785]]

section-by-section analysis of Sec.  1026.17(c)(1), above. For the 
reasons discussed in the proposed rule and in the section-by-section 
analysis of Sec.  1026.17(c)(1), the Bureau is removing comment 18(b)-2 
as proposed.
18(b)(2)
    The Bureau proposed 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 
above in the section-by-section analysis of Sec.  1026.4, the TILA-
RESPA Proposal included a proposal to adopt a simpler and more 
inclusive definition of the finance charge. Under that aspect of the 
proposal, references to real estate settlement charges and premiums for 
voluntary credit life and disability insurance in comment 18(b)(2)-1 
would have been inappropriate. Accordingly, proposed comment 18(b)(2)-1 
would have removed those references and substituted appropriate 
examples.
    As discussed above in the section-by-section analysis of Sec.  
1026.4, the Bureau is not finalizing the proposed revisions to the 
definition of the finance charge at this time. Accordingly, the Bureau 
is not finalizing the proposed changes to comment 18(b)(2)-1.
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 proposed certain conforming amendments to two 
comments under Sec.  1026.18(c). Under the proposal, Sec.  1026.18 
disclosures, including the itemization of amount financed under Sec.  
1026.18(c), would have been required only for closed-end transactions 
that are not secured by real property and reverse mortgages; 
transactions secured by real property other than reverse mortgages 
would have been subject to the disclosure content in proposed 
Sec. Sec.  1026.37 and 1026.38. The Bureau therefore proposed 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.
    The Bureau did not receive comments on this aspect of the proposed 
rule. For the reasons discussed in the proposed rule, the Bureau is 
finalizing the technical revisions to comments 18(c)-4 and 
18(c)(1)(iv)-2 as proposed.
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 proposed 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 was intended solely as a conforming amendment, to 
reflect the Bureau's belief that multiple-advance construction loans 
would no longer be subject to the Sec.  1026.18 disclosure requirements 
under the proposal. The proposal stated the Bureau's belief 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. The Bureau sought comment, 
however, on whether any reason remained to preserve comment 
18(f)(1)(iv)-2.iii.
    One State manufactured housing trade association commenter noted 
that, in the manufactured housing industry, a home may be sold as 
personal property and may become real property at some later point in 
time in the home delivery and installation process. That comment 
suggested that there may be construction elements to some manufactured 
home loans, although the commenter did not provide examples of such 
transactions. That commenter requested an exclusion from the disclosure 
requirements of proposed Sec. Sec.  1027.37 and 1026.38 for ``land/home 
stage-funded manufactured home loans,'' even those loans that when 
fully consummated will be secured in whole or in part by real property. 
In addition, two national industry trade association commenters noted 
that some loans are secured by both real property and personal 
property, such as investments or deposits held in a consumer's account, 
and that it is not clear whether those loans would be subject to the 
integrated disclosures and, if they are, how the creditor would 
disclose the security interest in personal property.
    The Bureau has considered the comments received on the proposal to 
remove comment 18(f)(1)(iv)-2.iii. With respect to the State 
manufactured housing trade association comment, because the commenter 
suggests that some manufactured home loans may have construction-only 
phases that may be secured by personal property and not real property, 
the Bureau has determined it is appropriate to retain comment 
18(f)(1)(iv)-2.iii for flexibility. To the extent the loans described 
in the comment letter are secured by real property, however, such loans 
would be covered by Sec.  1026.19(e) and (f), and therefore Sec.  
1026.18(f) would be inapplicable. For a discussion of the scope of 
Sec.  1026.19(e) and (f), see the section-by-section analysis of Sec.  
1026.19, below. Similarly, with respect to the two industry trade 
association comments, the Bureau acknowledges that multiple advance 
construction loans may be secured by both real and personal property. 
In such a case, however, because the loans are secured by real 
property, at least in part, such transactions would be subject to the 
disclosure requirements of Sec.  1026.19(e) and (f), and therefore 
Sec.  1026.18(f) would be inapplicable. Accordingly, the Bureau is not 
finalizing the proposed changes to comment 18(f)(1)(iv)-2.
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 proposed to remove from the 
coverage of Sec.  1026.18 transactions secured by real property, other 
than reverse mortgages, and subject them to the integrated disclosure 
requirement under Sec. Sec.  1026.37 and 1026.38. Thus, under the 
proposal, Sec.  1026.18(g) would have applied 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, would have 
been subject instead to either the interest rate and payment summary 
table disclosure requirement under Sec.  1026.18(s) or the projected

[[Page 79786]]

payments table disclosure requirement under Sec. Sec.  1026.37(c) and 
1026.38(c), as applicable.
    In light of these proposed changes to the coverage of Sec.  1026.18 
generally, and specifically Sec.  1026.18(g), the Bureau proposed 
several conforming changes to the commentary under Sec.  1026.18(g). 
Specifically, comment 18(g)-4 would have been revised to remove a 
reference to home repairs, and comment 18(g)-5, relating to mortgage 
insurance, would have been removed and reserved. In addition, comment 
18(g)-6, which currently discusses the coverage of mortgage 
transactions as between Sec.  1026.18(g) and (s), would have been 
revised to reflect the additional effect of proposed Sec.  1026.19(e) 
and (f), which would have required 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 proposed to amend 
comments 18(g)(2)-1 and -2 to remove unnecessary, and potentially 
confusing, references to mortgages and mortgage insurance.
    The Bureau did not receive comments on this aspect of the proposed 
rule. For the reasons discussed in the proposal, the Bureau is 
finalizing the commentary to Sec.  1026.18(g) as proposed.
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 of 
Sec.  1026.37(b)(4), below.
    The proposal would have defined ``prepayment penalty'' in proposed 
Sec.  1026.37(b)(4) for transactions subject to 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 is due, and would have provided 
examples of prepayment penalties and other relevant guidance in 
proposed commentary. As noted in the proposal, 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 that definition is provided in the 
section-by-section analysis of Sec.  1026.37(b)(4), below.
    As discussed in the section-by-section analysis of Sec.  
1026.37(b)(4), the Bureau sought to coordinate the definition of 
``prepayment penalty'' in proposed Sec.  1026.37(b)(4) with the 
definitions in the Bureau's other rulemakings under the Dodd-Frank Act 
concerning ability-to-repay requirements, high-cost mortgages under 
HOEPA, and mortgage servicing. The Bureau sought to coordinate the 
definition of ``prepayment penalty'' due to its belief 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 proposed certain 
conforming revisions to Sec.  1026.18(k) and associated commentary.
    As stated in the TILA-RESPA Proposal, the Bureau recognized that, 
with such conforming revisions to Sec.  1026.18(k) and associated 
commentary, the revised definition of ``prepayment penalty'' would have 
applied to both closed-end mortgage and non-mortgage transactions. In 
particular, the proposed conforming revisions to Sec.  1026.18(k) would 
have defined ``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.'' The 
proposal recognized that this revision could lead to an expansion of 
the set of instances that trigger disclosure under Sec.  1026.18 of a 
prepayment penalty for closed-end transactions. The proposal stated the 
Bureau's belief that consumers entering into closed-end mortgage and 
non-mortgage transactions alike would have benefited from the 
transparency associated with more frequent and consistent disclosure of 
prepayment penalties. Therefore, the Bureau proposed to use its 
authority under TILA section 105(a) to make conforming revisions to 
Sec.  1026.18(k) because of its belief that those changes would have 
effectuated the purposes of TILA by promoting the informed use of 
credit. Similarly, the Bureau believed these revisions would have 
helped to 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 
Bureau also believed the revisions would improve consumer awareness and 
understanding of residential mortgage loans, and would be in the 
interest of consumers and the public, consistent with Dodd-Frank Act 
section 1405(b). The Bureau solicited 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) would have deleted 
the phrase ``a statement indicating whether or not a penalty may be 
imposed if the obligation is prepaid in full'' and would have replaced 
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) 
would have added 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 would have inserted 
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 would have replaced the existing commentary text 
with the language from proposed comments 37(b)(4)-2 and -3 and proposed 
comment 18(k)(2)-1.A would have been revised with language from 
proposed comment 37(b)(4)-2.
    The Bureau did not receive comments on the proposed changes to 
Sec.  1026.18(k). However, the Bureau is finalizing

[[Page 79787]]

certain additional changes to Sec.  1026.18(k) and its commentary in 
order to adopt a consistent definition of ``prepayment penalty'' across 
its various rulemakings affecting closed-end mortgage transactions, as 
the Bureau stated it sought to do in the proposal. The reasons for 
these additional changes are discussed in the section-by-section 
analysis of Sec.  1026.37(b)(4). Specifically, comment 18(k)(1)-1.ii is 
revised to provide that the term ``prepayment penalty'' does not 
include a waived bona fide third-party charge imposed by the creditor 
if the consumer pays all of a covered transaction's principal before 
the date on which the principal is due sooner than 36 months after 
consummation, for consistency with comment 37(b)(4)-2.ii. The comment 
also provides an illustrative example. In addition, the Bureau is 
finalizing certain clarifying changes to comment 18(k)(1)-2.i, for 
consistency with comment 37(b)(4)-3.i. All other proposed amendments to 
Sec.  1026.18(k) and its commentary are finalized as proposed, for the 
reasons stated in the proposed rule and in the section-by-section 
analysis of Sec.  1026.37(b).
18(r) Required Deposit
    If a creditor requires the consumer to maintain a deposit as a 
condition of the specific transaction, current 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 proposed 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 
proposed changes to the coverage of Sec.  1026.18, the only 
transactions to which this guidance would have applied are reverse 
mortgages, which do not entail escrow accounts for condominium fees or 
any other recurring expenses. Accordingly, the Bureau believed that 
comment 18(r)-6.vi would have been rendered unnecessary by the 
proposal. The Bureau requested 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 the proposal.
    One small bank commenter noted that the Bureau proposed to exempt 
transactions subject to proposed Sec.  1026.19(e) and (f) from the 
disclosures required by current Sec.  1026.18(r), but that the 
integrated disclosures do not contain a similar disclosure requirement. 
As noted further in the section-by-section analyses of Sec. Sec.  
1026.37 and 1026.38, the integrated disclosures focus on the most 
readily understandable information that consumers use when shopping for 
and understanding their mortgage loans. The Bureau also stated in the 
TILA-RESPA proposal that it was concerned about the risk to consumers 
of experiencing information overload, which has often been cited as a 
problem with financial disclosures. The disclosure required by current 
Sec.  1026.18(r), which is not specifically required by TILA, is not a 
disclosure that the Bureau's research and consumer testing indicates is 
important to consumers in understanding their loans. Accordingly, to 
reduce the potential for information overload for consumers, the Bureau 
is not requiring this disclosure in Sec. Sec.  1026.37 or 1026.38. 
However, the final rule does not prohibit creditors from providing 
disclosures or information not specifically required by Sec. Sec.  
1026.37 or 1026.38. But, such additional information must be segregated 
from the required disclosures. See comment 37(o)(1)-1 and comment 
38(t)(1)-1. For the reasons discussed in the proposal, the Bureau is 
finalizing comment 18(r)-6.vi as proposed.
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 the TILA-RESPA Proposal, 
however, Sec.  1026.19(e) and (f) would have required new, separate 
disclosures for transactions secured by real property, other than 
reverse mortgages. Generally, the disclosure requirements of Sec.  
1026.19(e) and (f) would have applied to transactions currently subject 
to Sec.  1026.18(s), except that reverse mortgages and transactions 
secured by dwellings that are personal property would have been 
excluded. In addition, as discussed in the section-by-section analysis 
of Sec.  1026.19, transactions secured by a consumer's interest in a 
timeshare plan would have been 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 would have included a different 
form of payment schedule table, under Sec. Sec.  1026.37(c) and 
1026.38(c), instead of the interest rate and payment summary table 
under Sec.  1026.18(s). Accordingly, the Bureau proposed to amend Sec.  
1026.18(s) to provide that it would have applied 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 
proposed parallel revisions to comment 18(s)-1 to reflect this change 
in the scope of Sec.  1026.18(s)'s coverage. The Bureau also proposed 
to add a new comment 18(s)-4 to explain that Sec.  1026.18(s) would 
have governed only closed-end reverse mortgages and closed-end 
transactions secured by a dwelling that is personal property.
    The Bureau did not receive comments on this aspect of the proposed 
rule. For the reasons discussed in the proposal, the Bureau is 
finalizing the revisions to Sec.  1026.18(s) and comment 18(s)-1 and 
adding new comment 18(s)-4 as proposed.
    While not specifically addressed in the proposal, one large 
provider of mortgage origination software commenter suggested the 
Bureau clarify that the interest rate and payment summary table 
represents a payment schedule that is a material disclosure for 
purposes of Sec.  1026.23. Although the Bureau is not adopting such a 
clarification in the rule at this time, the Bureau notes that current 
Regulation Z defines ``material disclosures'' to include the ``payment 
schedule'' disclosure, which has historically been implemented under 
Sec.  1026.18(g), but is currently also implemented in Sec.  1026.18(s) 
for closed-end transactions secured by real property or a dwelling and, 
under this final rule, for a transaction that is subject to Sec.  
1026.19(e) and (f), in Sec. Sec.  1026.37(c) and 1026.38(c). Section 
1026.18(g) and (s) and Sec. Sec.  1026.37(c) and 1026.38(c) each 
implement TILA section 128(a)(6), which requires the creditor to 
disclose the number, amount, and due dates or period of payments 
scheduled to repay the total of payments. Accordingly, each of these 
disclosures is a ``payment schedule'' for purposes of Sec.  1026.23.
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 proposal noted that 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. Prior to issuing the proposal, the 
Bureau learned

[[Page 79788]]

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. As stated in the proposal, 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 
recognized that government loan program guarantees may be legally 
distinguishable from mortgage insurance, they are functionally very 
similar. Moreover, the Bureau believed that such a technical, legal 
distinction is unlikely to be meaningful to most consumers. Therefore, 
the Bureau believed 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 proposed 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 would have been revised to conform to Sec.  
1026.18(s)(3)(i)(C). Specifically, the proposed comment would have 
clarified 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 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 believed that 
including both amounts in the estimate of taxes and insurance on the 
table required by Sec.  1026.18(s) would have promoted the informed use 
of credit, thereby carrying out the purposes of TILA, consistent with 
TILA section 105(a). In addition, the proposed disclosure would have 
ensured 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 would have improved consumer awareness and 
understanding of residential mortgage loans and would have been in the 
interest of consumers and the public, consistent with Dodd-Frank Act 
section 1405(b). Proposed comment 18(s)(3)(i)(C)-2 would have been 
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 the section-by-section analyses of Sec. Sec.  
1026.37(c) and 1026.38(c) for a description of the treatment of 
mortgage guarantee fees in those sections.
    One mortgage origination software provider commenter noted that the 
proposed revision to Sec.  1026.18 to include the ``functional 
equivalent'' of mortgage insurance in the disclosure would benefit 
consumers and creditors. However, one GSE commenter stated that the 
proposed revision to include the ``functional equivalent'' of mortgage 
insurance in the disclosure would create uncertainty as to what 
information must be disclosed because the language in the proposed rule 
could unintentionally cover a variety of credit enhancement or other 
structures, such as lender-paid mortgage insurance, that are not 
incremental to the consumers monthly payment and are disclosed 
elsewhere. That commenter suggested that the Bureau remove the 
reference to ``any functional equivalent'' of mortgage insurance and 
limit inclusion of the cost of mortgage guarantees to only those 
associated with United States Department of Veterans Affairs or United 
States Department of Agriculture guarantees that result in an 
incremental cost to the consumer that is separate and apart from the 
consumer's monthly payment of principal and interest. The Bureau 
otherwise did not receive comments on this aspect of the proposed rule.
    For the reasons discussed in the proposal, the Bureau is finalizing 
the revisions to Sec.  1026.18(s)(3)(i)(C) and comment 18(s)(3)(i)(C)-2 
substantially as proposed, with certain clarifying changes to comment 
18(s)(3)(i)(C)-2. As proposed, that comment would have provided that 
``mortgage insurance'' means insurance against the nonpayment of, or 
default on, and individual mortgage. As finalized, however, the comment 
provides that ``mortgage insurance or any functional equivalent'' means 
the amounts identified in Sec.  1026.4(b)(5). The Bureau believes that 
referencing the component of the finance charge in Sec.  1026.4, rather 
than adopting a new definition, will facilitate compliance for 
creditors and avoid regulatory complexity, since the definition in 
Sec.  1026.4(b)(5) is a longstanding part of Regulation Z. This change 
is consistent with the definition of ``mortgage-related obligations'' 
in the Bureau's 2013 ATR Final Rule and with the references to mortgage 
insurance or any functional equivalent in Sec.  1026.37(c), described 
below. The Bureau is also making clarifying changes to the references 
to mortgage insurance in comments 18(s)(3)(i)(C)-1 and 18(s)(6)-1, for 
consistency with the changes to comment 18(s)(3)(i)(C)-2.
    The Bureau has considered the comment related to the disclosure of 
the ``functional equivalent'' of mortgage insurance, but does not 
believe the comment should be specifically addressed in the rule. 
Section 1026.18(s)(3)(i)(C) requires disclosure of mortgage insurance 
or any functional equivalent only if an escrow account will be 
established, and only requires disclosure of the amount that will be 
paid with each periodic payment. Because lender-paid mortgage insurance 
would not be paid with escrow account funds and would not be paid by 
the consumer with each periodic payment, Sec.  1026.18(s)(i)(C) and its 
commentary would not apply.
18(t) ``No-Guarantee-To-Refinance'' Statement
    Current Sec.  1026.18(t)(1) provides that, for a closed-end 
transaction secured by real property or a dwelling, other than a 
transaction secured by a consumer's interest in a timeshare plan 
described in 11 U.S.C. 101(53D), the creditor shall disclose a 
statement that there is no guarantee the consumer can refinance the 
transaction to lower the interest rate or periodic payments. The TILA-
RESPA Proposal would have revised current Sec.  1026.18(t) to provide 
that transactions subject to proposed Sec.  1026.19(e) and (f) would 
not be subject to the requirements of Sec.  1026.18(t)(1), and would 
have removed the exclusion for timeshare plans because transactions 
secured by a consumer's interest in a timeshare plan would have been 
subject to proposed Sec.  1026.19(e) and (f).
    The Bureau did not receive comments on this aspect of the proposed 
rule. Accordingly, and for the reasons discussed in the proposal, the 
Bureau is finalizing the revisions to Sec.  1026.18(t) as proposed.
Section 1026.19 Certain Mortgage and Variable-Rate Transactions
    The Bureau proposed to amend Sec.  1026.19 to define the scope of 
the

[[Page 79789]]

proposed integrated disclosures and to establish the requirements for 
provision of those disclosures.
Coverage of Integrated Disclosure Requirements
Background
    The Bureau proposed 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 
RESPA GFE and RESPA settlement statement requirements) and TILA.\180\
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    \180\ In addition to, and at the same time as, provision of the 
RESPA 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 did not propose to integrate the booklet with 
the RESPA GFE and TILA disclosures, the Bureau proposed 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 
requirement to provide the special information booklet under Sec.  
1026.19(g).
---------------------------------------------------------------------------

    The Legal Authority discussion in part IV above also notes that, 
notwithstanding this integrated disclosure mandate, the Dodd-Frank Act 
did not reconcile important differences between RESPA and TILA, such as 
the delivery of the RESPA settlement statement and the final TILA 
disclosure, as well as the persons and transactions to which the 
disclosure requirements are imposed. Accordingly, to meet the 
integrated disclosure mandate, the Bureau believes that it must 
reconcile such statutory differences. The Bureau also recognizes that 
application of the integrated disclosure requirements of this final 
rule 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 decisions for addressing them in the 
final rule 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.\181\ 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. 12 U.S.C. 
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.
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    \181\ 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. Regulation X 
Sec.  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. 15 
U.S.C. 1603(1). In contrast with RESPA and Regulation X, however, TILA 
and Regulation Z have no exclusion 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

[[Page 79790]]

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.\182\ 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. On the 
other hand, 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.
---------------------------------------------------------------------------

    \182\ The exemption for 25-acre loans is provided by Regulation 
X but does not appear in RESPA. See 12 CFR 1024.5(b)(1).
---------------------------------------------------------------------------

    The Bureau proposed to use its authority under TILA section 105(a), 
(b), and (f), RESPA sections 4(a) and 19(a), and Dodd-Frank Act section 
1032(a) and (f) and, for residential mortgage loans, 1405(b) to tailor 
the scope of the proposal so that the integrated disclosure 
requirements apply to all closed-end consumer credit transactions 
secured by real property, other than reverse mortgages. Thus, the 
proposal would have exempted reverse mortgages, open-end transactions, 
and transactions that are not secured by real property. The proposal 
also would have expanded the application of the integrated disclosure 
requirements to transactions secured by real property that do not 
contain a dwelling. As it explained in the proposal, the Bureau 
believed that doing so would ensure that, in most mortgage 
transactions, consumers receive integrated disclosure forms developed 
by the Bureau through extensive consumer testing that would improve 
consumers' understanding of the transaction. Furthermore, the Bureau 
believed that applying a consistent set of disclosure requirements to 
most mortgage transactions would facilitate compliance by industry. 
Similarly, the proposal would have both narrowed and expanded the 
application of other Dodd-Frank Act mortgage disclosure requirements to 
improve consumer understanding and facilitate compliance.\183\
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    \183\ See, e.g., Dodd-Frank Act section 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) (TILA section 129C(f)); Dodd-Frank 
Act section 1419 (requires certain payment disclosures for variable 
rate residential mortgage loans for which an escrow account will be 
established) (TILA section 128(a)(16)); Dodd-Frank Act sections 
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) (TILA section 129D(h) and (j) and 
section 128(b)(4)); Dodd-Frank Act section 1475 (permits disclosure 
of appraisal management fees for federally related mortgage loans) 
(RESPA section 4(c)).
---------------------------------------------------------------------------

25-Acre Loans, Vacant-Land Loans, and Construction-Only Loans
    The Bureau proposed to apply the integrated disclosure requirements 
to 25-acre loans, construction-only loans, and vacant-land loans. While 
these loans are currently exempt from mortgage disclosure requirements 
under RESPA and Regulation X, see 12 CFR 1024.5(b)(1), (3), and (4), 
the Bureau proposed to cover them to ensure that, in most mortgage 
transactions, consumers receive a consistent set of disclosures to 
improve consumer understanding and facilitate compliance. The Bureau 
explained that, 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 stated its 
belief that this treatment would deprive consumers in such transactions 
of the benefits of the disclosures developed for this proposal. 
Moreover, the Bureau explained that these types of transactions involve 
real property and, therefore, are amenable to disclosure of the 
information currently disclosed through the RESPA GFE and RESPA 
settlement statement requirements. Thus, the Bureau expected that 
creditors should be able to use existing systems to provide the 
integrated disclosures for such transactions. The Bureau solicited 
comment, however, on whether application of the integrated disclosures 
to these transactions would impose significant burdens on creditors.
Comments
    25-acre loans. Several commenters expressed support for covering 
25-acre loans. A financial holding company indicated that covering 
these loans would facilitate compliance. A software company commenter 
and a title insurance company commenter stated that they did not 
believe covering these loans would be unduly burdensome on creditors, 
particularly if the Bureau provided guidance to address the unique 
characteristics of these loans. The software company commenter also 
explained that consumers who enter into multiple transactions at once 
would benefit from receiving consistent disclosures for different types 
of loans. A trade association representing banks from a midwestern 
State explained that many loans secured by properties of 25 acres or 
more are consumer-purpose loans for home construction, home 
improvement, refinance, or land acquisition. This commenter explained 
that these loans are typically structured the same as loans secured by 
properties on 24 or fewer acres and have similar costs, and that it is 
typically clear when they are being made for a consumer purpose, as 
opposed to a business purpose. Thus, the commenter explained that its 
membership generally did not object to providing the integrated 
disclosures for all consumer-purpose loans secured by real property, 
without regard to property size.
    By contrast, trade associations representing banks, a compliance 
company, a rural lender, and several community banks explained that 
many loans on 25 acres or more have more than one purpose and that 
loans that have a business, commercial, or agricultural purpose should 
be exempt under Regulation Z. The rural lender also recommended that 
the Bureau deem in the final rule all loans secured by 25 acres or more 
to be business, commercial, or agricultural purpose loans. The rural 
lender commenter explained that its customers often take out consumer-
purpose loans on properties of 25 acres or more, and that eliminating 
the current RESPA exemption for such loans would place a significant 
burden on rural creditors.\184\ The commenter noted that these loans 
were not subject to abusive mortgage practices in the past, and that 
the additional disclosures would impose a significant amount of 
paperwork and compliance burden, which would require it to increase 
staff. A rural lender commenter argued that covering loans on 
properties of 25 acres or more would not provide a significant

[[Page 79791]]

consumer benefit and could hurt customers because additional disclosure 
requirements would delay closings, inhibit access to credit, and 
increase costs for customers. Other industry commenters recommended 
that, if a loan on 25 acres or more has a business, commercial, or 
agricultural purpose, then the loan's primary purpose should be deemed 
as such, which would exempt the loan from the rule's coverage, 
consistent with the current treatment of such loans under Regulation X.
---------------------------------------------------------------------------

    \184\ The rural lender indicated that approximately 55 percent 
of its consumer-purpose loan applications and 61 percent of closed-
end consumer-purpose loans secured with real property are currently 
exempt from the RESPA GFE and RESPA settlement statement 
requirements, respectively.
---------------------------------------------------------------------------

    Other creditor and bank trade association commenters were concerned 
that covering business, commercial, or agricultural loans would 
decrease lending in that market. A trade association commenter 
representing banks asserted that the Bureau lacked authority to 
regulate such transactions because RESPA applies only to consumer 
mortgage loans, TILA applies only to consumer credit, and Dodd-Frank 
Act section 1405(b) authorizes modified disclosures for ``residential 
mortgage loans'' only for the purpose of improving consumer awareness 
and understanding.
    Vacant-land loans. A credit union commenter and an employee of a 
software company expressed support for covering vacant-land loans 
because standardizing loan disclosure for loans secured by real estate 
would benefit consumers and financial institutions. A title insurance 
company stated that it did not believe there would be a significant new 
burden if these loans were covered by the final rule. The software 
company commenter stated that it did not believe covering these loans 
would be unduly burdensome on creditors, particularly if the Bureau 
provided guidance to address the unique characteristics of these loans. 
This commenter also explained consumers who enter into multiple 
transactions at once would benefit from receiving consistent 
disclosures for different types of loans.
    By contrast, a rural lender commenter, a compliance company, and a 
trade association representing credit unions requested that the Bureau 
exempt loans secured by vacant land. The rural lender commenter 
specifically requested that the Bureau consider exempting vacant-land 
loans on which a home will not be constructed or placed using the loan 
proceeds within two years after settlement of the loan, which would be 
consistent with the exemption under current Regulation X Sec.  
1024.5(b)(4). The commenter explained that these loans, together with 
loans on properties of 25 acres or more and forms of temporary 
financing, comprise 55 percent of its consumer-purpose, real estate-
secured loan applications and 61 percent of its closed-end consumer-
purpose, real estate-secured loans that are currently exempt from RESPA 
GFE and RESPA settlement statement requirements, respectively. The 
commenter also observed that these loans were not subject to abusive 
mortgage practices in the past. Other commenters, including community 
banks, argued that covering vacant-land loans would not provide a 
significant consumer benefit and could hurt consumers because 
additional disclosure requirements would delay and complicate closings, 
inhibit access to credit, and increase costs for consumers. The trade 
association representing credit unions argued that many aspects of the 
proposal would be incongruous for vacant-land loans.
    Construction-only loans. A credit union commenter and an employee 
of a software company expressed support for covering temporary loans 
because standardizing loan disclosure for loans secured by real estate 
would benefit consumers and financial institutions. A title insurance 
company stated that it did not believe there would be significant new 
burden if these loans were covered by the final rule. The software 
company commenter stated that it did not believe covering these loans 
would be unduly burdensome on creditors, particularly if the Bureau 
provided guidance to address the unique characteristics of these loans. 
This commenter also explained consumers who enter into multiple 
transactions at the same time would benefit from receiving consistent 
disclosures for different types of loans.
    By contrast, a compliance company, a law firm submitting comments 
on behalf of a software company, a credit union, and trade associations 
representing banks and credit unions argued that temporary financing, 
particularly construction-only loans and bridge loans, also should be 
exempt because their unique characteristics make them ill-suited for 
RESPA disclosures. The trade association representing credit unions 
indicated that imposing the proposed timing requirements on 
construction-only loans would be unreasonable because the timing of 
their consummation is often affected by unforeseeable events, such as 
weather or material shortages, which would make it difficult to 
disclose the actual terms of their transactions in advance. The trade 
association commenter representing banks identified several 
characteristics of temporary or bridge loans it believed distinguished 
them from other transaction types: instead of monthly principal and 
interest payments, such loans typically require interest only payments 
or irregular quarterly payments with the principal balance due at 
maturity; no escrow account is established; no mortgage insurance is 
obtained; prepayment penalties are rare; and, typically closing costs 
are minimal because most costs are tied to the permanent financing. The 
commenter expressed concern that these unique features would mean bank 
software systems would not accurately populate the integrated 
disclosures and that associated compliance risk would reduce the 
availability of such products. The community bank commenter also argued 
that covering construction loans would reduce lending volume, 
complicate and delay closings, and would not necessarily benefit 
consumers. This commenter also observed that providing integrated 
disclosures for temporary and bridge loans would provide little benefit 
because they typically are made in conjunction with longer-term loans 
or until permanent financing is secure, and thus usually have lower 
costs than other loans. The compliance company commenter stated that 
construction-only loans are not consumer-purpose loans and consumers 
would receive no benefit from disclosures for such loans. The law firm 
commenter stated the Bureau was inconsistent by not exempting 
construction loans, which the company believed were distinct from 
traditional mortgage loans. This commenter identified several specific 
characteristics of construction loans that raised questions about the 
application of the proposal's integrated disclosure requirements, such 
as disclosure of loan term, adjustable payments, and adjustable 
interest rates.
    A rural lender commenter requested that the Bureau exempt loans for 
temporary financing unless the loan is used to finance transfer of 
title or may be converted to permanent financing by the same creditor. 
The commenter explained that these loans, together with loans on 
properties of 25 acres or more and vacant land loans, comprise 55 
percent of its consumer-purpose, real estate-secured loan applications 
and 61 percent of its closed-end consumer-purpose, real estate-secured 
loans that are currently exempt from RESPA GFE and RESPA settlement 
statement requirements, respectively. The commenter also argued that 
covering temporary financing would not provide a significant consumer 
benefit and could harm consumers because additional disclosure 
requirements would delay closings, restrict access to credit, increase 
costs for consumers, and

[[Page 79792]]

impede consumers' ability to purchase new homes. The commenter also 
noted that these loans were not subject to abusive mortgage practices 
in the past.
Final Rule
    The Bureau has considered the comments received regarding the 
applicability of the integrated disclosures to 25-acre loans, vacant-
land loans, and construction-only loans.
    25-acre loans. The Bureau declines to deem loans on properties of 
25 acres or more that have a business, commercial, or agricultural 
purpose as non-consumer-purpose loans, notwithstanding any consumer 
purpose they may have.\185\ TILA and Regulation Z already contemplate 
transactions that may have multiple purposes, and coverage depends on 
the primary purpose of the loan. TILA section 103(i) defines a 
``consumer'' credit transaction as one in which the money, property, or 
services which are the subject of the transaction are ``primarily'' for 
personal, family, or household purposes. The definition of ``consumer 
credit'' in Regulation Z Sec.  1026.2(a)(12) is consistent with this 
statutory definition. In addition, currently under Regulation Z, as in 
the final rule, an extension of credit primarily for business, 
commercial, or agricultural purpose is already exempt from the 
requirements of Regulation Z. See Sec.  1026.3(a)(1). Current comment 
3(a)-1 explains that a creditor must determine in each case if the 
transaction is primarily for an exempt purpose, and other existing 
commentary to 1026.3(a) provides guidance on whether particular types 
of credit, including credit for an agricultural purpose, are covered by 
Regulation Z. Further, loans on 25 acres or more that qualify as 
closed-end ``consumer credit'' under Regulation Z are currently subject 
to disclosure requirements under subpart C of Regulation Z, including 
those in Sec.  1026.18. Accordingly, creditors should be familiar with 
determining whether a loan on such properties is exempt.
---------------------------------------------------------------------------

    \185\ The final rule also removes the 25-acre loan exemption 
from Regulation X. See the section-by-section analysis of Sec.  
1026.5(b)(1) above.
---------------------------------------------------------------------------

    Although the Bureau received some comments suggesting that 
properties of 25 acres or more frequently have a non-consumer purpose, 
the Bureau received other comments, including one from a trade 
association representing banks located in a midwestern State, that 
loans on properties of 25 acres or more can be made for consumer 
purposes, such as home construction, home improvement, refinance, or 
land acquisition. Thus, even though a large-property loan may have a 
business, commercial, or agricultural purpose, the Bureau does not 
believe that fact alone should be sufficient to determine that the loan 
is not made primarily for a consumer purpose. Further, such an 
interpretation could have implications beyond this final rule to other 
parts of Regulation Z and remove existing TILA protections for 
consumers in rural areas.
    The Bureau recognizes that making such loans subject to the 
integrated disclosure requirements will impose a new burden on 
industry. However, the Bureau believes covering such loans under the 
final rule is consistent with the Dodd-Frank Act integration mandate 
applicable to mortgage loan transactions. Additionally, exempting such 
loans altogether could deprive these consumers of an important benefit. 
Further, basing coverage on whether real estate secures the transaction 
will facilitate compliance because creditors will not have to identify 
the size of the property before or upon receipt of an application to 
determine whether a Loan Estimate must be provided.
    Vacant-land loans. While vacant-land loans may not pose the same 
type of risk as dwelling-secured loans in the short term, they could 
present such risks if a consumer decides to construct a dwelling in the 
future. In addition, vacant land is itself an important source of value 
for consumers.
    The Bureau believes the integration mandate applies to more than 
just dwelling-secured loans. Dodd-Frank Act sections 1032(f), 1098, and 
1100A, which amend RESPA section 4(a) and TILA section 105(b), limit 
the integrated disclosure requirement to ``mortgage loan 
transactions.'' However, the Dodd-Frank Act did not specifically define 
that term. The Bureau believes the term extends broadly to real estate-
secured transactions as the Dodd-Frank Act did not use the term 
``residential mortgage loan,'' which was defined in Dodd-Frank Act 
section 1401. Moreover, the Dodd-Frank Act directs the Bureau to 
develop integrated disclosure requirements that may apply to a 
transaction that is subject to both or either provisions of TILA and 
RESPA. Although RESPA and Regulation X exempt vacant-land loans from 
coverage, TILA and Regulation Z apply to such loans.
    Accordingly, the Bureau believes these loans are covered by the 
integration mandate, and the Bureau believes that the integrated 
disclosures would be just as useful to a consumer whose closed-end 
credit transaction is secured by vacant real estate as they would to a 
consumer whose transaction is secured by real estate with a dwelling. 
In addition, the Bureau believes covering all real estate-secured 
closed-end consumer credit transactions (other than reverse mortgages) 
will facilitate industry compliance. Under the final rule, creditors 
will not have to determine whether the property includes a dwelling or 
if the loan proceeds will be used to construct a dwelling within two 
years from the date of the settlement of the loan \186\ before or upon 
receipt of an application to determine whether a Loan Estimate must be 
provided.
---------------------------------------------------------------------------

    \186\ Regulation X currently exempts from coverage any loan 
secured by vacant or unimproved property, unless, within two years 
from the date of the settlement of the loan, a structure or a 
manufactured home will be constructed or placed on the real property 
using the loan proceeds. 12 CFR 1024.5(b)(4). If a loan for a 
structure or manufactured home to be placed on vacant or unimproved 
property will be secured by a lien on that property, the transaction 
is covered by Regulation X. Id.
---------------------------------------------------------------------------

    Construction-only loans. The Bureau believes covering temporary 
loans secured by real estate will benefit consumers and will facilitate 
compliance because covering real estate-secured, closed-end consumer 
credit transactions, other than reverse mortgages, provides a clear 
compliance rule for industry. The Bureau notes that, while many 
construction-only loans may not be for a consumer purpose, only those 
loans made ``primarily'' for personal, family, or household purposes 
are covered by the final rule, consistent with the definition of 
``consumer credit'' in Regulation Z Sec.  1026.2(a)(12). Although the 
Bureau appreciates that the terms of a construction-only transaction 
may change based on unforeseen circumstances, these loans are not 
unique in that respect. Moreover, the Bureau has addressed the need for 
flexibility with respect to the provision of the Loan Estimate and 
Closing Disclosure under Sec.  1026.19(e) and (f), such that unforeseen 
circumstances should not interfere with the provision of those 
disclosures. For example, the good faith estimate requirement 
applicable to the Loan Estimate is subject to changed circumstances set 
forth in Sec.  1026.19(e)(3)(iv)(A). In addition, as discussed in the 
section-by-section analysis of Sec.  1026.19(f)(2), the final rule 
revises the redisclosure triggers applicable to the Closing Disclosure 
to account for unforeseen circumstances that could make previously 
disclosed settlement costs inaccurate. The Bureau appreciates that 
temporary loans, such as construction-only loans, may have unique 
characteristics that require special guidance. In response to

[[Page 79793]]

comments, the final rule provides additional clarity on how to disclose 
such construction-only loans, as described in the section-by-section 
analyses of the respective provisions of Sec. Sec.  1026.37 and 
1026.38.
    Conclusion. The Bureau believes that including 25-acre loans, 
vacant-land loans, and construction-only loans within the scope of the 
integrated disclosure requirements effectuates the purposes of TILA 
under TILA section 105(a), because it would ensure meaningful 
disclosure of credit terms to consumers and facilitate compliance with 
the statute. In addition, consistent with section 1032(a) of the Dodd-
Frank Act, coverage of these types of loans 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. Further, the Bureau adopts these requirements for 
residential mortgage loans based on its authority under Dodd-Frank Act 
section 1405(b), as it believes the modification will improve consumer 
awareness and understanding of transactions involving residential 
mortgage loans through the use of disclosures, and will be in the 
interest of consumers and in the public interest. Accordingly, for the 
aforementioned reasons, the final rule covers loans secured by 
properties of 25 acres or more, loans in which vacant land secures a 
closed-end consumer credit transaction, including loans on which a home 
will not be constructed or placed using the loan proceeds within two 
years after settlement of the loan, and construction-only loans and 
other forms of temporary financing secured by real property.
Reverse Mortgages, HELOCs, and Chattel-Dwelling Loans
    As described in more detail below, the Bureau proposed to exempt 
from the integrated disclosure requirements certain loans that are 
currently covered by both TILA and RESPA (reverse mortgages and open-
end transactions secured by real property or a dwelling), and certain 
loans that are covered by TILA but not RESPA (chattel-dwelling loans). 
The Bureau explained in the proposal that, for these mortgage 
transactions, the Bureau believes application of the integrated 
disclosure requirements would not improve consumer understanding or 
facilitate compliance and that these transactions should therefore be 
exempted from the integrated disclosure requirements.
    Reverse mortgages. The Bureau proposed to exempt reverse mortgage 
loans, as defined under Sec.  1026.33, from the integrated disclosure 
requirements. The Bureau explained in the proposal that it was 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 
explained in the proposal that it 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, was 
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.\187\ The Bureau expected to address reverse 
mortgages through a separate, future rulemaking process that would 
establish a distinct disclosure scheme.\188\
---------------------------------------------------------------------------

    \187\ 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.
    \188\ The Board's 2010 Mortgage Proposal included several 
provisions relating to reverse mortgages. See 75 FR 58539, 58638-59 
(Sept. 24, 2010). 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 instructs 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 published the reverse mortgage study on June 
28, 2012. See Press Release, U.S. Consumer Fin. Prot. Bureau, CFPB 
Report Finds Confusion in Reverse Mortgage Market (June 28, 2012), 
available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-report-finds-confusion-in-reverse-mortgage-market/. 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.
---------------------------------------------------------------------------

    HELOCs. Open-end transactions secured by real property or a 
dwelling (home-equity lines of credit, or HELOCs) are within the 
statutory scope of both TILA and RESPA and also reasonably could be 
considered ``mortgage loan transactions.'' However, as the Bureau 
explained in the proposal, HELOCs are, by their nature, fundamentally 
different from other forms of mortgage credit.
    Chattel-dwelling loans. Chattel-dwelling loans (such as loans 
secured by mobile homes) do not involve real property, by definition. 
The Bureau estimated in the proposal 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, 
the Bureau explained that, if these transactions were subject to the 
integrated disclosures under the proposal, a significant portion of the 
disclosures' content would be inapplicable. The Bureau explained 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 had no basis for expecting that they would 
necessarily be as informative or understandable to consumers if so 
dramatically altered. The Bureau expressed 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 explained 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.
Comments
    Reverse mortgages. A credit union commenter supported an exemption 
for reverse mortgage loans because of their uniqueness and because the 
required disclosures would confuse consumers. A settlement agent 
commenter stated that if reverse mortgage loans are exempt from the 
final rule, they also should be exempt from RESPA section 4. The 
commenter recommended a simple closing statement that would itemize 
debits and credits to the borrower and seller. By contrast,

[[Page 79794]]

another credit union commenter stated that reverse mortgage loans 
secured by real estate should be covered because standardizing loan 
disclosures for all real estate-secured loans would benefit consumers 
and financial institutions. The commenter recommended that additional 
disclosures required for reverse mortgages under Sec.  1026.33(b) could 
be added as an addendum to the integrated disclosures, and that 
consumers would benefit from the use of standard forms that they could 
rely on and understand, while financial institutions would benefit from 
having a single set of rules and disclosures that would apply to 
similar loans.
    HELOCs. A trade association representing credit unions and a credit 
union commenter supported an exemption for these loans due to their 
uniqueness and the fact that the required disclosures would not make 
much sense to the consumer for these types of transactions. A consumer 
advocacy group stated that HELOCs should have triggers and protections 
equal to those applicable to closed-end mortgage loans. The commenter 
explained that many consumers and creditors do not distinguish between 
open- and closed-end home-secured credit, and that the consequences of 
default on a HELOC are far more serious than for credit cards and more 
closely resemble the effects of default on a closed-end mortgage loan.
    Chattel-dwelling loans. A non-depository lender for manufactured 
homes and a trade association representing the manufactured home 
industry supported the exclusion for chattel-dwelling loans from the 
integrated mortgage disclosure requirements. The non-depository lender 
commenter explained that some States have laws that impose requirements 
that have been interpreted to require mortgage lenders to fully comply 
with the disclosure requirements of RESPA and/or TILA or their 
implementing regulations for loans secured by both personal property 
and real estate. The commenter further explained that the practical 
effect of dual application of RESPA and TILA under State law is that 
lenders must provide both old and new forms of the RESPA and TILA 
disclosures for the same transaction. The commenter stated its position 
that any State law or regulation that requires a mortgage lender to 
provide not only the proposed integrated disclosures but also the 
existing or current versions of the RESPA and Regulation X required 
disclosures in connection with chattel-dwelling loans is inconsistent 
with RESPA and Regulation X. The commenter requested that the Bureau 
exercise its authority pursuant to Regulation X Sec.  1024.13(b), both 
in connection with this rulemaking and in connection with current 
requirements regarding chattel-secured mortgage lending, to declare any 
such State law or regulation to be preempted by RESPA and Regulation X.
    A national trade association commenter representing the 
recreational vehicle industry expressed concern about language in the 
proposal's preamble about the treatment of transactions not subject to 
the final rule but that could arguably fall within Dodd-Frank Act 
sections 1032(f), 1098, and 1100A. The Bureau explained in the proposal 
that such transactions will remain 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.\189\ The commenter expressed concern that the Bureau intends 
to regulate recreational vehicle dealers through a future rulemaking by 
adopting integrated disclosures specifically tailored for such dealers. 
The commenter asked the Bureau to closely review the recreational 
vehicle market compared to the market for other chattel property, 
specifically manufactured homes. The commenter noted that signaling 
recreational vehicle dealers will be regulated by tailored future 
mortgage transaction disclosures confuses the motor vehicle sales 
process and would keep lenders out of that market. This commenter and a 
trade association representing the recreational boat industry were 
concerned that the definition of ``dwelling'' in Regulation Z and 
related commentary would cover types of vessels and vehicles that are 
generally not included in the definition of dwelling under State laws, 
and that covering these types of personal property would reduce the 
availability of credit to individuals living in these structures.
---------------------------------------------------------------------------

    \189\ See 77 FR 51116, 51156 (Aug. 23, 2012).
---------------------------------------------------------------------------

    A national trade association commenter representing credit unions 
and a credit union commenter supported the exemption for loans secured 
by personal property due to their uniqueness and the fact that the 
required disclosures would not make much sense to the consumer for 
these type transactions. A trade association commenter representing the 
manufactured home industry expressed concern that the proposal ignored 
that, in the manufactured housing industry, a home may be sold as 
personal property, and may only become real property at some later 
point in time in the home delivery and installation process. Commenters 
requested that the Bureau provide an exclusion from the new integrated 
disclosure requirements for land/home, staged funded manufactured home 
loans, even those loans that, when fully consummated, will be secured 
by real property. Several trade associations commenters representing 
banks requested that the Bureau clarify whether dual-collateral loans 
will be subject to the integrated disclosure requirements, and that if 
they are, that the Bureau consider developing related disclosures.
    In contrast, a nonprofit advocacy organization and two consumer 
advocacy groups submitting a joint comment stated that the Bureau 
should extend RESPA coverage to all manufactured homes, including those 
titled as personal or real property. The consumer advocacy groups 
emphasized that manufactured homes resemble other residential 
structures and should receive the same protections under RESPA. They 
also stated that covering vacant land loans but not manufactured homes 
would be inconsistent and could result in consumer harm. The commenters 
explained that dwelling-secured credit poses higher risk to consumers 
than loans secured by vacant land. Consumer advocacy group commenters 
also requested that the Bureau provide all homeowners adequate 
disclosures, regardless of whether State law denominates the dwelling 
as real or personal property. The commenters also argued that this 
result was imperative because consumers living in manufactured housing 
are particularly susceptible to abusive lending. The commenters also 
requested that the Bureau clarify the treatment of manufactured homes 
under RESPA, in light of guidance provided by HUD that suggested a 
manufactured home is subject to RESPA depending on the nature of the 
dwelling's connection to the land. The commenters asked that the Bureau 
clarify that RESPA applies to all manufactured homes treated as real 
property under State law.
Final Rule
    Reverse mortgages. As the Bureau explained in the proposal, reverse 
mortgages have unique features that are not amenable to the integrated 
disclosures, which were developed for forward mortgages. While 
requiring the integrated disclosures for reverse mortgages may provide 
a clearer coverage rule for creditors, applying the specific disclosure 
requirements to such loans would likely result in confusion for 
consumers and industry. As the

[[Page 79795]]

Bureau noted in the proposal, the Bureau expects to address disclosures 
for reverse mortgages in a future rulemaking.
    While the final rule exempts reverse mortgage loans from the 
integrated disclosure requirements of Sec.  1026.19(e) and (f), it 
declines to exempt them completely from RESPA. As discussed in the 
section-by-section analysis of appendices A and C of Regulation X 
above, the Bureau is finalizing amendments to Regulation X to 
incorporate certain guidance in the HUD RESPA FAQs regarding the 
completion of the RESPA GFE and the RESPA settlement statement for 
reverse mortgage transactions. Although, as it noted in the proposal, 
the Bureau is aware that industry faces difficulties applying the 
disclosure requirements of RESPA and TILA to reverse mortgages, the 
Bureau does not believe it would be appropriate to grant an exemption 
from RESPA for such transactions because it would leave consumers 
without important RESPA-required disclosures. For the aforementioned 
reasons, the Bureau declines to include reverse mortgage loans subject 
to Sec.  1026.33 within the scope of the integrated disclosure 
requirements of Sec.  1026.19(e) and (f).
    HELOCs. While the Bureau recognizes that open-end consumer credit 
transactions secured by real estate can pose risks to consumers, the 
Bureau continues to believe they would be inappropriate for coverage 
under the final rule. As the Bureau explained in the proposal, the 
integrated disclosures were developed for closed-end consumer credit, 
and the Bureau believes that using them to disclose open-end credit 
transactions would likely result in confusion because many parts of the 
disclosures would be inapplicable to open-end credit transactions, such 
as the projected payments table, the estimated taxes and insurance 
disclosure, or the escrow account disclosures under Sec. Sec.  
1026.37(c) and 1026.38(c).
    The Bureau notes that HELOCs are open-end credit plans and 
therefore are subject to different disclosure requirements than closed-
end credit transactions under Regulation Z. 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 RESPA GFE, respectively, are satisfied by 
delivery of the open-end disclosures required by Regulation Z. 
Regulation X Sec.  1024.8(a) exempts HELOCs from the RESPA 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 more 
effectively achieve the purposes of both RESPA and TILA.\190\
---------------------------------------------------------------------------

    \190\ 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.
---------------------------------------------------------------------------

    Chattel-dwelling loans. The Bureau has considered the comments on 
the final rule's coverage with respect to chattel-dwelling loans. The 
Bureau believes that disclosing loans secured by personal property 
using the integrated disclosures could reduce the intended consumer 
benefit of the disclosures because of those loans' unique 
characteristics. Excluding them from coverage of these integrated 
disclosures, however, would not excuse them from TILA's disclosure 
requirements. Rather, they would remain subject to the existing closed-
end TILA disclosure requirements under Sec.  1026.18. Thus, the current 
treatment of chattel-dwelling-secured loans under both RESPA and TILA 
is preserved if they are excluded from coverage of the integrated 
disclosure requirements in this final rule. Excluding chattel-dwelling-
secured loans 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 the section-by-section analysis of Sec.  1026.1(c) 
above, certain other new mortgage disclosure requirements, added to 
TILA under title XIV of the Dodd-Frank Act are exempted until 
integrated disclosure requirements are implemented by regulations for 
such transaction types. As noted above, the Bureau plans to address 
integrated disclosure requirements for chattel-dwelling-secured loans, 
as well as reverse mortgages and HELOCs, in future rulemakings. 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 final rule.
    With respect to commenters concerned about future rulemakings 
applicable to recreational vehicles, the Bureau notes that TILA 
currently applies to credit transactions broadly. See 15 U.S.C. 
1602(f). The Bureau also notes that closed-end consumer credit 
transactions not secured by real property, other than reverse mortgages 
subject to Sec.  1026.33, are already subject to disclosure 
requirements in subpart C of Regulation Z, including those in Sec.  
1026.18. Any subsequent disclosure requirements on creditors subject to 
the Bureau's authority will be based on a review of the relevant market 
and the adequacy of existing disclosures, among other factors. With 
respect to commenters concerned that the definition of ``dwelling'' in 
Regulation Z potentially covers recreational vehicles and other 
vessels, the Bureau did not propose changes to the definition of 
``dwelling'' under Sec.  1026.2(a)(19) in the proposal and is not 
making such changes in this final rule.
    Some commenters were concerned that coverage of multiple-advance 
construction loans may be secured by real property and personal 
property and, therefore, it may be unclear how a creditor would 
disclose such loans. However, the Bureau believes such loans are 
amenable to the integrated disclosures because such loans are secured 
by real property. The Bureau believes this treatment is warranted 
because the mandate to integrate disclosures under TILA and RESPA 
requires that the Bureau reconcile differences in coverage between the 
two statutes. The Bureau has addressed how to disclose such 
transactions in the rule, as described in the section-by-section 
analyses of Sec.  1026.18 and appendix D to Regulation Z.
    While the Bureau believes that most construction-only loans will be 
secured by real property at consummation, it recognizes that there may 
be circumstances in which such loans could be secured by personal 
property. Whether a transaction is secured by real property depends on 
State law, and the Bureau appreciates that, in some cases, a loan 
financing the construction phase of a dwelling may be classified as a 
loan secured by personal property at consummation of that phase of 
financing. Accordingly, the Bureau has retained existing regulatory 
provisions in Regulation Z that set forth disclosure requirements for 
construction loans applicable to closed-end consumer credit 
transactions not secured by real property.
    With respect to commenters who requested that the Bureau extend 
RESPA coverage to transactions secured by personal property, the Bureau 
declines to do so because RESPA and Regulation X apply by their terms 
to ``federally related mortgage loans,'' which are limited to 
transactions in which the lender has a lien secured by real property. 
The Bureau also declines

[[Page 79796]]

to exercise authority under TILA and the Dodd-Frank Act to extend 
coverage of the final rule to manufactured homes that are considered 
chattel under State law. The Bureau believes basing coverage on the 
characteristic of whether the loan is secured by real property is 
warranted because a significant portion of the content of the 
disclosures was developed for real property transactions. The Bureau 
also believes that basing coverage on the characteristic of whether the 
loan is secured by real property is necessary to harmonize the coverage 
of RESPA and TILA and satisfy the integration mandate. Although 
manufactured homes may resemble other forms of residential property, 
the Bureau does not believe this characteristic alone should be 
sufficient to warrant coverage under Sec.  1026.19(e) and (f). Other 
forms of chattel property besides manufactured homes also may serve as 
a residence, but more closely resemble motor vehicle transactions than 
real property transactions, and therefore many parts of the integrated 
disclosures would be inapplicable and would likely compromise consumer 
understanding of the disclosures. Finally, as the Bureau explained in 
the proposal, consumers who receive a loan secured by personal property 
would continue to be protected under the disclosures required elsewhere 
in Regulation Z, including those in Sec.  1026.18. The Bureau declines 
to make a determination under Sec.  1024.13(b), as requested by a 
commenter, regarding whether State laws conflict with the requirements 
of Regulation X. The commenter who requested this determination did not 
identify particular State laws that may conflict, and the Bureau 
therefore lacks a basis to make a conflict determination. See the 
section-by-section analysis of Sec.  1026.28 for a discussion of the 
State law exemption rules applicable to the integrated disclosure 
requirements of this final rule.
    Conclusion. For the reasons discussed above, the final rule does 
not apply to reverse mortgages, open-end credit transactions, or 
closed-end consumer transactions secured by personal property and not 
real property. Such loans will be subject to existing requirements in 
Regulation Z and reverse mortgages and open-end credit transactions 
will be subject to existing requirements in Regulation X. As discussed 
above, those transactions remain subject to the exemption in Sec.  
1026.1(c) from providing certain new disclosures under title XIV of the 
Dodd-Frank Act until the Bureau engages in future rulemakings for these 
transaction types.
Loans Extended by TILA ``Creditors''
    As noted above, 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 have a Federal nexus or are made by a TILA ``creditor'' 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. TILA 
generally covers consumer credit transactions of all kinds, including 
unsecured credit and credit secured by nonresidential property and 
applies only to transactions made by a person who ``regularly extends'' 
consumer credit. For transactions secured by a dwelling, other than 
HOEPA loans, Regulation Z defines a ``creditor'' as a person who 
extends credit more than five times in the preceding calendar 
year.\191\
---------------------------------------------------------------------------

    \191\ See 15 U.S.C. 1602(g); 12 CFR 1026.2(a)(17).
---------------------------------------------------------------------------

    Lenders that do not meet the TILA definition of ``creditor'' 
generally are subject to RESPA if they make a real property-secured 
loan with a Federal nexus. The Bureau proposed to exempt from the 
integrated disclosure requirements loans extended by these lenders who 
are covered by RESPA but not TILA. The Bureau explained 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 would have preserved 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 explained that eliminating this exemption could represent a 
significant expansion of TILA coverage and that it was unaware of any 
significant problems encountered by consumers obtaining credit from 
these types of creditors that might justify such an expansion. Further, 
because such creditors may lack the systems to comply with TILA, the 
Bureau anticipated 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 expected the impact of such an exemption 
to be limited. The Bureau noted in the proposal, based on data reported 
for 2010 under HMDA, that 569 creditors (seven percent of all HMDA 
reporters) reported five or fewer originations and, more significantly, 
that their combined originations of 1,399 loans equaled only 0.02 
percent of all originations reported under HMDA for that year. The 
Bureau further explained that these transactions would remain subject 
to the RESPA disclosure requirements under Regulation X.
Comments
    Commenters did not object to exempting these RESPA-covered lenders 
from the rule, but they did request that the Bureau further increase 
the threshold under Regulation Z for defining a TILA ``creditor.'' A 
trade association commenter representing settlement agents recommended 
that the threshold be increased to 25 annual transactions on mortgage 
loan transactions. A community bank commenter expressed support for a 
small creditor exemption with a threshold that exempts creditors that 
originate fewer than 2,500 loans in a calendar year. A law firm 
commenter recommended increasing the threshold to 100 mortgages a year.
    A trade association representing credit unions argued that the 
proposed threshold of five or fewer mortgages a year was not an 
appropriate measure to provide regulatory relief for small entities. 
This commenter was concerned that the Bureau appeared to be defining 
``small entities'' on a basis that appeared to be inconsistent with the 
Dodd-Frank Act, the Small Business Regulatory Enforcement Fairness Act 
of 1996 (SBREFA), and the Bureau's past actions in conducting small-
entity outreach under SBREFA, which identified small entities based on 
asset size, rather than lending volume. This commenter was concerned 
that a low exemption threshold would impose large costs on many credit 
unions not covered by the exemption and would force some credit unions 
to close their operations. The commenter recommended an exemption for 
credit unions that have $175 million or less in assets, which would be 
consistent with the size thresholds used for purposes of analysis under 
SBREFA. The commenter argued that the Dodd-Frank Act requires the 
agency to seriously consider the impact of its regulations on small 
entities. A commenter employed by a software company, however, stated 
that the rule should not modify the transaction threshold under Sec.  
1026.2(a)(17) because doing so would provide no consumer benefit, and 
that consistent application across creditors would facilitate shopping 
by the consumer. Several

[[Page 79797]]

individual commenters and settlement agents expressed concern that it 
would be difficult to identify criteria for a small creditor 
definition. A law firm commenter also recommended that the Bureau 
include an exemption for small businesses.
Final Rule
    The Bureau has considered the comments regarding the final rule's 
applicability to creditors subject to TILA and RESPA. The Bureau 
declines to grant an exemption for small creditors, such as one based 
on asset size, or otherwise make adjustments to the five-or-fewer 
mortgage threshold included in the definition of ``creditor'' under 
Sec.  1026.2(a)(17), as discussed further in the section-by-section 
analysis of Sec.  1026.2(a)(17). The Bureau does not believe exempting 
small creditors from the integrated disclosure requirements would be 
consistent with the integration mandate. The Bureau also believes such 
an exemption would hinder, rather than enhance, consumer understanding. 
Exempting a class of creditors from the final rule would result in an 
inconsistent set of disclosures that would negatively affect a 
consumer's ability to shop for the best loan. The integrated 
disclosures were designed to assist a consumer in comparing loans. The 
Bureau is concerned, for example, that a consumer who receives a Loan 
Estimate from a larger creditor for one loan would not be able to 
easily compare its terms to a loan disclosed in a different format from 
a small creditor exempt from this final rule that would otherwise meet 
the definition of ``creditor'' under Regulation Z. The Bureau is 
concerned that this result would be inconsistent with the aims of Dodd-
Frank Act section 1032(a), which authorizes the Bureau to prescribe 
rules to ensure effective disclosure.
    For the reasons discussed above in the section-by-section analysis 
of Sec.  1026.2(a)(17), the Bureau has concluded that it will not 
adjust the ``creditor'' threshold in Regulation Z. Accordingly, for the 
aforementioned reasons, the Bureau is finalizing the scope of the 
integrated disclosure requirements with respect to creditors as 
proposed and pursuant to the authority cited in the proposal.
Other Coverage Issues
    Some commenters requested that the Bureau clarify specific aspects 
of the proposal that relate to other sections of the rule. Trade 
association commenters representing banks requested clarification on 
how the rule would apply to trusts. One such trade association 
commenter observed that proposed comments 3(a)-9 and -10 specifically 
addressed trusts for tax or estate planning purposes. The commenter 
requested that the Bureau clarify how a trust's revocability would 
affect coverage. Another trade association commenter representing banks 
requested clarification regarding to whom the integrated disclosures 
and notice of the right of rescission must be provided in the case of 
certain inter vivos revocable trusts. Commenters also requested that 
Bureau address coverage with respect to certain housing assistance loan 
programs, which are currently exempted from Regulation X. See 12 CFR 
1024.2(b). One trade association commenter representing banks 
recommended that creditors should be given the option of either 
providing the integrated disclosures or the Sec.  1026.18 disclosures 
for housing assistance loan programs covered by the rule. The Bureau 
has addressed these comments in the section-by-section analysis of 
Sec.  1026.3 above.
    A trade association representing the timeshare industry commented 
regarding the Bureau's proposed expansion of the scope of certain 
disclosure requirements added to TILA by title XIV of the Dodd-Frank 
Act for ``residential mortgage loans'' (which, as noted above, is 
defined in section 1401 of the Dodd-Frank Act to exclude an extension 
of credit secured by a consumer's interest in a timeshare plan) to 
apply to transactions secured by a consumer's interest in a timeshare 
plan. Specifically, the Bureau proposed to include in the Closing 
Disclosure the disclosure requirements under Dodd-Frank Act sections 
1402(a)(2) (requires disclosure of loan originator identifier), 1414(c) 
(requires disclosure of anti-deficiency protections), 1414(d) (requires 
disclosure of partial payment policy), and 1419 (requires disclosure of 
certain aggregate amounts and wholesale rate of funds, loan originator 
compensation, and total interest as a percentage of the principal 
amount of the loan), and require them to be included in the Closing 
Disclosure for transactions secured by a consumer's interest in a 
timeshare plan. The trade association stated that the Bureau should 
provide in the final rule a timeshare-specific version of the Closing 
Disclosure that does not include these disclosures, or expressly permit 
timeshare lenders to strike out these provisions of the disclosure.
    The final rule requires that these disclosures, as implemented by 
Sec. Sec.  1026.37 and 1026.38, be provided for transactions secured by 
a consumer's interest in a timeshare plan. The Bureau acknowledges that 
in this final rule it has determined to exclude from provision certain 
disclosures in the Closing Disclosure for other types of transactions, 
if such disclosure would provide inaccurate information with respect to 
that type of transaction. For example, for transactions not subject to 
15 U.S.C. 1639h or 1691(e), as implemented in Regulation Z or 
Regulation B (12 CFR part 1002), respectively, the final rule does not 
require provision of the appraisal disclosure under Sec.  
1026.37(m)(1). In addition, the final rule provides alternative formats 
for certain parts of the Closing Disclosure to aid consumer 
understanding of particular aspects of such transactions (for example, 
the Bureau provides for alternative Costs at Closing and Calculating 
Cash to Close tables for transactions without a seller to aid consumer 
understanding of the unique aspects of such transactions, as described 
in the section-by-section analysis of Sec.  1026.37(d) below).
    However, the Bureau believes the disclosures for ``residential 
mortgage loans'' noted above would not be inaccurate for transactions 
secured by a consumer's interest in a timeshare plan, and would be just 
as useful to consumers in transactions secured by the consumer's 
interest in a timeshare plan as in transactions secured by real 
property. In addition, the Bureau believes that there is a benefit to 
consumers from receiving Closing Disclosures in a standardized format 
even in different types of transactions, because they may become more 
familiar with the format, which may aid consumer understanding of the 
disclosure. Further, the Bureau believes it will facilitate compliance 
for industry to reduce the amount of variability and dynamic aspects of 
the Closing Disclosure to instances that are technically necessary or 
that will aid consumer understanding, rather than numerous distinct 
versions for different types of transactions or security interests.
    Accordingly, the Bureau, pursuant to its authority under TILA 
section 105(a) and Dodd-Frank Act section 1032(a), is applying these 
disclosure requirements under title XIV of the Dodd-Frank Act to 
extensions of credit secured by a consumer's interest in a timeshare 
plan. The Bureau believes that requiring these disclosures in such 
transactions furthers the purpose of TILA by promoting the informed use 
of credit. In addition, applying these disclosure requirements to 
transactions secured by a consumer's interest in a timeshare plan will 
ensure that the integrated disclosures will permit consumers of such 
transactions to understand the costs, benefits, and

[[Page 79798]]

risks associated with the transaction, consistent with Dodd-Frank Act 
section 1032(a).
Conclusion--Coverage of the Final Rule
    For the reasons discussed above, final 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. Final 
Sec.  1026.19(g) requires provision of the special 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, 25-acre loans, construction-only loans, and vacant-
land loans are subject to the integrated disclosure and booklet 
requirements. Pursuant to final Sec.  1026.19(g)(1)(iii)(C), reverse 
mortgage transactions are not subject to the integrated disclosure or 
booklet requirements. Pursuant to final Sec.  1026.19(g)(1)(ii), HELOCs 
are not subject to the integrated disclosure requirements, but they are 
subject to the booklet requirements (though compliance is satisfied by 
providing an alternate brochure described in the final rule). Chattel-
dwelling loans are not subject to the integrated disclosure or booklet 
requirements. Reverse mortgages, open-end transactions secured by real 
property or a dwelling, and chattel-dwelling loans will remain 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. 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 integrated 
disclosure or booklet requirements for the reasons set forth above.
    The Bureau believes adjusting the application of the provisions of 
TILA and RESPA is within its general mandate under Dodd-Frank Act 
sections 1032(f), 1098, and 1100A 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.) The Bureau believes 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 
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 exempts from these integrated disclosure 
requirements transactions otherwise covered by TILA, pursuant to TILA 
section 105(f). The Bureau has considered the factors in TILA section 
105(f) and has determined that an exemption is appropriate under that 
provision. Specifically, the Bureau believes that the 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 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 
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 final rule, the 
Bureau has determined that the exemptions are appropriate.
19(a) Reverse Mortgage Transactions Subject to RESPA
    As discussed above, the final rule 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 Sec.  1026.19(e) 
and (f), and makes conforming changes to comment 19(a)(1)(i)-1. The 
final rule also makes technical revisions to proposed Sec.  
1026.19(a)(1)(i) to require that the creditor ``provide the consumer 
with'' (instead of ``make'') the required good faith estimate 
disclosures, for greater consistency with other language in Sec.  
1026.19(e) and (f). The final rule also makes technical revisions to 
comment 19(a)(1)(i)-1. Specifically, the final comment refers to Sec.  
1026.19(a) instead of ``this section.'' The final comment also further 
specifies the citation to the definition of ``Federally related 
mortgage loan'' in Regulation X. As proposed, the final rule makes 
conforming changes to Sec.  1026.19(a)(1)(ii), deletes Sec.  
1026.19(a)(5), deletes comments 19(a)(5)(ii)-1 through -5, and deletes 
comments 19(a)(5)(iii)-1 and -2.
    Pursuant to its authority under section 105(a) of TILA, the final 
rule adopts Sec.  1026.19(a)(1)(i), substantially as proposed, to apply 
only to reverse mortgage transactions subject to both Sec.  1026.33 and 
RESPA. Final Sec.  1026.19(a), as amended, and its associated 
commentary are consistent with TILA's purpose in that it seeks to 
ensure meaningful disclosure of credit terms by requiring the 
integrated disclosures in this final rule only with respect to the 
loans for which they were designed: mortgage loans secured by real 
property other than reverse mortgages. The final rule and commentary 
also will 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).
Provision of the Loan Estimate and Closing Disclosure Under Sections 
19(e) and 19(f) 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 also is 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

[[Page 79799]]

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 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.\192\ 12 U.S.C. 2604(c). Section 
3(3) of RESPA defines ``settlement services'' as:
---------------------------------------------------------------------------

    \192\ RESPA section 5(d) provides that ``[e]ach 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.'' 12 U.S.C. 2604(d). 
RESPA section 5(c) provides that ``[e]ach 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.'' 12 
U.S.C. 2604(c). Thus, the lender must deliver the RESPA GFE 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 RESPA 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 of RESPA 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 RESPA 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 final rule integrates the 
TILA and RESPA good faith estimate requirements in final Sec.  
1026.19(e), as discussed below. The final rule also integrates the 
final TILA disclosure requirements and the RESPA settlement statement 
requirements in final Sec.  1026.19(f), as discussed below. Finally, as 
appropriate, the final rule incorporates related statutory and 
regulatory requirements into Sec.  1026.19 and makes conforming 
amendments.
19(e) Mortgage Loans Secured by Real Property--Early Disclosures
19(e)(1) Provision of Disclosures
19(e)(1)(i) Creditor
    Proposed Sec.  1026.19(e)(1)(i) would have provided 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 would have explained 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. It also would have explained that these disclosures 
must be provided in good faith, and that 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.
    Two national consumer advocacy group commenters asserted that the 
final rule should require the creditor to base disclosures on charges 
the creditor imposed on other consumers with similar loans, and to 
obtain pricing information from third-party vendors with which the 
creditor frequently works. The Bureau believes the tolerance rules in 
Sec.  1026.19(e)(3) will incentivize creditors to perform the 
activities suggested by these commenters. Moreover, as a general 
matter, the Bureau believes that the general good faith requirement set 
forth in final Sec.  1026.19(e)(1)(i) will strike the appropriate 
balance between consumer protection and reducing undue compliance 
burden. As final comment 19(e)(1)(i)-1 clarifies, except as otherwise 
provided in Sec.  1026.19(e), a disclosure is in good faith if it is 
consistent with the standard set forth in Sec.  1026.17(c)(2)(i). 
Section 1026.17(c)(2)(i) provides that disclosures may be estimated 
based on the best information reasonably available when exact 
information is not reasonably available to the creditor at the time the 
disclosures are made. The ``reasonably available'' standard requires 
that the creditor, acting in good faith, exercise due diligence in 
obtaining information. See comment 17(c)(2)(i)-1.
    The Bureau is adopting Sec.  1026.19(e)(1)(i) and comment 
19(e)(1)(i)-1 with revisions to enhance clarity. Additionally, for 
reasons discussed in the section-by-section analysis of Sec.  
1026.19(e)(3)(i), the Bureau has determined, based on comments received 
in response to that section requesting clarification regarding the 
definition of the term ``affiliate,'' to add new comment 19(e)-1 to 
explain that the term ``affiliate'' used in Sec.  1026.19(e) has the 
same meaning as in Sec.  1026.32(b)(5). The Bureau believes that 
because the term ``affiliate'' will be referenced in other provisions 
Sec.  1026.19(e), the new comment should be located in Sec.  1026.19(e) 
instead of Sec.  1026.19(e)(3).
19(e)(1)(ii) Mortgage Broker
    Currently, neither the disclosure requirements under TILA nor the 
disclosure requirements under RESPA expressly 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 RESPA GFE, provided 
that the mortgage broker otherwise complies with the relevant 
requirements of Regulation X, such as the RESPA GFE delivery 
requirements and tolerance rules, and that the creditor remains 
responsible for ensuring the mortgage broker's compliance. The Bureau 
proposed to carry this concept into the regulations

[[Page 79800]]

governing the integrated disclosures in recognition of the fact that 
permitting mortgage brokers to deliver the integrated disclosures could 
benefit consumers in some cases. The Bureau stated in the proposal that 
some consumers may have better relationships with their mortgage 
brokers than with their creditors, and the mortgage brokers may be 
better able to assist those consumers with understanding the RESPA GFE 
more effectively and efficiently.
    Accordingly, to preserve the flexibility in current Regulation X, 
the Bureau proposed Sec.  1026.19(e)(1)(ii) to permit the mortgage 
broker to provide the Loan Estimate, subject to certain limitations, 
pursuant to the Bureau's authority under TILA section 105(a) and, with 
respect to residential mortgage loans, Dodd-Frank Act section 1405(b). 
Proposed Sec.  1026.19(e)(1)(ii) would have provided that a mortgage 
broker may provide a consumer with the disclosures required under Sec.  
1026.19(e)(1)(i), provided that the mortgage broker acts 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 proposed comments 19(e)(1)(ii)-1 through -4 to 
provide additional guidance regarding proposed Sec.  1026.19(e)(1)(ii). 
Proposed comment 19(e)(1)(ii)-1 would have explained that a mortgage 
broker may provide the disclosures required under Sec.  
1026.19(e)(1)(i) instead of the creditor. The proposed comment would 
have further explained that 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. Proposed comment 19(e)(1)(ii)-1 would have also 
stated that 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 would have provided further 
guidance on the mortgage broker's responsibilities if a mortgage broker 
issues any disclosure under Sec.  1026.19(e). The proposed comment 
provided an example clarifying that 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). The 
proposed comment further provided that 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 would have discussed the creditor's 
responsibilities in the event that a mortgage broker provides 
disclosures under Sec.  1026.19(e). The proposed comment provided an 
example clarifying that the creditor must ensure that the mortgage 
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). It would have also stated that the creditor 
does not satisfy the requirements of Sec.  1026.19(e) if it provides 
duplicative disclosures. The proposed comment further stated that a 
creditor does not meet its burden by issuing disclosures required under 
Sec.  1026.19(e) that mirror disclosures already issued by the mortgage 
broker for the purpose of demonstrating that the consumer received 
timely disclosures. The comment further stated that if the mortgage 
broker provides an erroneous disclosure, the creditor is responsible 
and may not issue a revised disclosure correcting the error. The 
proposed comment clarified that the creditor is expected to maintain 
communication with the mortgage broker to ensure that the mortgage 
broker is acting in place of the creditor. This proposed comment would 
have been consistent with guidance provided by HUD in the HUD RESPA 
FAQs pp. 8-10,  16, 26, 29 (``GFE--General''). 
Proposed comment 19(e)(1)(ii)-3 would have also clarified that 
disclosures provided by a mortgage 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 would have explained 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 would have provided the example that 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.
    The Bureau recognized that there were potential concerns regarding 
the ability of mortgage brokers to provide the information required by 
the integrated Loan Estimate accurately and reliably and sought comment 
on those issues. For instance, the proposal noted that it is not clear 
that mortgage brokers have the ability to inform the consumer of 
certain required disclosures such as whether the creditor intends to 
service the consumer's loan, or whether the creditor will permit a 
person to assume the consumer's loan on the original terms. The 
proposal also sought comment on mortgage brokers' ability to estimate 
taxes and insurance, which were proposed to be required on the Loan 
Estimate but are not included on the current RESPA GFE, to satisfy the 
good faith standard that would have been required for such disclosures 
under proposed Sec.  1026.19(e)(3)(iii). The Bureau also recognized 
that mortgage brokers may not have the technology necessary to comply 
with the requirements under TILA regarding delivery of estimates, 
delivery of revised disclosures, and recordkeeping. The Bureau also 
solicited 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.
Comments
    The Bureau received a number of comments expressing concern that 
creditors would not be able to send revised estimates to correct 
mistakes made by mortgage brokers. The commenters included two GSE 
commenters and several industry trade association commenters. Industry 
trade association commenters representing banks and mortgage lenders 
asserted that it would be inappropriate to require the creditor to 
ensure that the mortgage broker's disclosures comply with Sec.  
1026.19(e) and to be bound by the terms of the Loan Estimate the 
mortgage broker provides to the consumer unless the creditor has 
authorized the mortgage broker to issue the Loan Estimate. 
Additionally, these commenters expressed concern that the proposed rule 
would not have required the broker to promptly provide information to 
the creditor for purposes of issuing the original Loan Estimate and the 
revised Loan Estimate.
    The commenters asserted that the final rule should: (1) Require the 
mortgage broker to make arrangements with creditors so that either the 
mortgage broker or at least one of the creditors with which the 
mortgage broker works issues the Loan Estimate within three business 
days after the mortgage broker receives an application;

[[Page 79801]]

or (2) require the mortgage broker to either issue the Loan Estimate 
within three business days after it receives the application or forward 
the application to the creditor, who would then have three business 
days from receipt of the application from the mortgage broker to issue 
the Loan Estimate. With respect to the revised Loan Estimate, the 
commenters asserted that if a mortgage broker receives information 
supporting the issuance of a revised Loan Estimate and provides it to 
the creditor, then the three-business-day redisclosure period proposed 
in Sec.  1026.19(e)(4) should not begin until the creditor has received 
and evaluated the information.
    A consumer commenter asserted that the Loan Estimate should always 
be provided by the creditor because permitting mortgage brokers to 
issue the Loan Estimate would add another party to the mortgage process 
and could cause consumer confusion. In contrast, a mortgage broker 
commenter asserted that the loan originator, not the creditor, should 
provide the Loan Estimate because the loan originator is the party 
working with the consumer to structure the terms of the mortgage loan. 
The commenter expressed concern that the consumer would be confused if 
a creditor were to send a separate Loan Estimate listing different 
costs for the same item that had been previously disclosed by a broker.
Final Rule
    The Bureau has considered the comments and is modifying the final 
rule to reflect more closely the current requirements under Regulation 
X that permit mortgage brokers to provide the RESPA GFE. The Bureau 
believes these modifications will preserve the ability of consumers to 
work with mortgage brokers with whom they have a relationship and 
ensure that consumers will receive the Loan Estimate in a timely 
manner, thus mirroring current Regulation X, while providing clarity 
that will facilitate compliance and address commenters' concerns. In 
response to the concern that the proposed rule does not require 
mortgage brokers to issue a Loan Estimate after the mortgage broker 
receives a consumer's application for a mortgage loan for which a Loan 
Estimate must be provided within three days of receipt, Sec.  
1026.19(e)(1)(ii)(A) provides that if a mortgage broker receives a 
consumer's application, either the creditor or the mortgage broker 
shall provide a consumer with the Loan Estimate within three business 
days of receipt. This requirement is substantially similar to the 
requirement on mortgage brokers to provide the RESPA GFE in Sec.  
1024.7(b), and thus, the Bureau believes that it will facilitate 
compliance.
    The Bureau. however, declines to adopt some industry commenters' 
suggestion that for creditors that receive consumer applications from 
mortgage brokers, the three-business-day period should not begin until 
such creditors receive consumer applications from mortgage brokers. The 
Bureau believes that making such a distinction would disadvantage 
consumers who work with mortgage brokers because compared to consumers 
who submit mortgage applications directly to creditors, consumers who 
submit mortgage applications to mortgage brokers would wait longer to 
receive a Loan Estimate. Additionally, the Bureau believes that 
treating creditors that receive applications directly from the consumer 
differently from creditors that receive consumer applications from 
mortgage brokers would disadvantage creditors that have direct 
relationships with consumers because they would have less time to 
provide the Loan Estimate.
    Section 1026.19(e)(1)(ii)(A) also provides that if the mortgage 
broker provides the Loan Estimate, the mortgage broker shall comply 
with all relevant requirements of Sec.  1026.19(e). This means that the 
mortgage broker shall comply with all applicable requirements of Sec.  
1026.19(e) as if it were the creditor. In this respect, Sec.  
1026.19(e)(1)(ii)(A) mirrors Regulation X. As noted above, Sec.  
1024.7(b) of Regulation X currently requires mortgage brokers who 
provide the RESPA GFE to comply with all the relevant provisions of 
Regulation X such as the RESPA GFE delivery requirements and the 
tolerance rules.
    Further reflecting the current rule in Regulation X, Sec.  
1026.19(e)(1)(ii)(A) provides that the creditor shall ensure that the 
Loan Estimate is provided in accordance with all requirements of Sec.  
1026.19(e). Under current Sec.  1024.7(b), the lender is responsible 
for ensuring that the RESPA GFE has been provided, and that obligation 
is not contingent on whether the creditor has authorized the mortgage 
broker to provide the RESPA GFE. Accordingly, the Bureau is not 
persuaded by the arguments of some commenters that it is inappropriate 
to require the creditor to ensure that a mortgage broker-provided Loan 
Estimate complies with Sec.  1026.19(e) unless the creditor has 
authorized the mortgage broker to provide the Loan Estimate. Section 
1026.19(e)(1)(ii)(A) further provides that disclosures provided by a 
mortgage broker in accordance with the requirements of Sec.  1026.19(e) 
satisfy the creditor's obligation under Sec.  1026.19(e). This aspect 
of Sec.  1026.19(e)(1)(ii)(A) substantially reflects current Sec.  
1024.7(b), which provides that if the mortgage broker has provided a 
RESPA GFE, the lender is not required to provide an additional RESPA 
GFE.
    Final Sec.  1026.19(e)(1)(ii)(B) further provides that if a 
mortgage broker issues any disclosure under Sec.  1026.19(e), the 
mortgage broker must also comply with the record retention requirements 
of Sec.  1026.25(c) that apply to the Loan Estimate. This provision was 
set forth in proposed comment 19(e)(1)(ii)-3, but the Bureau is 
incorporating it in the text of final Sec.  1026.19(e)(1)(ii) to 
facilitate compliance by providing greater clarity regarding a mortgage 
broker's responsibilities if it provides the Loan Estimate. 
Additionally, the record keeping requirement in Sec.  
1026.19(e)(1)(ii)(B) largely reflects the current rule in Regulation X, 
Sec.  1024.7(f), which requires a mortgage broker to retain 
documentation of any reasons for providing a revised RESPA GFE for at 
least three years after settlement.
    The Bureau does not believe that permitting mortgage brokers to 
provide the Loan Estimate will cause consumer confusion, as suggested 
by some commenters. As discussed above, Regulation X currently permits 
mortgage brokers to provide the RESPA GFE. The Bureau is not aware of 
any evidence that the current practice has led to any consumer 
confusion. The Bureau also believes that generally preserving this 
aspect of current regulation promotes the informed use of credit, and 
is thus consistent with the statutory purposes of TILA. In addition, 
some of the comments suggest that the presence and use of mortgage 
brokers is an aspect of the origination process that consumers are 
generally familiar with. Further, because the Bureau has made a number 
of revisions to Sec.  1026.19(e)(1)(ii) so that the final rule more 
closely resembles current Regulation X, the Bureau believes that 
creditors will continue to use mortgage brokers in the origination 
process.
    The final rule does not permit the creditor to issue a separate 
Loan Estimate or revised disclosures to correct a mortgage broker's 
error. In this respect, the final rule reflects guidance provided by 
HUD in the HUD RESPA FAQs pp. 8-10, 16, 26, 29 
(``GFE--General''). Additionally, the final rule permits either the 
creditor or the mortgage broker to provide revised Loan Estimates based 
on any of the six legitimate reasons for revisions, described in 
greater detail below in the section-by-section analysis of Sec.  
1026.19(e)(3)(iv). The final rule also does not require mortgage 
brokers to get

[[Page 79802]]

authorization from creditors before providing Loan Estimates. Further, 
creditors are bound by the terms of the Loan Estimate, subject to one 
of the six legitimate reasons for revisions such as changed 
circumstances or borrower-requested changes, whether or not the 
creditor has authorized the mortgage broker to provide the Loan 
Estimate. In these respects, the final rule reflects current Regulation 
X, because under current Regulation X, creditors are bound to the terms 
of the RESPA GFE provided to the consumer by the mortgage broker unless 
one of the six legitimate reasons for revisions apply (e.g., borrower-
requested change, a changed circumstance). Therefore, the Bureau is not 
persuaded that creditors should only be bound by the terms of a 
mortgage broker-provided Loan Estimate if the creditor has authorized 
the mortgage broker to provide the Loan Estimate. Lastly, the final 
rule does not impose explicit requirements on mortgage brokers with 
respect to providing application information to the creditor and to 
establishing additional conditions that mortgage brokers must satisfy 
before they issue a Loan Estimate. The Bureau believes that the 
creditor is in the best position to set these requirements 
contractually.
    Finally, the final rule permits both creditors and mortgage brokers 
to provide the Loan Estimate. In this respect, the final rule is 
consistent with current Regulation X in that current Regulation X 
permits both lenders and mortgage brokers to provide the RESPA GFE. The 
Bureau is not persuaded by the assertion of a mortgage broker commenter 
that creditors should be prohibited from providing the Loan Estimate. 
In addition, TILA applies its disclosure requirements to creditors, as 
does Regulation Z. A rule that prohibited creditors from delivering the 
Loan Estimate would be incongruous with these longstanding disclosure 
requirements and statutory requirements.
    The Bureau is adopting proposed comment 19(e)(1)(ii)-1 with 
modifications. The proposed comment would have explained the 
requirements of proposed Sec.  1026.19(e)(1)(ii). Comment 19(e)(1)(ii)-
1. explains the requirements of Sec.  1026.19(e)(1)(ii), as applied to 
mortgage brokers, and reflects the changes the Bureau is making 
proposed Sec.  1026.19(e)(1)(ii). Comment 19(e)(1)(ii)-1 also 
incorporates the relevant provisions of proposed comment 19(e)(1)(ii)-
2, which would have explained the requirements of proposed Sec.  
1026.19(e)(1)(ii), as applied to mortgage brokers.
    The Bureau is also adding to final comment 19(e)(1)(ii)-1 to 
clarify the meaning of ``mortgage broker'' for purposes of Sec.  
1026.19(e)(1)(ii). Comment 19(e)(1)(ii)-1 explains that the term 
``mortgage broker,'' as used in Sec.  1026.19(e)(1)(ii), has the same 
meaning as in Sec.  1026.36(a)(2), and references comment 36(a)(1)-2. 
Section 1026.36(a)(2) provides that a mortgage broker is any loan 
originator that is not an employee of the creditor, and comment 
36(a)(1)-2 explains that ``mortgage broker'' can include companies that 
engage in loan originator activities described in Sec.  1026.36(a) and 
their employees. The Bureau believes clarifying the meaning of 
``mortgage broker'' will facilitate compliance with the final rule. The 
definition of ``mortgage broker,'' as used in Sec.  1026.36(a)(2), is 
appropriate for Sec.  1026.19(e)(1)(ii) because Sec.  1026.36 applies 
to mortgage loan transactions that will be covered by Sec.  1026.19(e) 
and because Sec.  1026.36(a) provides a concise list of activities that 
are considered ``loan originator'' activities.
    Proposed comment 19(e)(1)(ii)-3, which would have explained 
creditors' responsibilities under proposed Sec.  1026.19(e)(1)(i), is 
adopted substantially as proposed as comment 19(e)(1)(ii)-2. The 
modifications reflect the changes to proposed Sec.  1026.19(e)(1)(ii). 
The Bureau is not adopting proposed comment 19(e)(1)(ii)-4, which would 
have clarified the responsibility of mortgage brokers to help consumer 
distinguish between pre-application worksheets and the Loan Estimate. 
The proposed comment would have explained that mortgage brokers would 
only have to provide the disclaimer set forth in Sec.  
1026.19(e)(2)(ii) if the mortgage broker provides the Loan Estimate. 
But as discussed below, Sec.  1026.19(e)(2)(ii) provides that any 
person that provides preliminary worksheets to consumers must provide 
the disclaimer. Accordingly, adopting the proposed comment would have 
been incongruous with Sec.  1026.19(e)(2)(ii). The Bureau adopts Sec.  
1026.19(e)(1)(ii) and comments 19(e)(1)(ii)-1 and -2 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).
19(e)(1)(iii) Timing
    The Bureau proposed to apply to the Loan Estimate the timing 
requirements in current Regulation Z that apply to the early TILA 
disclosure. 12 CFR 1026.19(a)(1)(i) and (a)(2)(i). These provisions 
implement TILA section 128(b)(2)(A). 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 RESPA GFE 
not later than three business days after receiving the consumer's 
application, but does not mandate that the disclosures be provided in 
any particular number of days before consummation. This requirement is 
implemented in Regulation X, Sec.  1024.7(a)(2).
    The proposal would have applied both timing requirements under TILA 
to the integrated disclosures. Although RESPA does not contain a seven-
business-day waiting period, the Bureau concluded that such a waiting 
period is consistent with the purposes of RESPA and that adopting it 
for the integrated disclosures would 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 proposed Sec.  
1026.19(e)(1)(iii).
    Proposed Sec.  1026.19(e)(1)(iii) would have required that the 
creditor 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 deliver these disclosures not later than the 
seventh business day before consummation of the transaction. The Bureau 
also proposed comments 19(e)(1)(iii)-1 through -3 to provide additional 
guidance regarding proposed Sec.  1026.19(e)(1)(iii). Proposed comment 
19(e)(1)(iii)-1 would have further clarified this provision and would 
have provided illustrative examples. Proposed comment 19(e)(1)(iii)-2 
would have discussed the waiting period, clarifying 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, and would have 
provided an illustrative example.
    Proposed comment 19(e)(1)(iii)-3 would have clarified issues 
related to denied or withdrawn applications, explaining that under 
Sec.  1026.19(e)(1)(iii)

[[Page 79803]]

the creditor could 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. The proposed comment would have clarified that in that case, or 
if the consumer withdraws the application within the three-business-day 
period, the creditor would not need to make the disclosures required 
under Sec.  1026.19(e)(1)(i). The proposed comment would have also 
clarified that if the creditor failed to provide early disclosures and 
the transaction is later consummated on the terms originally applied 
for, then the creditor would have violated Sec.  1026.19(e)(1)(i). The 
proposed comment would have further clarified that if, however, the 
consumer amended 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. The proposed comment would have stated that the amended 
application would be a new application subject to Sec.  
1026.19(e)(1)(i).
Comments
    The Bureau received comments from industry commenters and consumer 
advocacy groups. Two national consumer advocacy group commenters 
asserted that the Bureau should add a new requirement that applies the 
same timing requirement that applies to issuance of the Loan Estimate 
to issuance of notices concerning application denials. The commenters 
expressed concern that if the proposed timing requirements do not apply 
to denial notices, creditors can evade liability after failing to 
provide a Loan Estimate by simply claiming that they had denied the 
consumer's application and were excused from sending the Loan Estimate. 
The commenters also asserted that consumers will benefit from receiving 
a denial notification in the same timeframe in which the creditor is 
required to deliver the Loan Estimate because the requirement will 
ensure that consumers understand the reason that they have not received 
the Loan Estimate that they have requested while there is still a 
chance to correct errors on their credit report and apply elsewhere. 
The commenters further asserted that the disclosure for the denial 
should match requirements established by ECOA and FCRA.
    In contrast, industry trade associations representing banks and 
mortgage lenders asserted that the Loan Estimate should only be 
required after the consumer indicates an intent to proceed with the 
application, preferably after 30 days of the consumer making such an 
indication. The commenters advocated for the suggestion as the best way 
to resolve the creditor's need for redisclosure without leading to 
excessive redisclosure. A large bank commenter asserted that the 
proposal is not clear with respect to whether the creditor is required 
to place the Loan Estimate in the mail within three business days of 
receiving a consumer's application or whether the creditor must ensure 
that the consumer receives the Loan Estimate no more than three 
business days after the creditor's receipt of the application. The 
commenter stated that it preferred the first interpretation.
    Another large bank commenter sought clarification for purposes of 
Sec.  1026.19(e)(1)(iii) with respect to treatment of applications 
involving multiple mortgage applicants and in particular which joint 
applicant the Bureau considers to be the person primarily liable under 
the mortgage loan for the purpose of delivering the Loan Estimate and 
how the creditor should determine who should receive the Loan Estimate 
in the case of multiple applicants with similar credit qualifying 
profiles. The large bank commenter also sought clarification on whether 
the creditor may provide a cover letter along with the Loan Estimate 
outlining the next steps in the application process. A community bank 
commenter requested that the Bureau conform the requirements of 
Regulation X to Regulation Z so that in the case of multiple 
applicants, the RESPA GFE would only have to be provided to one of the 
borrowers if the transaction involves more than one borrower.
    An industry trade association representing developers of timeshares 
and similar fractional interest real estate products asserted that 
timeshare transactions should be exempted from the requirement in 
proposed Sec.  1026.19(e)(1)(iii) that the Loan Estimate must be 
received by the consumer no later than seven business days before 
consummation because TILA exempts such transactions from the statutory 
seven-day waiting requirement, as does current Regulation Z, Sec.  
1026.19(a)(5), and because timeshare transactions are typically 
consummated on the same or very next day after the creditor receives 
the application. Further, because timeshare transactions are typically 
consummated on the same or very next day after the creditor receives 
the application, the commenter asserted that the Bureau should clarify 
that a timeshare creditor should be exempted from providing the Loan 
Estimate altogether if the transaction is consummated on the same day 
or the next day following the receipt of a consumer's application. The 
commenter asserted that absent such an exemption, consumers may be 
confused by receiving seemingly duplicative disclosures.
Final Rule
    The Bureau has considered the comments, and continues to believe 
that it is appropriate to apply the statutory timing requirements under 
TILA to the integrated disclosures. While not expressly required by 
RESPA, the Bureau believes the seven-business-day requirement is 
consistent with RESPA's underlying purposes for the reasons stated in 
the proposal, described above. The Bureau therefore is adopting Sec.  
1026.19(e)(1)(iii) substantially as proposed.
    The Bureau does not believe that creditors should only be required 
to provide the Loan Estimate after the consumer indicates an intent to 
proceed. Indeed, such an approach would be fundamentally inconsistent 
with the plain language of both statutes and with the basic purpose of 
early disclosures. The Loan Estimate contains, among other things, 
important information about the loan terms and a reliable estimate of 
settlement costs that is helpful to the consumer in deciding whether to 
proceed with the transaction and to evaluate and compare financing 
options. Accordingly, the Bureau believes that the Loan Estimate must 
be provided to the consumer before the consumer indicates an intent to 
proceed.
    In response to comments, the Bureau has modified the final rule 
text and commentary so that it is clear that the timing requirement set 
forth in Sec.  1026.19(e)(1)(iii) imposes on a creditor the obligation 
to deliver or place the Loan Estimate in the mail within three business 
days of receiving a consumer's application, instead of imposing on the 
creditor the obligation to ensure that the consumer receives the Loan 
Estimate within three business days from the creditor's receipt of the 
application. The Bureau notes that Sec.  1026.19(e)(1)(iv) sets forth 
the rule regarding when a consumer is considered to have received the 
Loan Estimate if it is not provided to the consumer in person.
    Additionally, comment 17(d)-2 in this final rule provides guidance 
with respect to the issue of determining to which consumer the creditor 
must provide the Loan Estimate in situations

[[Page 79804]]

where there are two or more consumers. The comment explains that where 
two consumers are joint obligors with primary liability on an 
obligation, the Loan Estimate may be provided to any consumer with 
primary liability on the obligation. Comment 17(d)(2) also provides 
guidance on distinguishing a consumer who is primarily liable on an 
obligation from a consumer who is merely a surety or guarantor.
    With respect to whether a creditor may provide a cover letter 
together with the Loan Estimate, the Bureau understands that this is a 
common practice, and this final rule permits the creditor to provide 
the Loan Estimate with other documents or disclosures, such as 
disclosures required by State or other applicable law in accordance 
with the requirements of Sec.  1026.37(o). With respect to the argument 
that the Bureau should conform the requirements of Regulation X to 
Regulation Z so that in the case of multiple borrowers, the RESPA GFE 
would only have to be provided to one of the borrowers, the comment is 
addressed above in the section-by-section analysis of Regulation X, 
appendix C.
    The Bureau notes that the comment advocating for requiring 
creditors to provide application denial notices within the same three 
business days that are required for the Loan Estimate is outside the 
scope of the proposal. The Bureau acknowledges that such a requirement 
may provide some benefit to some borrowers, but would also increase 
burden as to the timing of existing notification requirements under 
other regulations. Additionally, comment 19(e)(1)(iii)-3, which the 
Bureau is adopting without change, explains that if the creditor fails 
to provide the early disclosures and the transaction is later 
consummated on the terms originally applied for, then the creditor does 
not comply with Sec.  1026.19(e)(1)(i). Accordingly, the Bureau does 
not believe that creditors can evade liability by claiming they denied 
the consumer's application and were excused from sending the Loan 
Estimate if the creditor and the consumer later consummate the 
transaction on the terms for which the consumer applied originally.
    The Bureau has considered the comments it received about the 
application of seven-business-day waiting period set forth in proposed 
Sec.  1026.19(e)(1)(iii) to timeshare transactions. The Bureau has 
modified the proposed rule to add Sec.  1026.19(e)(1)(iii)(C), which 
provides that a transaction secured by a consumer's interest in a 
``timeshare plan,'' as defined in 11 U.S.C. 101(53D) is not subject to 
the seven-business-day waiting period required by Sec.  
1026.19(e)(1)(iii)(B). The Bureau is persuaded that the unique nature 
of timeshare transactions would make it appropriate for the Bureau to 
retain the exemption in current Sec.  1026.19(a)(5) that provides the 
seven-business-day waiting period does not apply to timeshare 
transactions.
    The unique nature of timeshare transactions has also persuaded the 
Bureau that it would be appropriate to add new comment 19(f)(1)(ii)-4 
to clarify that if a consumer provides the creditor with an application 
for a timeshare transaction, and consummation occurs within three 
business days after the creditor's receipt of the consumer's 
application, then the creditor complies with Sec.  1026.19(e)(1)(iii) 
by providing the disclosures required under Sec.  1026.19(f)(1)(i) 
instead of the disclosures required by Sec.  1026.19(e)(1)(i). This 
interpretation essentially mirrors the current rule under Sec.  
1026.19(a)(5)(ii), which, with respect to a mortgage transaction 
subject to RESPA that is secured by a consumer's interest in a 
timeshare plan described in 11 U.S.C. 101(53D), requires the creditor 
to provide the early TILA disclosure within three business days after 
receipt of the consumer's application or before consummation, whichever 
is earlier. The Bureau believes that receiving a reliable estimate of 
the cost of the loan early is just as valuable to a consumer whose 
closed-end transaction is secured by a timeshare plan as a consumer 
whose closed-end transaction is secured by real property. However, 
given that timeshare transactions typically occur on the same day or 
the day after the creditor receives a consumer's application, the 
Bureau believes that it would be burdensome to creditors of such 
transactions to provide the Loan Estimate before consummation. But for 
timeshare transactions that will be consummated more than three 
business days after the receipt of an ``application,'' the Bureau 
believes that the receipt of the Loan Estimate within three business 
days of the creditor's receipt of the consumer's application will help 
consumers avoid the uninformed use of credit, which is a purpose of 
TILA. The Bureau also believes that this will be 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.
    Finally, for reasons discussed in greater detail above in the 
section-by-section analysis of Sec.  1026.2(a)(6), the Bureau is 
adopting the application of the general definition of ``business day'' 
to the Loan Estimate delivery requirement in Sec.  1026.19(e)(1)(iii). 
Accordingly, the Bureau is reorganizing Sec.  1026.19(e)(1)(iii) to 
reflect that the general definition of ``business day'' applies to the 
Loan Estimate delivery requirement, but that the specific definition of 
``business day'' applies to the seven-business-day waiting period. As 
adopted, Sec.  1026.19(e)(1)(iii)(A) provides that the creditor shall 
deliver the disclosures required under Sec.  1026.19(e)(1)(i) not later 
than the third business day after the creditor receives the consumer's 
application, as defined in Sec.  1026.2(a)(3). Section 
1026.19(e)(1)(iii)(B) provides that except as set forth in Sec.  
1026.19(e)(1)(iii)(C), the creditor shall deliver the disclosures 
required under Sec.  1026.19(e)(1)(i) not later than the seventh 
business day before consummation of the transaction. Lastly, Sec.  
1026.19(e)(1)(iii)(C), added for reasons discussed above, provides that 
for a transaction secured by a consumer's interest in a timeshare plan 
described in 11 U.S.C. 101(53D), Sec.  1026.19(e)(1)(iii)(B) does not 
apply. Comments 19(e)(1)(iii)-1 through -3 are adopted substantially as 
proposed. New comment 19(e)(1)(iii)-4 is adopted to explain that with 
respect to a transaction secured by a consumer's interest in a 
timeshare plan described in 11 U.S.C. 101(53D), where consummation 
occurs within three business days after a creditor's receipt of the 
consumer's application, a creditor complies with Sec.  
1026.19(e)(1)(iii) by providing the disclosures required under Sec.  
1026.19(f)(1)(i) instead of the disclosures required under Sec.  
1026.19(e)(1)(i). The Bureau adopts Sec.  1026.19(e)(1)(iii) and its 
commentary 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).
19(e)(1)(iv) Receipt of Early Disclosures
    Section 128(b)(2)(E) of TILA, as amended by the MDIA, 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 RESPA GFE may 
be delivered either in person or by placing it in the mail. 12 U.S.C. 
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

[[Page 79805]]

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 
proposed Sec.  1026.19(e)(1)(iv). Proposed Sec.  1026.19(e)(1)(iv) 
would have provided 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 would have explained 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. The 
proposed comment would have stated that the presumption may be rebutted 
by providing evidence that the consumer received the disclosures 
earlier than three business days. The proposed comment would have also 
contained illustrative examples. Proposed comment 19(e)(1)(iv)-2 would 
have clarified that the presumption established in Sec.  
1026.19(e)(1)(iv) applies to methods of electronic delivery, such as 
email. The proposed comment would have also explained that creditors 
using electronic delivery methods, such as email, must also comply with 
the requirements of the E-Sign Act. The proposed comment would have 
also contained illustrative examples.
Comments
    A number of industry commenters expressed concern that the proposal 
adjusted the regulatory language used in the current rule that 
addresses when a consumer is considered to have received the Loan 
Estimate if it was not delivered in person. As discussed above, current 
Sec.  1026.19(a)(1)(ii), which is analogous to proposed Sec.  
1026.19(e)(1)(iv), provides that if disclosures are provided to the 
consumer by means other than in-person delivery, the consumer is 
considered to have received the disclosure three business days after 
they are mailed or delivered. The Bureau's proposal would have replaced 
``considered'' with ``presumed.''
    The commenters asserted that the replacement would weaken the 
strong presumption of receipt under the current rule, which some of the 
commenters described as a safe harbor. Industry trade associations 
representing banks and mortgage lenders expressed concern that the 
proposal would have created a rebuttable presumption of receipt, which 
would create compliance burden because the creditor would not know that 
the consumer has not received a mailed disclosure, or that receipt has 
been delayed, until the consumer has informed the creditor. They 
asserted that creditors may respond by imposing additional conditions, 
such as requiring consumers to send back a confirmation of receipt, 
ensured to allow them to rebut consumer claims. The commenters argued 
that if these procedures extend the waiting period before closing, then 
such delays could harm consumers. Industry trade association commenters 
representing banks and mortgage lenders also observed that the proposed 
use of ``presumed'' in the proposed regulatory text deviated from the 
statutory language in TILA section 128(b)(2)(E). A large bank commenter 
requested that the Bureau make clear that the presumption cannot be 
rebutted with evidence that the disclosures were received more than 
three days after they were mailed, but most commenters expressed a 
preference for reverting to the current terminology (``considered'').
    Some commenters expressed concern about the proposal's treatment of 
electronic delivery methods. The SBA expressed concern that the 
industry stakeholders it met with to discuss the proposal did not 
believe that the rule recognized the uniqueness of these methods 
because the proposal would apply the same presumption of delivery to 
disclosures that are mailed to the consumer and to disclosures that are 
emailed to the consumer. The SBA encouraged the Bureau to adopt a final 
rule that recognizes instantaneous delivery methods and provide clear 
guidance on what forms of proof sufficiently demonstrate delivery. A 
credit union commenter asserted that it should be presumed that 
disclosures transmitted electronically are received by the consumer on 
the same day to better reflect the reality of how such transmittals 
work and to reduce potential inefficiencies associated with treating 
electronic delivery methods the same as sending the disclosure by mail.
    Another community bank commenter asserted that creditors should be 
able to rely on a consumer's request to receive the Loan Estimate 
electronically, and should not have to obtain prior consent that must 
meet the requirements of the E-Sign Act. The commenter asserted that 
electronic delivery is commonplace, and obtaining demonstrable consent 
can be difficult for creditors to achieve. If obtaining consent under 
the E-Sign Act were required, the commenter expressed concern that this 
would result in over-compliance: the creditor may send both a paper and 
an electronic copy of the Loan Estimate to the consumer. A different 
community bank commenter asserted that the Bureau must provide an 
objective definition of ``receipt.''
Final Rule
    The Bureau has considered the comments and has decided to conform 
Sec.  1026.19(e)(1)(iv) to the statutory language under MDIA in 
determining the date by which disclosures may be ``considered'' to have 
been received by the consumer. It appears that there would be 
implementation burden across the market associated with creditors 
trying to determine how to comply with a presumption of receipt 
standard rather than the standard that is in place currently. The 
Bureau also is persuaded that some of the compliance measures that 
creditors may adopt could cause unnecessary delays that harm consumers.
    The Bureau is not persuaded by the argument that the Bureau should 
adjust the final rule to reflect that disclosures provided by 
electronic delivery should be subject to a different standard. The 
Bureau believes that it would require more information regarding the 
many different forms of delivery methods available to creditors, 
including technical information regarding different forms of electronic 
delivery, before it issues a rule applying different standards than the 
standard under TILA section 128(b)(2)(E) to the early TILA disclosure. 
The Bureau notes that this point is also discussed in the section-by-
section analyses of Sec.  1026.19(f)(1)(ii) and (iii). The Bureau 
additionally believes that applying a consistent standard to all Loan 
Estimates that are not provided to the consumer in person helps to 
improve consumer understanding of the mortgage origination process and 
facilitate compliance.
    Finally, creditors are currently required to obtain consent that 
meets the requirements of the E-Sign Act with respect to the provision 
of the RESPA GFE and the early TILA disclosures in electronic form. See 
12 CFR 1024.23; 12 CFR 1026.17(a)(1). Accordingly, requiring creditors 
to obtain consent that meets the requirements of the E-Sign Act prior 
to providing the Loan Estimate in electronic form does not impose new 
burdens on creditors.
    The Bureau adopts Sec.  1026.19(e)(1)(iv) pursuant to its authority 
under TILA section 105(a), RESPA section 19(a),

[[Page 79806]]

Dodd-Frank Act section 1032(a), and, for residential mortgage loans, 
section 1405(b) of the Dodd-Frank Act. As finalized, Sec.  
1026.19(e)(1)(iv) 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 delivered or placed in the mail. As discussed above, the 
Bureau is modifying proposed Sec.  1026.19(e)(1)(iv) to conform final 
Sec.  1026.19(e)(1)(iv) to the statutory language under MDIA. The 
Bureau is also modifying proposed Sec.  1026.19(e)(1)(iv) to harmonize 
the text of final Sec.  1026.19(e)(1)(iv) with the text of final Sec.  
1026.19(f)(1)(iii). Further, as discussed above in the section-by-
section analysis of Sec.  1026.19(e)(1)(iii), Sec.  1026.19(e)(1)(iv) 
sets forth when a consumer is considered to have received the Loan 
Estimate if it is not provided to the consumer in person. Accordingly, 
the Bureau is modifying the proposed heading to Sec.  1026.19(e)(1)(iv) 
to clarify that Sec.  1026.19(e)(1)(iv) addresses the receipt of the 
Loan Estimate.
    The Bureau is modifying proposed comments 19(e)(iv)-1 and -2 to 
reflect the fact that the Bureau is finalizing the timing currently 
used under TILA and Regulation Z. Comment 19(e)(1)(iv)-1 explains that 
Sec.  1026.19(e)(1)(iv) provides that, if any disclosures required 
under Sec.  1026.19(e)(1)(i) are not provided to the consumer in 
person, the consumer is considered to have received the disclosures 
three business days after they are mailed or delivered to the address 
specified by the consumer. The comment further explains that the 
creditor may, alternatively, rely on evidence that the consumer 
received the disclosures earlier than three business days and 
illustrates this with an example. Comment 19(e)(1)(iv)-2 explains that 
the three-business-day period provided in Sec.  1026.19(e)(1)(iv) 
applies to methods of electronic delivery, such as email, and 
illustrates the requirement with an example. The comment also explains 
that the creditor may, alternatively, rely on evidence that the 
consumer received the emailed disclosures earlier, and provides an 
illustrative example. The comment further explains that creditors using 
electronic delivery methods, such as email, must also comply with Sec.  
1026.37(o)(3)(iii) and illustrates this requirement with an example. As 
discussed in greater detail below in the section-by-section analysis of 
Sec.  1026.37(o), Sec.  1026.37(o)(3)(iii) requires a creditor to 
obtain the consumer's consent pursuant to the E-Sign Act if the 
creditor provides the disclosures required by Sec.  1026.19(e)(1)(i) in 
electronic form.
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.
    The Bureau proposed to incorporate the current rule set forth in 
Sec.  1026.19(a)(3) in proposed Sec.  1026.19(e)(1)(v), which would 
have provided that the consumer has the ability to waive the proposed 
seven-business-day waiting period in Sec.  1026.19(e)(1)(iii)(B) for 
the Loan Estimate in the case of a ``bona fide personal financial 
emergency.'' The Bureau stated in the proposal that, although the 
Bureau understood that waivers based on a bona fide personal financial 
emergency were rare, this exception served 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 proposed 
Sec.  1026.19(e)(1)(v). Proposed Sec.  1026.19(e)(1)(v) would have 
reflected the current rule, because it would have allowed a consumer to 
waive the seven-business-day waiting period that was proposed in Sec.  
1026.19(e)(1)(iii) in the event of a bona fide personal financial 
emergency. In addition, the Bureau requested comment on the nature of 
waivers based on bona fide personal financial emergencies. The Bureau 
also requested 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 would have explained 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 proposed comment 
would have clarified that the consumer must have a bona fide personal 
financial emergency that necessitates consummating the credit 
transaction before the end of the waiting period, and that whether 
these conditions are met would be determined by the individual facts 
and circumstances. The proposed comment would have explained that 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. The proposed comment would have also 
clarified that 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 would have provided 
illustrative timing examples.
Comments
    A number of industry commenters, including industry trade 
associations representing Federally-charted credit unions and credit 
unions generally, regional- and State-based credit union trade 
associations, a State bankers association, and a large bank, asserted 
that creditors are hesitant to use the current bona fide personal 
financial emergency exception because it has been interpreted too 
narrowly. Commenters recommended that the Bureau broaden the scope of 
the exception by expanding the list of examples illustrating the 
exception or allowing creditors to rely on what borrowers represent to 
the creditor to be a bona fide personal financial emergency.
Final Rule
    The Bureau has considered the comments, but is finalizing Sec.  
1026.19(e)(1)(v) substantially as proposed, with a change to reflect 
the revisions made to Sec.  1026.19(e)(1)(iii), which is referenced in 
Sec.  1026.19(e)(1)(v). The Bureau believes that the current exemption 
is intentionally narrow and is not persuaded that it should be 
expanded. For most consumers, a mortgage loan will be the most 
significant financial obligation of their lives. Accordingly,

[[Page 79807]]

the Bureau believes that the consumer must be given a meaningful 
opportunity to shop for a mortgage loan, compare the different 
financing options available, and negotiate for favorable terms. The 
Bureau believes the seven-business-day waiting period established by 
TILA section 128(b)(2)(F) is the minimum amount of time in which a 
consumer could meaningfully shop, compare, and negotiate the terms of 
the mortgage loan, and should only be waived in the most stringent of 
circumstances. The Bureau is adopting Sec.  1026.19(e)(1)(v) and 
comments 19(e)(1)(v)-1 and -2 substantially as proposed, pursuant to 
its authority under TILA section 105(a) and RESPA section 19(a).
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, Regulation X provides that where a creditor 
or mortgage broker permits a borrower to shop for third party 
settlement services, the creditor or broker must inform borrowers of 
that fact and provide them with a written list of settlement service 
providers at the time the RESPA GFE is provided on a separate sheet of 
paper. 12 CFR 1024 app. C. This requirement was intended to enable 
consumers to shop for settlement service providers, thereby enhancing 
market competition and lowering settlement service costs for consumers. 
The Bureau proposed to adopt the same basic requirements for purposes 
of the integrated disclosures in Sec.  1026.19(e)(1)(vi), agreeing with 
the conclusion that a written list of settlement service providers 
could benefit consumers by fostering settlement service shopping.
    As an initial matter, proposed Sec.  1026.19(e)(1)(vi)(A) would 
have provided 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. Proposed comment 
19(e)(1)(vi)-1 would have provided examples of minimum requirements 
that are reasonable or unreasonable. This proposed comment would have 
also clarified that the requirements to provide lists of settlement 
service providers under 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) would have required that the 
creditor identify the services for which the consumer is permitted to 
shop in the Loan Estimate. Proposed comment 19(e)(1)(vi)-2 would have 
clarified that Sec.  1026.37(f)(3) contains the content and format 
requirements for this disclosure. Proposed Sec.  1026.19(e)(1)(vi)(C) 
would have provided 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 would have also required that the list be provided 
separately from the Loan Estimate but in accordance with the timing 
requirements for that disclosure (i.e., within three business days 
after application). Proposed comment 19(e)(1)(vi)-3 would have 
explained 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 would have also referred to the model list provided 
in form H-27 of appendix H to Regulation Z.
    Proposed comment 19(e)(1)(vi)-4 would have clarified 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 would have also clarified 
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. 
The proposed comment would have further clarified that if the creditor 
determines that there is only one available settlement service 
provider, the creditor would only need to identify that provider on the 
written list of providers. The Bureau stated that the guidance 
regarding availability would be consistent with guidance provided by 
HUD in the HUD RESPA FAQs p. 15, 7 (``GFE--Written list of 
providers'').
    Proposed comment 19(e)(1)(vi)-5 would have referred to form H-27 of 
appendix H to Regulation Z for an example of a statement that the 
consumer may choose a provider that is not included on the written 
list. Proposed comment 19(e)(1)(vi)-6 would have clarified 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 would have further clarified that the 
creditor would also be permitted to identify on 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, 
and that this could be accomplished by placing the services under 
different headings.
    Finally, proposed comment 19(e)(1)(vi)-7 would have explained how 
proposed Sec.  1026.19(e)(1)(vi) relates to the requirements of RESPA 
and Regulation X. The proposed comment would have explained that Sec.  
1026.19 does not prohibit creditors from including affiliates on the 
written list under Sec.  1026.19(e)(1)(vi), but that a creditor that 
includes affiliates on the written list would also have to comply with 
Sec.  1024.15 of Regulation X. The Bureau stated that this comment 
would be consistent with guidance provided by HUD in its RESPA FAQs p. 
16, 9 (``GFE--Written list of providers''). The proposed 
comment would have also explained that the written list is a 
``referral'' under Sec.  1024.14(f). The Bureau stated that this 
comment would be consistent with guidance provided by HUD in the HUD 
RESPA FAQs p. 14, 4 (``GFE--Written list of providers'').
    The Bureau solicited comment regarding whether the final rule 
should provide more detailed requirements for the written list of 
providers. The Bureau also solicited comment regarding whether the 
final rule should include additional guidance regarding the content and 
format of the written list of providers.
Comments
    A number of industry commenters provided comments on proposed Sec.  
1026.19(e)(1)(vi). Some of the commenters opposed the general 
requirement, while others sought clarifications. With respect to the 
general requirement, a large-bank industry trade association asserted 
that the proposal would be burdensome to comply with because the 
information on the written list of providers would require regular 
updating so that the list would only contain available settlement 
service providers and reflect the current fees that the providers 
charge for their services. A large bank commenter stated that it would 
be a large administrative burden for creditors to maintain current 
contact information of settlement service providers for various 
settlement service providers, particular information about street 
addresses. The same commenter also recommended the

[[Page 79808]]

Bureau to consider allowing creditors to provide the consumer with a 
dedicated toll-free number or Web site to receive information about 
settlement service providers, in lieu of providing the written list. 
The commenter asserted that allowing the creditor to provide a phone 
number instead of the written list would reduce paper disclosures and 
would allow large lenders to tailor recommendations based on the 
specific geographical area of the consumer. The commenter additionally 
stated that providing consumers with a provider list that contains 
contact information for the creditors may suggest to the consumer that 
the creditor endorses the provider, even if the lender has little 
knowledge of the provider's service.
    A mortgage broker commenter asserted that providing a list of 
settlement services that a borrower may shop for, rather than a list of 
providers of the services, would be a more appropriate requirement 
because it should not be a creditor's responsibility to provide a 
borrower with a list of providers. The commenter also expressed concern 
that the creditor would be subject to tolerance rules if the written 
list of providers must include more than one provider's contact 
information for a settlement service, but fee estimates are disclosed 
for only one provider, and the borrower chooses a different provider on 
the list for the settlement service. A title company commenter 
expressed concern that it may be difficult for a creditor to prepare a 
list identifying available providers if the consumer or the property is 
located in a geographical area with which it is unfamiliar. It further 
noted that it believed independent settlement service providers are 
concerned that consumers would only choose the settlement service 
providers disclosed on the list. Some commenters, including two State 
bar associations from states where an attorney is required to conduct 
real estate closings, asserted that the written lists may limit the 
right of consumers to select settlement agents.
    Industry trade associations representing mortgage brokers and banks 
asserted that the proposal would harm small settlement service 
providers. The commenters asserted that creditors would want to manage 
their liability risk unless they are relatively certain of a provider's 
availability to perform the service for which it was listed and of the 
fee the provider charges for the service. Accordingly, the commenters 
asserted that creditors' likely response would be listing a small 
number of very large providers that offer services over a wide area to 
reduce their compliance burden. Some commenters objected to the listing 
of hazard insurance providers on the written list. The commenters 
asserted that the final rule should not require creditors to list 
hazard insurance providers because consumers do not have difficulty 
finding such providers and the requirement may disadvantage small 
providers of hazard insurance because banks would want to manage the 
burden of monitoring their fees and availability by listing large 
providers.
    Industry reaction to whether additional guidance on the content and 
format of the proposed written list was mixed. A national provider of 
title insurance and settlement services stated that additional guidance 
regarding the content and format of the written list of providers is 
unnecessary. In contrast, a number of industry commenters sought 
guidance on various aspects of the proposal. An industry trade 
association representing credit unions generally stated that it 
supported the Bureau's proposal to include more detailed requirements 
for the written list of providers. Industry trade associations 
representing banks and mortgage lenders asked the Bureau to clarify 
whether the creditor must list more than one provider for a settlement 
service if more than one provider is available. They also asserted that 
if the creditor must list some minimum number of providers for a 
settlement service, then the rule must clarify what that minimum number 
is. The trade association commenters further asserted that there will 
be significant compliance burden for creditors to list more than one 
because the creditor must maintain multiple relationships with 
providers to track their fees and likely availability. The commenters 
additionally stated that the burden is difficult to justify because 
information about settlement service providers is readily available 
online.
    The trade group commenters asserted that the burden may be 
especially great on creditors that maintain lists of providers with 
whom they prefer to do business because in some cases, such lists 
contain multiple providers being listed for the same service. The 
commenters stated that they recommend that if the creditor lists 
providers that include providers in which they have a preferred client-
vendor relationship, the creditor should not be required to list all 
such providers because it would likely contain too much information. 
The commenters also expressed concern about compliance burden because 
creditors would have to monitor the prices charged by their preferred 
providers and the providers' availability. The commenters further 
stated that the compliance burden of having to provide the full list of 
preferred providers for a settlement service would force creditors to 
direct consumers to lender-required providers.
    The trade association commenters also requested clarification on 
how much flexibility creditors have when listing title services. The 
commenters stated that the HUD RESPA FAQs about the written list of 
providers state that title services may be subdivided into two 
categories: closing services and lender's title insurance and related 
services. The commenters stated that title service providers offer 
different title service packages, and accordingly, they asserted that 
the Bureau should provide additional flexibility to creditors if they 
list title services on the written list. The trade association 
commenters also asserted that the rule should clarify that disclosing 
an affiliate on the written list would not make the affiliate a 
required provider as long as the creditor lists unaffiliated providers. 
The commenters additionally sought clarification whether the written 
list of providers must be provided again if the creditor provides the 
consumer with a revised Loan Estimate.
    A State trade association representing bankers also sought 
clarification on how many providers for each settlement service must be 
listed. It additionally asserted that form H-27(B), which the Bureau 
proposed as a sample form of the written list of providers, made it 
unclear whether, with respect to a settlement service for which the 
creditor lists more than one service provider, the creditor must list 
the estimated fee that each listed service provider charges for that 
service, because although two providers are identified on form H-27(B) 
as providing survey services, the form only displays the fee of one of 
the service providers. The commenter also asserted that if a creditor 
lists multiple providers of the same service and the fees charged by 
those providers vary, then the creditor is likely to list the highest 
fee unless the creditor can disclose the fees as a range of fees. The 
commenter stated that listing the most expensive fee does not benefit 
consumers because they may not realize that the fees for a particular 
service vary by provider.
    A national association representing Federally-chartered credit 
unions sought clarification on whether the written list can be provided 
in the same transmittal as the Loan Estimate. If the creditor uses mail 
to send the Loan Estimate, the commenter asked if the list may be 
included in the same envelope on a separate piece of paper from the 
disclosures required by Sec.  1026.19(e)(1). If the creditor sends the 
Loan Estimate electronically, the commenter asked

[[Page 79809]]

whether the creditor may provide the written list on a separate page 
from the disclosures required by Sec.  1026.19(e)(1). A large bank 
commenter asked the Bureau to clarify whether a creditor could satisfy 
the requirement that the creditor must list service providers that 
perform the service where the consumer or property is located by 
listing vendor management companies.
    An industry trade association representing settlement and escrow 
agents stated that the Bureau should expand the scope of Sec.  
1026.19(e)(1)(vi) to prohibit creditors from imposing background checks 
or similar requirements on settlement and title service providers 
before the creditor agrees to use the provider's services if the 
providers are in good standing to conduct business in the applicable 
jurisdiction. The commenter referred to these requirements as vetting 
requirements. The commenter stated that some creditors are relying on a 
Bureau-issued supervisory bulletin, CFPB 2012-3 (Apr. 12, 2012), as a 
pretext to impose vetting requirements on independent settlement and 
escrow agents, even though the agents are in good standing in their 
State and are often members of State and industry trade associations. 
Similarly, the Bureau received comments from settlement and title 
agents that suggested that the Bureau adopt a final rule that would 
define the term ``third party provider'' and then expressly exempt 
settlement and title agents from the definition. The Bureau believes 
that it received these comments because a number of settlement and 
title agent commenters were also concerned about the above-referenced 
supervisory bulletin and notes that some commenters expressed the 
concern that the vetting requirements were included in the proposal.
Final Rule
    The Bureau has considered the comments and decided to finalize 
Sec.  1026.19(e)(1)(vi) largely as proposed. Because Sec.  
1026.19(e)(1)(vi) reflects the current requirements, the Bureau does 
not believe that creditors would be unduly burdened by the requirements 
in this final rule. The Bureau also believes that information asymmetry 
is pervasive in the mortgage origination process. Accordingly, the 
Bureau believes that if the creditor permits a consumer to shop for a 
settlement service, it is appropriate to require creditors to provide 
consumers with a written list that identifies available providers of 
that service. The Bureau recognizes that a creditor originating a loan 
in a geographical area with which it is unfamiliar may have less 
familiarity with the mortgage market in that area, but the Bureau 
believes that the creditor nonetheless has better access to information 
than the consumer about settlement service providers in the 
geographical area.
    The Bureau believes that providing consumers with a toll-free 
number or a Web site instead of a written list would be inefficient 
substitutes because they introduce an extra step into the shopping 
process. A consumer that receives a written list with the service 
provider's contact information could directly contact the service 
provider. Additionally, to comply with the current rule, creditors that 
permit shopping would already have to monitor the availability of 
settlement service providers and the fees charged by the providers, and 
thus they currently are ordinary business activities. Accordingly, the 
final rule should not impose additional burden.
    The Bureau also does not believe that it would be burdensome for 
the creditor to include a service provider's street address. Comment 
19(e)(1)(vi)-4 does not state that Sec.  1026.19(e)(1)(vi) requires the 
provision of addresses. Rather, it explains that to comply with the 
identification requirement in Sec.  1026.19(e)(1)(vi)(C), the creditor 
must provide sufficient information to allow the consumer to contact 
the service provider, and that a creditor that lists the provider's 
address, along with its telephone number and the name under which the 
provider conducts business, would have provided sufficient information. 
Accordingly, listing an available provider's street address is not 
required by Sec.  1026.19(e)(1)(iv)(C), but a creditor that does not 
list the street address must demonstrate that the information it 
provided is sufficient information that allows the consumer to contact 
the service provider.
    With respect to the argument that small settlement service 
providers may be harmed because a creditor's likely response to reduce 
compliance burden would be to list a small number of very large 
providers that offer services over a wide area, the Bureau believes 
that the creditor would not comply with the availability requirement in 
Sec.  1026.19(e)(1)(vi)(C) if the service provider listed does not 
provide services where the consumer or the property is located. But the 
Bureau understands that small, independent settlement service providers 
may be more likely to operate outside of large metropolitan areas than 
larger settlement service providers. Accordingly, creditors may have to 
list small, independent settlement service providers in some areas, 
rather than larger providers, to comply with Sec.  
1026.19(e)(1)(vi)(C). For additional reasons, the Bureau does not 
believe independent settlement service providers will be negatively 
impacted because of the inclusion of affiliate charges in the points 
and fees thresholds under the Bureau's ATR and HOEPA rulemakings. The 
Bureau believes that the motivation to avoid exceeding those points and 
fees thresholds may deter some creditors from using affiliated service 
providers for settlement services. Accordingly, the Bureau believes 
that they will be represented on the list because for a given 
settlement service, the creditor must list settlement service providers 
that provide services where the consumer or property is located.
    In response to the concern that that the written list of providers 
may suggest to the consumer that the creditor endorses the provider, 
the Bureau notes that 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. With respect to the assertion that the written 
list of providers may limit the right of consumers to select settlement 
agents, the final rule requires (consistent with the proposal) that if 
a creditor permits the consumer to shop for a settlement service, then 
the creditor must state on the written list that the consumer may 
choose a different provider for that service. This statement is 
illustrated on form H-27(A) of appendix H to Regulation Z in this final 
rule.
    Additional guidance. The Bureau has considered requests related to 
additional guidance and is finalizing the proposed rule and commentary 
with modifications to address questions raised by the commenters. With 
respect to requests for guidance that did not lead the Bureau to adjust 
the proposed rule and commentary, the Bureau believes that the 
adjustments were not needed because the final rule text and commentary 
are sufficiently clear.
    As noted above, some commenters expressed concern about how many 
available providers of a settlement service a creditor must list. The 
Bureau is adjusting final Sec.  1026.19(e)(1)(vi)(C) to provide that 
the creditor must identify at least one available provider for each 
settlement service for which the consumer is permitted to shop. The 
Bureau understands that this is consistent with the informal guidance 
provided by HUD with respect to the requirement to provide the written 
list under current Regulation X, and thus,

[[Page 79810]]

believes that this adjustment will facilitate compliance.
    With respect to the request that the Bureau provide creditors with 
additional flexibility with respect to the listing of title services, 
the Bureau notes that this final rule permits the creditor to provide a 
more detailed breakdown of title-related services than what is 
currently permitted under existing HUD RESPA FAQs. See comments 
37(f)(2)-3, -4, and 37(f)(3)-3. The Bureau also notes that form H-27(B) 
of appendix H to Regulation Z in this final rule contains a sample 
written list that illustrates the listing of title services on the 
written list. With respect to the request that the final rule should 
clarify that disclosing an affiliated service provider on the written 
list would not make the affiliated provider a required provider as long 
as the creditor lists unaffiliated providers, the Bureau declines. The 
Bureau does not believe that an affiliated provider is a required 
provider if the creditor lists the affiliated provider under a heading 
that clearly states that the consumer can select the provider or shop 
for different providers, and accordingly, does not believe 
clarification is necessary.
    On the question of listing hazard insurance providers on the 
written list of providers, hazard insurance would not have been among 
the services that the creditor would have been required to identify 
pursuant to Sec.  1026.37(f)(3). Therefore, hazard insurance providers 
do not need to be listed on the written list of providers. Comment 
19(e)(1)(vi)-2, which the Bureau is adopting as proposed, explains that 
the creditor should look to Sec.  1026.37(f)(3) for guidance on how the 
creditor must identify the services for which the consumer is permitted 
to shop. However, the Bureau has noted that passing references to 
homeowner's insurance in proposed comments 19(e)(1)(vi)-1 and -6 could 
have caused confusion on this point, so it has removed that language in 
the final commentary adopted in this final rule. With respect to 
questions about the creditor's obligation to disclose the fees of the 
settlement service providers the creditor lists on the written list of 
providers, the Bureau notes Sec.  1026.19(e)(1)(iv) does not require 
creditors to list the estimated fees of the service providers, although 
form H-27(A) of appendix H to Regulation Z adopted in this final rule 
does provide creditors the space to do so.
    Section 1026.37(f)(3), as adopted, requires the creditor to itemize 
on the Loan Estimate the estimated amount for each of the services for 
which a consumer can shop. Even if the creditor lists on the written 
list under Sec.  1026.19(e)(1)(vi)(C) more than one service provider 
for a settlement service that it permits the consumer to shop for, the 
creditor must itemize on the Loan Estimate only one estimated cost of 
that service for one of the service providers listed. This estimated 
cost would be the amount used for purposes of the good faith analysis 
under Sec.  1026.19(e)(3). However, nothing in the final rule prohibits 
a creditor from identifying the estimated fee of each service provider 
listed for a settlement service on the written list under Sec.  
1026.19(e)(1)(vi).
    With respect to the question of whether the creditor must provide 
the consumer with a second written list of providers whenever the 
creditor provides a revised Loan Estimate to the consumer pursuant to 
Sec.  1026.19(e)(4), the Bureau believes that Sec.  
1026.19(e)(1)(vi)(C), which the Bureau is adopting as proposed for 
reasons set forth in this section-by-section analysis, clearly explains 
that the creditor is required to provide the written list only once, in 
accordance with the timing requirement that applies to the delivery of 
the original Loan Estimate set forth in Sec.  1026.19(e)(1)(iii). With 
respect to the question of whether the creditor may provide the written 
list in the same transmittal as the Loan Estimate and whether the 
creditor must provide the list on a separate page from the disclosures 
required by Sec.  1026.19(e)(1)(i), the Bureau notes that Sec.  
1026.19(e)(vi)(C) requires the written list to be provided separately 
from the disclosures required under Sec.  1026.19(e)(1)(i). In 
addition, the requirements set forth in Sec.  1026.37(o)(1) applies 
whenever the creditor provides the Loan Estimate with any other 
documents or disclosures. That provision states that the Loan Estimate 
must be provided on separate pages that are segregated from other 
documents or disclosures. This final rule does not prohibit a creditor 
from providing the written list in the same transmittal as the Loan 
Estimate.
    With respect to the question of whether a creditor may comply with 
the requirements of Sec.  1026.19(e)(1)(vi)(C) by listing vendor 
management companies, the availability requirement in proposed Sec.  
1026.19(e)(1)(vi)(C) requires that an entity that a creditor lists on 
the written list of providers for a particular service be available to 
provide the service. A creditor that lists a vendor management company 
on the written list for a particular service would not comply with 
Sec.  1026.19(e)(1)(vi)(C) if the vendor management company cannot 
ensure that the service for which it is listed can be performed by its 
employees or contractors in the area where the consumer or property is 
located, because it would not be available for purposes of Sec.  
1026.19(e)(1)(iv)(C). Lastly, with respect to requests to adjust the 
proposal to prohibit creditors from imposing background checks and 
similar requirements on settlement, and title agents, the proposal 
would not have imposed on the creditor an obligation to impose vetting 
requirements on settlement agents, nor prohibited such vetting, nor 
sought comment on the issue.
    Accordingly, for the reasons stated above, the Bureau is adopting 
Sec.  1026.19(e)(1)(vi)(A) as proposed, and Sec.  1026.19(e)(1)(vi)(B) 
substantially as proposed, with revisions to enhance clarity. For the 
reasons discussed above, the Bureau is adjusting proposed Sec.  
1026.19(e)(1)(vi)(C) in response to comments received about how many 
service providers must a creditor identify on the written list for each 
settlement service for which a consumer is permitted to shop. As 
adopted, Sec.  1026.19(e)(1)(vi)(C) provides that if the consumer is 
permitted to shop for a settlement service, the creditor shall provide 
the consumer with a written list identifying available providers of 
that settlement service and stating that the consumer may choose a 
different provider for that service. It additionally provides that the 
creditor must identify a minimum of one available provider for each 
settlement service for which the consumer is permitted to shop. Section 
1026.19(e)(1)(vi)(C) further provides that the creditor shall provide 
this written list of settlement service providers separately from the 
disclosures required by Sec.  1026.19(e)(1)(i) but in accordance with 
the timing requirements in Sec.  1026.19(e)(1)(iii).
    Comments 19(e)(1)(vi)-1 through -7 are adopted substantially as 
proposed. As noted, the Bureau modified proposed comments 19(e)(1)(vi)-
1 and -6 to address confusion about whether hazard insurance carriers 
must be listed in the written list of providers required by Sec.  
1026.19(e)(1)(vi)(C), and the Bureau is modifying proposed comment 
19(e)(1)(vi)-4 because final Sec.  1026.19(e)(1)(vi)(C) states 
expressly that at least one service provider must be identified for 
each settlement service for which the consumer is permitted to shop. 
The Bureau is adopting Sec.  1026.19(e)(1)(vi)(A) through (C), and its 
commentary, 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, as described in the 
proposal.

[[Page 79811]]

19(e)(2) Predisclosure Activity
    To promote the ability of consumers to shop for and evaluate 
available options for credit, the Bureau proposed several provisions in 
proposed Sec.  1026.19(e)(2) that would have restricted certain 
activities by creditors that may occur prior to the receipt by the 
consumer of the Loan Estimate. These provisions include restrictions on 
imposing fees on consumers, a requirement to place a statement on 
written estimates of loan terms or costs specific to the consumer that 
creditors may provide to the consumer before providing the Loan 
Estimate to the consumer to differentiate the written estimates from 
the Loan Estimate, and a prohibition that the creditor may not require 
the consumer to submit verifying information related to the consumer's 
application. These provisions are described in detail below in the 
section-by-section analyses of Sec.  1026.19(e)(2)(i), (ii), and (iii), 
respectively. In addition, see part VI for a discussion of the specific 
effective date applicable to Sec.  1026.19(e)(2).
19(e)(2)(i) Imposition of Fees on Consumer
    The Bureau proposed Sec.  1026.19(e)(2)(i), which would have 
prohibited a creditor or any other person from imposing a fee on a 
consumer in connection with the consumer's application for a mortgage 
transaction subject to Sec.  1026.19(e)(1)(i) before the consumer has 
received the Loan Estimate and indicated an intent to proceed with the 
transaction, except for a bona fide and reasonable fee for obtaining 
the consumer's credit report. As set forth below, the general fee 
restriction was set forth in proposed Sec.  1026.19(e)(2)(i)(A), and 
the exception was set forth in proposed Sec.  1026.19(e)(2)(i)(B). Both 
provisions are discussed in greater detail below.
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 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 
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 history or credit report, respectively.
    Thus, Regulation X requires consumers to take an additional 
affirmative step before new fees may be charged. In the proposal, the 
Bureau stated its belief that the goals of the integrated disclosures 
are best served by adopting the approach under Regulation X. The Bureau 
explained that the integrated disclosures were designed to facilitate 
the making of informed financial decisions by consumers, and expressed 
concern that this goal would be inhibited if fees are imposed on 
consumers before a consumer indicates an intent to proceed. The Bureau 
noted that 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 which the consumer 
originally requested. However, 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 stated its intent for consumers to 
use the integrated disclosures to compare loan products from different 
creditors. The Bureau expressed concern that 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.
    The Bureau noted that, 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. However, 
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. The Bureau also expressed concern that consumers 
would conclude 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 128(b)(2)(E) and RESPA section 19(a), the Bureau proposed Sec.  
1026.19(e)(2)(i)(A), which would have provided that neither a creditor 
nor any other 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. Proposed comment 19(e)(2)(i)(A)-1 would have explained 
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 would have been to allow the creditor or other 
person to impose a bona fide and reasonable fee for obtaining a 
consumer's credit report, pursuant to proposed Sec.  
1026.19(e)(2)(i)(B).
    Proposed comment 19(e)(2)(i)(A)-2 would have explained that the 
consumer may indicate an 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 proposed comment would have clarified that 
the creditor must document this communication to satisfy the 
requirements of Sec.  1026.25. The proposed comment would have also 
included illustrative examples.
    Proposed comment 19(e)(2)(i)(A)-3 would have discussed the 
collection of fees and clarified 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), but that the consumer must 
receive the disclosures required by Sec.  1026.19(e)(1)(i) and indicate 
an intent to proceed before paying or incurring any other fee in 
connection with the consumer's application. Proposed comment 
19(e)(2)(i)(A)-4 would have provided illustrative examples regarding 
these requirements.
    Proposed comment 19(e)(2)(i)(A)-5 would have clarified 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. The proposed comment would have 
provided examples that a creditor may not require the consumer to 
provide a $500 check or a credit card number 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 proposed comment would have further clarified that the 
creditor in this example would not comply with Sec.  1026.19(e)(2) even 
if the creditor did not deposit the check or charge the card until 
after the disclosures required by

[[Page 79812]]

Sec.  1026.19(e)(1)(i) were received by the consumer and the consumer 
subsequently indicated intent to proceed. The proposed comment would 
have further explained that the creditor would have complied with Sec.  
1026.19(e)(2) if the creditor required the consumer to provide a credit 
card number if the consumer's authorization was only to pay for the 
cost of a credit report. The proposed comment would have clarified that 
this would comply with Sec.  1026.19(e)(2) even if the creditor 
maintained the consumer's credit card number on file and charged the 
consumer a $500 processing fee after the disclosures required by Sec.  
1026.19(e)(1)(i) were received and the consumer subsequently indicated 
an 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
    As noted above, Sec.  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 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 proposed to adopt 
the terminology used by Regulation X, concluding that the purposes of 
the integrated disclosures were better served by the more restrictive 
language. The Bureau stated that 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.
    Second, existing commentary under Regulation Z 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, however, proposed 
for purposes of the integrated disclosures to require a fee for a 
credit report to be disclosed with the more precise label under the 
theory that 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, and compliance costs are generally 
reduced when regulatory requirements are standardized. Accordingly, the 
Bureau proposed Sec.  1026.19(e)(2)(i)(B), which would have provided 
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 would have clarified 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. The proposed comment 
would have also stated that the creditor must accurately describe or 
refer to this fee, for example, as a ``credit report fee.''
Comments
    A large non-depository lender expressed the concern that if the 
proposal was finalized as proposed, the practice of requiring a method 
of payment prior to providing the Loan Estimate would be a violation of 
the rule. The commenter, along with a number of other commenters that 
included a large bank commenter and industry trade associations 
representing banks and mortgage lenders, asserted that creditors should 
be permitted to obtain the consumer's credit card information before a 
consumer receives the Loan Estimate and indicates an intent to proceed, 
regardless of whether the creditor intends to charge the consumer the 
fee for obtaining the consumer's credit report. The trade association 
commenters asserted that restricting the creditor's ability to obtain 
the consumer's credit card information imposes an operational burden on 
creditors that do not charge a consumer for a credit report fee until 
the consumer has indicated an intent to proceed. The commenters 
predicted that adopting the proposed rule would make it likely that 
creditors will change their current practice and begin charging the 
credit report fee before the consumer indicates an intent to proceed.
    The Bureau also received requests from industry commenters that the 
Bureau clarify how to determine when a consumer has indicated an intent 
to proceed. The trade association commenter requested that the Bureau 
clarify that a lender may require the consumer to indicate the intent 
to proceed in a specific manner, as long as it is reasonable. The 
commenters also described specific examples and asked the Bureau to 
provide guidance on whether each specific example constitutes the 
consumer's intent to proceed. Similarly, a community bank commenter 
asserted that the Loan Estimate should contain a signature line, which 
could be signed by the consumer to indicate the consumer's intent to 
proceed.
    The trade association commenter and the large bank commenter 
additionally requested that the Bureau clarify what the Bureau meant 
when it stated in proposed Sec.  1026.19(e)(2)(i)(A)-5 that a creditor 
must request and receive a separate authorization for a new fee before 
it charges the consumer the new fee on the credit card the creditor had 
previously used to charge the consumer for the cost of a credit report. 
The commenters asserted that it was unclear whether the ``separate 
authorization'' refers to an authorization from the credit card company 
or a separate verbal authorization from the consumer to the creditor 
with respect to charging the consumer's credit card. The trade 
association commenter further requested clarification on whether the 
consumer's explicit expression of intent to proceed provides the lender 
with separate authorization to charge additional fees. Finally, the 
Bureau also received comments from industry commenters that asserted 
that the creditor should be able to charge the consumer a ``pre-
application fee'' to compensate the creditor for pre-approval 
activities, such as the issuance of pre-application worksheets.
Final Rule
    The Bureau has considered the comments, and for the reasons set 
forth below, is finalizing Sec.  1026.19(e)(2)(i) substantially as 
proposed. The Bureau believes that it is important that the consumer 
takes the affirmative step to indicate an intent to proceed with the 
mortgage loan transaction before the creditor requests a method of 
payment from the consumer, other than a method of payment to pay for 
the cost of a credit report. The Bureau recognizes that requiring a 
method of payment does not necessarily mean that the consumer will 
actually be charged. However, the Bureau is concerned that consumers' 
use of the integrated disclosures to make informed financial decisions 
and to compare loan products from different creditors may be inhibited 
if creditors can require that the consumer provide

[[Page 79813]]

the consumer's credit card number without a specific, narrowly tailored 
purpose before the consumer indicates an intent to proceed with the 
transaction. This may make a consumer feel committed to the creditor 
even though, after reviewing the Loan Estimate, the 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. The consumer may also feel uncomfortable providing the 
consumer's credit card number to multiple creditors, if multiple 
creditors intend to keep the numbers on file to charge at a later date. 
In addition, the Bureau understands that some creditors may currently 
require consumers to provide their credit card numbers at the time of 
application to provide a ``deposit'' that is either charged after 
application if the consumer does not consummate the transaction, or is 
applied towards the consumer's closing costs if the transaction is 
consummated. Under Sec.  1026.19(e)(2)(i) adopted in this final rule, a 
creditor is not permitted to require the consumer to provide the 
consumer's credit card number before the consumer receives the Loan 
Estimate and indicates an intent to proceed, even if the creditor 
promises not to charge the card until after such time. See comment 
19(e)(2)(i)(A)-5.
    The Bureau has revised the final regulation text to address 
commenters' request for additional clarification with respect to 
determining whether a consumer has indicated an intent to proceed. 
Proposed comment 19(e)(ii)(A)-2 would have explained, among other 
things, that a creditor can require a particular method of 
communication for the consumer to indicate an intent to proceed, as 
long as the creditor can document this communication to satisfy the 
requirements of Sec.  1026.25. But in light of the comments requesting 
additional clarification with respect to determining whether a consumer 
has indicated an intent to proceed, the Bureau believes incorporating 
the statement, set forth in proposed comment 19(e)(ii)(A)-2, that the 
consumer may indicate an intent to proceed in any manner the consumer 
chooses, unless the creditor requires a particular manner of 
communication into final Sec.  1026.19(e)(2)(i)(A) as part of the 
regulatory text would facilitate compliance. As adopted, Sec.  
1026.19(e)(2)(i)(A) provides that except as provided in Sec.  
1026.19(e)(2)(i)(B), neither a creditor nor any other person may impose 
a fee on a consumer in connection with the consumer's application for a 
mortgage transaction subject to Sec.  1026.19(e)(1)(i) before the 
consumer has received the disclosures required under Sec.  
1026.19(e)(1)(i) and indicated to the creditor an intent to proceed 
with the transaction described by those disclosures. Section 
1026.19(e)(2)(i)(A) further provides that a consumer may indicate an 
intent to proceed with a transaction in any manner the consumer 
chooses, unless a particular manner of communication is required by the 
creditor.
    The Bureau declines to make other changes to the rule requested by 
commenters. With respect to the request that the Loan Estimate contain 
a signature line that could be signed by the consumer to indicate the 
consumer's intent to proceed, the Bureau believes that allowing the 
Loan Estimate to be signed by the consumer to document the consumer's 
intent to proceed is contradictory to the intent of TILA section 
128(2)(B)(i). This section of TILA, implemented in this final rule in 
Sec.  1026.37(n)(1), provides that consumers are not required to 
proceed with the transaction merely because they have received the Loan 
Estimate or signed a loan application. Specifically, form H-24 of 
appendix H to Regulation Z, which illustrates the optional signature 
line permitted on the Loan Estimate under Sec.  1026.37(n)(1), states 
that the consumer's signature only documents receipt of the Loan 
Estimate. The Bureau also does not believe that additional 
clarification is needed to explain what ``separate authorization'' 
means in comment 19(e)(2)(i)(A)-5, which is adopted as proposed. The 
Bureau believes that the term ``separate authorization,'' as used in 
the comment, clearly means a new authorization, whether verbal or 
written, from the consumer for the creditor to charge new fees. The 
Bureau believes that an expression of a consumer's intent to proceed 
with a transaction is not the same as an authorization to the creditor 
to charge additional fees.
    Lastly, the Bureau does not believe that the creditor should be 
able to impose on a consumer a ``pre-application fee'' before the 
consumer has received the Loan Estimate and indicated an intent to 
proceed. As discussed above, both Regulations X and Z contain 
provisions that create exceptions to the general prohibition on the 
creditor's ability to impose fees on a consumer prior to providing the 
RESPA GFE and early TILA disclosure. The Bureau incorporated the 
terminology used by Regulation X in the proposal because the Bureau 
believed that incorporating the more narrow and precise terminology 
used by Regulation X would better ensure that consumers receive a 
reliable estimate of mortgage loan costs with as little up-front 
expense and burden as possible.
    The Bureau believes permitting creditors to impose a ``pre-
application fee'' on the consumer is problematic. First, although the 
Bureau recognizes that the creditor uses resources to provide pre-
application worksheets or other pre-qualification services, the 
worksheets are not subject to the good faith requirements of TILA 
section 128(b)(2)(A) and RESPA section 5 and may be unreliable. 
Accordingly, expanding the exception to a ``pre-application fee'' would 
be contrary to the Bureau's intent of ensuring that consumers receive a 
reliable estimate of mortgage loan costs with as little up-front 
expense and burden as possible. Second, the Bureau is concerned that 
the description of a fee as a ``pre-application fee'' is imprecise and 
that there may not be an industry standard to help determine what the 
fee is paying for, which does not promote the informed use of credit. 
The lack of precision and uniformity could also complicate supervision 
and compliance. Additionally, consumers may not have any information 
available to them regarding what services are included in the fee.
    For the reasons stated above, the Bureau is adopting Sec.  
1026.19(e)(2)(i)(A) and (B) largely as proposed, pursuant to its 
authority under TILA section 105(a) and 129(b)(2)(E), and RESPA section 
19(a). The Bureau is also finalizing comments 19(e)(2)(i)(A)-1 through 
-5, and comment 19(e)(2)(i)(B)-1 substantially as proposed, except for 
revisions to improve the clarity of the proposed comments. The Bureau 
believes that it is important that the consumer takes the affirmative 
step to indicate an intent to proceed with the mortgage loan 
transaction before the creditor requests a method of payment from the 
consumer, other than a method of payment to pay for the cost of a 
credit report. The Bureau recognizes that requiring a method of payment 
does not necessarily mean that the consumer actually will be charged. 
However, the Bureau's goals that consumers use the integrated 
disclosures to make informed financial decisions and that consumers use 
the disclosure to compare loan products from different creditors may be 
inhibited if the Bureau permits a creditor to require that the consumer 
provide the consumer's credit card number without a specific, narrowly-
tailored purpose before the consumer indicates an intent to proceed.

[[Page 79814]]

19(e)(2)(ii) Written Information Provided to Consumer
    The Bureau proposed to require creditors that provide a written 
estimate of loan terms or costs specific to a consumer, before the 
consumer has received the Loan Estimate and indicated an intent to 
proceed, to include a statement on such estimate to distinguish the 
estimate from the Loan Estimate. The Bureau understands that consumers 
often request written estimates of loan terms before receiving the 
RESPA GFE or early TILA disclosure. The Bureau recognizes that these 
written estimates may be helpful to consumers. However, the Bureau 
expressed concern in the proposal that consumers could 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 therefore be 
unreliable, with the Loan Estimate disclosures proposed under Sec.  
1026.19(e)(1)(i), which must be made in good faith. The Bureau was also 
concerned that unscrupulous creditors may use formatting and language 
similar to the disclosures that would have been required under Sec.  
1026.19(e)(1)(i) to deceive consumers into believing that the 
creditor's unreliable written estimate is actually the disclosure that 
would have been required under Sec.  1026.19(e)(1)(i). The Bureau found 
these concerns to be 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.''
    The Bureau believes that 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. The Bureau 
noted that as such, the disclosures that would have been required under 
proposed Sec.  1026.19(e)(1)(i) may be more accurate indicators of cost 
than preliminary written estimates. The Bureau stated that 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. The Bureau sought 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 proposed 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 subject to 
these requirements. Proposed Sec.  1026.19(e)(2)(ii) would have 
required creditors to provide consumers with a disclosure indicating 
that the preliminary written estimate is not the Loan Estimate required 
by RESPA and TILA, if a creditor provides a consumer with such 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. The Bureau 
concluded that the proposed provision is consistent with section 105(a) 
of TILA in that it would 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. The Bureau 
also believed the proposal 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 would have explained that Sec.  
1026.19(e)(2)(ii) applies only to written information specific to the 
consumer. It provided examples to illustrate the difference between 
written information specific to the consumer, such as an estimated 
monthly payment for a mortgage loan based on the estimated loan amount 
and the consumer's estimated credit score, and non-individualized 
information such as a preprinted list of closing costs common in the 
consumer's area, or an advertisement as defined in Sec.  1026.2(a)(2). 
This proposed comment would have also included a reference to comment 
19(e)(1)(ii)-4 regarding mortgage broker provision of written estimates 
specific to the consumer.
Comments
    The Bureau received largely supportive comments from industry 
commenters, but largely negative comments from consumer advocacy 
groups. A number of consumer advocacy groups expressed concerns 
regarding how non-binding, pre-application estimates have been used by 
creditors and mortgage brokers to deceive borrowers. They asserted that 
any creditor or broker using any document that is substantially similar 
to the Loan Estimate or Closing Disclosure should be subject to the 
requirements for such forms. The consumer advocacy groups asserted that 
the proposal would send a message that the Bureau condones the practice 
of providing consumers with non-binding estimates that have been used 
to deceive consumers. The commenters asserted that the disclaimer the 
Bureau proposed is inadequate. In joint comments, two national consumer 
advocacy groups observed that the Kleimann Testing Report contained a 
recommendation to design a more noticeable disclaimer, and asserted 
that the proposed disclaimer is only marginally more noticeable than 
the one tested. Accordingly, the national consumer advocacy group 
commenters expressed the belief that creditors would still be able to 
use pre-application worksheets to circumvent consumer shopping.
    As noted, industry commenters generally expressed support for the 
proposal. For instance, a community bank commenter concluded that the 
proposed disclaimer would reduce consumer confusion. A national trade 
association representing credit unions generally expressed support for 
the proposed disclaimer. The trade association commenter supported the 
disclaimer, so long as the statement does not require significant 
redesign of the forms that creditors currently use as pre-application 
worksheets or the use of additional pages for the disclaimer. A State 
trade association representing banks commented regarding proposed form 
H-26(B) that its member banks would prefer to use their own version of 
a consumer-specific worksheet, rather than proposed form H-26(B).\193\
---------------------------------------------------------------------------

    \193\ Proposed form H-26(B) would have illustrated the placement 
of the disclaimer on a consumer-specific worksheet for which a 
creditor uses a format similar to the proposed Loan Estimate in form 
H-24 of appendix H to Regulation Z.
---------------------------------------------------------------------------

    An industry trade association representing community banks agreed

[[Page 79815]]

that the unregulated nature of pre-application estimates can cause 
confusion for consumers, but asserted that the proposed disclaimer 
would further confuse the consumer. The commenter suggested that the 
problem lies not with the worksheets, but with the belief by creditors 
that they must have the property address to issue the RESPA GFE. The 
commenter expressed concern that creditors are treating this as a 
requirement, and thus, the creditor must provide worksheets to 
consumers shopping for a mortgage loan, and then issue the Loan 
Estimate only after the consumer selects the property. As discussed in 
greater detail in the section-by-section analysis of Sec.  
1026.2(a)(3), the commenter recommended that the Bureau address the 
issue by making ``property address'' an optional item in the definition 
of ``application'' for the original Loan Estimate delivery requirement 
in purchase transactions.
    A GSE commenter expressed concern that the proposed disclaimer 
could confuse consumers if the Bureau were to adopt, pursuant to the 
Bureau's 2012 Loan Originator Proposal, the requirement that the 
creditor must first provide the consumer with a quote for a comparable, 
alternative loan without any discount or origination points and/or fees 
(zero-zero alternative) before compensating a loan originator with a 
transaction-specific payment and charging the consumer discount and 
origination points and fees. The GSE commenter believed that the zero-
zero alternative would have been specific to the consumer and would be 
provided before the Loan Estimate. The GSE commenter argued that 
providing a disclosure that the consumer is meant to rely on for 
understanding pricing trade-offs in a document that contains the 
proposed disclaimer would cast doubt on the document's reliability and 
cause consumer confusion. An industry trade association representing 
mortgage bankers suggested that instead of finalizing this aspect of 
the Bureau's 2012 Loan Originator Proposal, the Bureau should permit 
creditors to inform the consumer that different loan programs with 
different mixes of rates and fees are available on the pre-application 
worksheets.
Final Rule
    The Bureau is adopting Sec.  1026.19(e)(2)(ii) and comment 
19(e)(2)(ii)-1 largely as proposed, after considering the comments, and 
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. As adopted, Sec.  
1026.19(e)(2)(ii) provides that if a creditor or other person provides 
a consumer with a written estimate of terms or costs specific to that 
consumer before the consumer receives the disclosures required under 
Sec.  1026.19(e)(1)(i), the creditor or such person shall clearly and 
conspicuously state at the top of the front of the first page of the 
estimate in a font size that is no smaller than 12-point font: ``Your 
actual rate, payment, and costs could be higher. Get an official Loan 
Estimate before choosing a loan.'' The Bureau is deleting the proposed 
timing requirement that the written estimate be provided before the 
consumer has indicated an intent to proceed with the transaction. The 
Bureau believes that this requirement suggests that a written estimate 
could be provided even though the Loan Estimate had been provided. The 
Bureau believes receiving a written estimate after the Loan Estimate 
has been provided will confuse consumers and create compliance burdens 
for industry. The Bureau is modifying proposed Sec.  1026.19(e)(2)(ii) 
in response to consumer advocacy groups' concern that pre-application 
worksheets formatted in a way that is substantially similar to the Loan 
Estimate or Closing Disclosure can cause consumer confusion. Section 
1026.19(e)(2)(ii) provides that a written estimate of terms or costs 
may not be made with headings, content, and format substantially 
similar to form H-24 or H-25 of appendix H to Regulation Z.
    With respect to the concerns raised about proposed form H-26(B), 
which would have provided a sample of the statement required by Sec.  
1026.19(e)(2)(ii) on a consumer-specific worksheet, the Bureau intended 
that the worksheet illustrated by proposed form H-26(B) provide an 
example of a worksheet that had a similar format as the proposed Loan 
Estimate. However, as discussed in greater detail in the section-by-
section analysis of appendix H, the Bureau is concerned that worksheets 
similar in format to the Loan Estimate could confuse consumers, which 
was a concern raised by consumer advocacy group commenters. In 
addition, the Bureau is concerned that the sample caused confusion for 
industry commenters, which were concerned that the format of form H-
26(B) would be required. As noted above, to address concerns raised by 
commenters about consumer confusion from worksheets similar in format 
to the Loan Estimate, the Bureau has modified Sec.  1026.19(e)(2)(ii) 
to prohibit the use of a consumer-specific worksheet that is 
substantially similar in format to the Loan Estimate or the Closing 
Disclosure. Accordingly, the Bureau is not adopting proposed form H-
26(B). The Bureau is, however, adopting the model form of the statement 
required by Sec.  1026.19(e)(2)(ii), renumbered as form H-26. The 
Bureau believes that a creditor or other person providing consumer-
specific written estimates may use forms they have already developed, 
provided that they add the disclaimer required by Sec.  
1026.19(e)(2)(ii) and that their forms are not substantially similar to 
form H-24 or H-25 of appendix H to Regulation Z.
    With respect to the argument that consumers are becoming confused 
because current regulations prohibit provision of the RESPA GFE until 
the consumer has a specific property address, the Bureau notes that the 
final rule permits creditors to provide a consumer with a Loan Estimate 
without receiving information about the property address. As discussed 
in more detail above in the section-by-section analysis of Sec.  
1026.2(a)(3), the property address is not required to be received 
before a creditor may issue the Loan Estimate. Finally, with respect to 
concerns about the interactions between Sec.  1026.19(e)(2)(ii) and the 
2012 Loan Originator Proposal, the zero-zero alternative was not 
adopted in the Bureau's 2013 Loan Originator Final Rule.
19(e)(2)(iii) Verification of Information
    The Bureau proposed in Sec.  1026.19(e)(2)(iii) to prohibit 
creditors from requiring consumers to submit documents verifying 
information related to the consumer's application before providing the 
Loan Estimate. Section 1024.7(a)(5) of Regulation X currently provides 
that a creditor may collect any information from the consumer deemed 
necessary in connection with an application, but the creditor may not 
require, as a condition for providing a RESPA GFE, that the consumer 
provide supplemental documentation to verify the information the 
consumer provided on the application. HUD stated in its 2008 RESPA 
Final Rule that the prohibition was to prevent over-burdensome 
documentation demands on mortgage applicants, and to facilitate 
shopping by borrowers. 73 FR 68204, 68211 (Nov. 17, 2008).
    The Bureau proposed to incorporate language similar to Sec.  
1024.7(a)(5) in the integrated disclosures rules in order to minimize 
the cost to consumers of obtaining Loan Estimates. The Bureau proposed 
Sec.  1026.19(e)(2)(iii), which

[[Page 79816]]

would have provided that a creditor shall not require a consumer to 
submit documents verifying information related to the consumer's 
application before providing the disclosures required by Sec.  
1026.19(e)(1)(i).
    The Bureau made 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 Bureau stated its belief 
in the proposal that proposed Sec.  1026.19(e)(2)(iii) would 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. The Bureau also stated that this proposed 
provision would be 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.
    Proposed comment 19(e)(2)(iii)-1 would have explained 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 proposed comment would 
have clarified that 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. The proposed comment would have also provided examples, 
stating that 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). Further, proposed comment 19(e)(2)(iii)-1 would have 
referenced Sec.  1026.2(a)(3) and the related commentary for guidance 
on the definition of application.
    The proposed provision did not generate much comment. A software 
vendor commenter sought clarification on whether a creditor must refuse 
verifying documentation a consumer brings to the creditor in 
anticipation of such documentation being needed. The Bureau does not 
believe that verifying documentation should be needed prior to issuing 
a Loan Estimate. However, the final rule does not prohibit the creditor 
from accepting verifying documentation if the consumer proffers such 
documentation, provided that it is not required by the creditor before 
the creditor provides the Loan Estimate.
    As noted above in the section-by-section analysis of Sec.  
1026.2(a)(3), based on comments responding to the Bureau's proposed 
definition of application, the Bureau understands that some creditors 
currently require a purchase and sale agreement prior to issuing the 
RESPA GFE and the early TILA disclosures in purchase transactions.
    The Bureau is concerned that some creditors may use the purchase 
and sale contract as verification documentation to support information 
that it has asked the consumer to provide in connection with the 
consumer's application, such as the sale price or the property address, 
before the creditor issues the Loan Estimate, although as noted in the 
section-by-section analysis of Sec.  1026.2(a)(3), the practice may be 
permissible under current Regulation X for purposes of the RESPA GFE in 
limited cases. Final comment 19(e)(2)(iii)-1 explains that a 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. The Bureau is adopting 
Sec.  1026.19(e)(2)(iii) based on the same intent on which HUD based 
Sec.  1024.7(a)(5), which is to prevent overly burdensome documentation 
demands on mortgage applicants, and to facilitate shopping by the 
consumer.
    The Bureau believes that requiring a consumer to submit a purchase 
and sale contract so that the creditor can obtain information it would 
otherwise obtain from the consumer or other sources may constitute 
overly burdensome documentation and inhibit shopping because under such 
a demand a consumer would be required to become obligated to the 
purchase of real estate prior to obtaining a reliable estimate of the 
cost of financing such purchase. The Bureau notes that the creditor may 
revise the estimates provided in the original Loan Estimate based on 
receipt of changed information under Sec.  1026.19(e)(3)(iv)(A). 
Accordingly, the Bureau believes that requiring the consumer to provide 
a purchase and sale contract before issuing the Loan Estimate would be 
in contravention of the prohibition on requiring verifying 
documentation being finalized under Sec.  1026.19(e)(2)(iii). The 
Bureau is adjusting comment 19(e)(2)(iii)-1 to clarify that the 
creditor may not require the consumer to provide a purchase and sale 
agreement to verify information provided by the consumer before 
providing the disclosures required by Sec.  1026.19(e)(1)(i).
Final Rule
    Accordingly, the Bureau is finalizing Sec.  1026.19(e)(2)(iii) and 
comment 19(e)(2)(iii)-1 substantially as proposed. Section 
1026.19(e)(2)(iii) provides that the creditor or other person shall not 
require a consumer to submit documents verifying information related to 
the consumer's application before providing the disclosures required by 
Sec.  1026.19(e)(1)(i). Final comment 19(e)(2)(iii)-1 explains that the 
creditor or other person may collect from the consumer any information 
that it requires prior to providing the early disclosures before or at 
the same time as collecting the information listed in Sec.  
1026.2(a)(3)(ii) and provides illustrative examples. However, the 
creditor or other person 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 collected from the 
consumer. The comment also provides illustrative examples, including an 
example involving a purchase and sale contract, as described above, and 
refers to Sec.  1026.2(a)(3) and its commentary for guidance regarding 
the definition of application. The Bureau is adopting Sec.  
1026.19(e)(2)(iii) and comment 19(e)(2)(iii)-1 pursuant to its 
authority under section 105(a) of TILA, section 19(a) of RESPA, and for 
residential mortgage loans, section 129(B) of TILA.
19(e)(3) Good Faith Determination for Estimates of Closing Costs
The Bureau's Proposal
    The Bureau proposed to amend Regulation Z by: (1) Incorporating and 
expanding existing Regulation X requirements that establish tolerance 
categories limiting the variation between the estimated amount of 
certain settlement charges included on the RESPA GFE and the actual 
amounts included on the RESPA settlement statement; and (2) applying 
these requirements to variations between the estimated amount of 
certain settlement charges included on the Loan Estimate and the actual 
amounts paid by or imposed on the consumer. Current Regulation X 
prohibits variations in origination charges and transfer taxes between 
the estimated amounts and the actual amounts unless one of six 
exceptions, such as a changed circumstance or a borrower-requested

[[Page 79817]]

change, applies.\194\ The Bureau proposed to expand this zero percent 
tolerance category of settlement costs to include fees paid to 
affiliates of the creditor and fees paid to lender-required settlement 
service providers (i.e., settlement service providers that the creditor 
requires the consumer to use).\195\ Currently under Regulation X, these 
costs are in the ten percent tolerance category, which also includes 
recording fees and charges paid to non-lender-required third party 
settlement service providers where the borrower uses a lender-
identified settlement service provider, including charges for owner's 
title insurance. Costs in the ten percent tolerance category could 
increase between the estimated amount and the amount actually paid by 
or imposed on the consumer so long as the sum of all charges paid by or 
imposed on the consumer in this category does not exceed the sum of all 
such charges included on the RESPA GFE by more than ten percent. 12 CFR 
1024.7(e)(2). As discussed in greater detail in the section-by-section 
analysis of Sec.  1026.19(e)(3)(i), the Bureau proposed to incorporate 
these changes in that section.
---------------------------------------------------------------------------

    \194\ For a discussion of changed circumstances and borrower-
requested changes, see the section-by-section analysis of Sec.  
1026.19(e)(3)(iv).
    \195\ As proposed, the term ``affiliate'' would have meant 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(k). 77 FR 51167, fn. 141.
---------------------------------------------------------------------------

    Under the proposal, fees for lender-required services for which a 
creditor permits the consumer to choose the provider and the consumer 
selects a settlement service provider identified by the creditor would 
remain in the ten percent tolerance category. Recording fees and 
owner's title insurance would also stay in the ten percent tolerance 
category. See the section-by-section analysis of Sec.  
1026.19(e)(3)(ii) below.
    Further, similar to the current regulation, a cap would not be 
applied to certain settlement costs such as prepaid interest and 
property insurance premiums. This aspect of the proposal is discussed 
in greater detail in the section-by-section analysis of Sec.  
1026.19(e)(3)(iii) below. Lastly, similar to the current regulation, 
under the Bureau's proposal, creditors would continue to be able to 
rely on any of six exceptions such as changed circumstances and 
borrower-requested changes to adjust any estimated settlement cost 
subject to a tolerance if the creditor establishes that one of the six 
exceptions is the reason for the cost to increase beyond the applicable 
tolerance.
    The Bureau's rationale was based on the reasons described in the 
proposal (summarized below), and in reliance on 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 believed that creditors could develop accurate estimates 
of fees for settlement services charged by their affiliates and by 
lender-required providers, because creditors are aided by the increased 
level of knowledge and communication suggested by these types of 
relationships and the frequency of repeat business with a particular 
affiliate or lender-required settlement service provider. The Bureau 
also believed that lenders that were denying the opportunity of 
consumers to influence the quality and cost of settlement services 
through shopping by requiring consumers to use lender-required service 
providers should take greater responsibility for estimating settlement 
costs accurately and assume some of the risk of underestimation for 
failing to accurately estimate such costs.
    The Bureau also believed that consumers benefit from having more 
reliable estimates of settlement costs. The Bureau believed that more 
reliable estimates are inherently beneficial. They enable consumers to 
make informed and responsible financial decisions. More reliable 
estimates also promote honest competition among industry providers that 
desire a fair and level playing field, and the existence of such a 
market for settlement services helps to prevent unnecessarily high 
settlement costs. Subjecting settlement costs to an enhanced 
reliability standard may also help to prevent financial surprises at 
the real estate closing that may greatly harm consumers.\196\ The 
Bureau stated in the proposal that it believed that these benefits 
advance the principles upon which TILA and RESPA were founded, and 
advance the goals of the 2008 RESPA Final Rule, under which the current 
tolerance categories were established.
---------------------------------------------------------------------------

    \196\ The Bureau stated in the proposal that settlement service 
providers such as appraisal management companies and title companies 
may be affiliated with the creditor. Because fees paid for 
appraisals and title-related services constitute a large percentage 
of 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.
---------------------------------------------------------------------------

    TILA. TILA section 128(b)(2)(A) requires creditors to provide good 
faith estimates of certain required disclosures not later than three 
business days after receipt of a consumer's written application for a 
closed-end mortgage loan that is also subject to RESPA. TILA section 
128(b)(2)(D) also requires creditors to provide revised disclosures to 
consumers if the initially-disclosed APR becomes inaccurate, subject to 
a tolerance for accuracy, not later than three business days before 
consummation. TILA section 121(d) further establishes that the Bureau 
may create new tolerances for numerical disclosures other than the APR 
if the Bureau determines that such additional tolerances are necessary 
to facilitate compliance with TILA. Regulation Z Sec.  1026.19(a)(1)(i) 
implements the good faith and delivery requirements of TILA section 
128(b)(2)(A) in the context of certain mortgage loans. It requires 
creditors to make good faith estimates of the disclosures required by 
Sec.  1026.18 by either delivering or placing the disclosures in the 
mail not later than the third business day after the creditor receives 
the consumer's written application.\197\
---------------------------------------------------------------------------

    \197\ Section 1026.18 of Regulation Z 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.
---------------------------------------------------------------------------

    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). The term ``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. The Bureau stated in the proposal 
that the amendment made no distinction 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.

[[Page 79818]]

    RESPA and HUD's 2008 RESPA Final Rule. A stated purpose of RESPA is 
that consumers should receive effective advance disclosures of 
settlement costs.\198\ Further, the statute establishes the requirement 
that lenders must provide consumers with good faith estimates of 
settlement costs, which include most fees charged in connection with a 
real estate settlement, within three days of receiving a consumer's 
application for a mortgage loan.\199\ HUD amended Regulation X with its 
2008 RESPA Final Rule after a ten-year investigatory process that found 
RESPA's stated purposes were undermined by market forces. HUD found 
that cost estimates appearing on the RESPA GFE could be significantly 
lower than the amount ultimately charged at settlement, even though in 
most cases loan originators could estimate final settlement costs with 
great accuracy. See 73 FR 14030, 14039 (March 14, 2009). Further, 
consumers were often unable to challenge increases in settlement costs 
because many consumers found out about the increases immediately before 
settlement, which was the point in time where they were in the weakest 
bargaining position.
---------------------------------------------------------------------------

    \198\ RESPA section 2(b). 12 U.S.C. 2601.
    \199\ RESPA section 5(c). 12 U.S.C. 2604.
---------------------------------------------------------------------------

    Since the enactment of the 2008 RESPA Final Rule, however, concerns 
were identified that could undermine its goals. The first of such 
concerns was the treatment of fees paid to lender affiliates. The 
inclusion of such fees in the ten percent tolerance category means that 
they could increase by as much as ten percent prior to the real estate 
closing, in addition to increases based on changed circumstances and 
borrower-requested changes. The Bureau stated in the proposal that 
given that the affiliate relationship is inherently beneficial to the 
creditor, permitting affiliate fees to vary by as much as ten percent 
without a need to justify the increase may incent creditors to raise 
fees at closing solely to obtain all money available up to the ten 
percent tolerance.
    The second of these concerns centers on the ability of consumers to 
shop for settlement service providers. As discussed above in the 
section-by-section analysis of Sec.  1026.19(e)(1)(vi), HUD intended to 
promote shopping by giving some information to the consumer as a 
starting point to shop. It promulgated the requirement that loan 
originators must provide borrowers with a written list of providers if 
the loan originator permits a borrower to shop for third-party 
settlement services. In the proposal, the Bureau stated that the 
concern is that creditors have used the requirement to direct consumers 
to use only the providers that are on the written list, thereby turning 
the lists into ``closed lists'' of ``preferred providers,'' and denying 
consumers the ability to influence the cost and quality of settlement 
services through shopping.
    Dodd-Frank Act. As discussed above, sections 1032(f), 1098, and 
1100A of the Dodd-Frank Act require integration of the disclosure 
provisions under TILA and RESPA, and sections 1098 and 1100A of the Act 
further provide that the purpose of the integrated disclosures 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.'' The Bureau stated its belief 
in the proposal that these amendments require integration of the 
regulations related to the accuracy and delivery of the disclosures, as 
well as their content.
    During the Small Business Review Panel 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 creditor or 
mortgage broker and to providers selected by the creditor,\200\ and the 
Small Business Review Panel recommended that the Bureau consider 
alternatives that would increase the reliability of cost estimates 
while minimizing the impacts on small entities and solicit comment on 
the effectiveness of the current tolerance rules.\201\
---------------------------------------------------------------------------

    \200\ See Small Business Review Panel Report at 34, 37-38, 40, 
64, 67, and 71.
    \201\ Id. at 29.
---------------------------------------------------------------------------

    Consistent with the Small Business Review Panel's recommendation, 
the Bureau solicited comment on all aspects of the proposal, including 
the cost, burden, and benefits to consumers and to industry regarding 
the proposed revisions to the good faith requirements, and whether the 
current tolerance rules have sufficiently improved the reliability of 
the estimates that creditors give consumers, while preserving 
creditors' flexibility to respond to unanticipated changes that occur 
during the loan process. The Bureau solicited comment on the frequency, 
magnitude, and causes of settlement cost increases. The Bureau also 
requested 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.
Comments
    Consumer advocacy groups did not provide comments on the proposed 
application of the zero percent tolerance category of settlement costs 
to fees paid to affiliates of the creditor and fees paid to settlement 
service providers that creditors require consumers to use.\202\ But the 
Bureau received numerous comments from industry commenters representing 
a wide range of segments of the mortgage origination industry on both 
the Bureau's rationale to expand the zero percent tolerance category of 
settlement costs to fees paid to lender affiliates and lender-required 
providers and the specific provisions of Sec.  1026.19(e)(3). 
Provision-specific comments are addressed in the section-by-section 
analysis of each subsection of Sec.  1026.19(e)(3), as applicable. This 
general section-by-section analysis of Sec.  1026.19(e)(3) addresses 
comments received on the Bureau's rationale to expand the zero percent 
tolerance category of settlement costs to fees paid to lender 
affiliates and lender-required providers.
---------------------------------------------------------------------------

    \202\ Two national consumer advocacy groups, however, provided 
comments on the aspect of the proposal that would have kept prepaid 
interest in the category of settlement costs not subject to 
tolerances at all. For a detailed discussion of this issue, see the 
section-by-section analysis of Sec.  1026.19(e)(3)(iv) below.
---------------------------------------------------------------------------

    Industry commenters expressed mixed views on industry's ability to 
adapt to the change in the zero percent tolerance category of 
settlement charges, the impact of the change on competition and 
consumers, and alternatives. As discussed in more detail below, 
industry commenters questioned the Bureau's belief about the ability of 
creditors to accurately estimate the charges imposed by its affiliates 
and lender-required providers. Some commenters asserted that the Bureau 
was basing its proposal on anecdotal evidence, rather than systemic 
data. Commenters, including a large bank commenter, also questioned the 
Bureau's legal authority to establish a zero percent tolerance category 
for any settlement charge. They asserted that RESPA permits a creditor 
to provide consumers an estimate of settlement costs, rather than 
requiring a creditor to disclose the exact amount of a settlement 
charge early in the loan origination process.
    Compliance impact. Commenters expressed mixed views about the 
ability of industry to comply with the expansion of the zero percent 
tolerance category of settlement charges to

[[Page 79819]]

include fees paid to lender affiliates and lender-required settlement 
service providers. A regional bank holding company stated that it 
supported the accuracy thresholds on the Loan Estimate, but that 
industry should be given at least 18 months to comply with the new 
rules.
    Many industry commenters asserted that the proposed tolerance rules 
will be disruptive and costly because it would be difficult to estimate 
fees paid to lender-affiliates and lender-required service providers 
accurately early in the loan origination process. The SBA argued that 
the Bureau should maintain the current ten percent cushion for third-
party charges because the small entities that participated in the Small 
Business Review Panel process stated that they were currently able to 
comply with HUD's 2008 RESPA Final Rule. A number of the commenters 
asserted that the current tolerance rules have largely solved the 
problem of large settlement cost increases at closing and that if the 
Bureau did not have evidence of widespread or systemic abuse of 
consumers, the Bureau should not change the current rules.
    Industry commenters expressed concern about the impact of 
unforeseen circumstances that could change the cost estimates quoted on 
the original Loan Estimate, and about a creditor's ability to estimate 
affiliate fees and lender-required service provider fees. Some 
commenters suggested that unforeseen circumstances are especially 
likely to be an issue in rural areas where properties are often unique, 
title work frequently includes more variables, and appraisal costs vary 
because it is difficult to gather comparable sales data. Other 
commenters suggested that costs may be difficult to estimate initially 
if the creditor is working outside of the creditor's market and lacks 
familiarity with the prices charged by local settlement service 
providers.
    Commenters also expressed concern that the original estimates could 
change because of overall market forces, such as market-based price 
fluctuations or a change in the availability of a lender-required 
service provider. A national provider of title insurance and settlement 
services asserted that even under well-defined vendor agreements for 
services such as providing an appraisal, obtaining a flood risk 
determination, or obtaining the consumer's credit report, fees may vary 
slightly from time to time. Some commenters, including industry trade 
associations representing banks and mortgage lenders, suggested that 
section 8 of RESPA, the statutory provision in RESPA that prohibits 
kickbacks, referral fees and similar considerations being exchanged in 
the context of referrals for settlement service business, is one of the 
reasons that explains why the creditor is unable to control settlement 
service fees.
    Ability to estimate affiliates' fees. Several industry commenters, 
including mortgage lenders, a credit union, an industry trade 
association representing affiliated real estate businesses, and an 
industry association representing realtors, expressed support for the 
Bureau's rationale for including fees paid to affiliates in the zero 
percent tolerance category. They agreed that affiliated business 
relationships facilitate greater communication and coordination than a 
relationship between independent entities operating at arm's length. 
But other commenters expressed concern that unless the creditor-
affiliate relationship is one based on actual control of the creditor 
over the affiliate, creditors do not control the affiliates' cost.
    Ability to estimate fees of lender-required providers. Many 
commenters cited the lack of knowledge about a non-affiliated service 
provider's fees and control over the provider, as the primary reason 
they are concerned about expanding the zero percent tolerance category 
of settlement charges to include fees paid to lender-required 
providers. As noted above, some mortgage lenders, a credit union, and 
an industry trade association representing realtors supported the 
Bureau's rationale for including affiliate fees in the zero percent 
tolerance category. But they expressed concern that the same level of 
knowledge of and control over costs does not exist between creditors 
and unaffiliated service providers, even in situations where the 
creditor selects the unaffiliated service providers.
    Competitive impact. Commenters also expressed mixed views about the 
competitive impact of the expansion of the zero percent tolerance 
category of settlement fees. An industry trade association representing 
independent land title agents and a title company commenter expressed 
support for the proposal's potential to encourage consumer shopping, 
and thereby increase competition. Some commenters, including the SBA 
and several industry trade associations representing banks and mortgage 
lenders expressed concerns that the proposed rule would increase 
affiliation and decrease competition, thereby harming small, 
independent settlement service providers.
    But other commenters believed that there would be a decrease in 
affiliation. An industry trade association representing Federally-
charted credit unions expressed concern that although the expansion may 
decrease affiliation, well-established settlement service providers, 
rather than small entities, will reap the benefits from de-affiliation, 
because creditors would be incented to seek services from established 
providers that can offer fee guarantees or provide reimbursements if 
tolerance thresholds are crossed. A Federal credit union commenter 
expressed concern that small creditors may be negatively impacted by 
the proposed rules because large creditors can use affiliation to 
control costs and provide accurate estimates, while small creditors 
would have to rely on unaffiliated settlement service providers that 
charge fees small creditors do not manage or control.
    As noted above, several industry commenters supported the Bureau's 
rationale for the inclusion of fees paid to lender affiliates. But the 
commenters expressed concern about whether the change would lead to an 
unfair marketplace if only fees paid to lender-required affiliates were 
subject to the zero percent tolerance rule. The commenters asserted 
that the same tolerance rules should apply to affiliated and 
unaffiliated service providers equally.
    Impact on consumers. The proposal's potential impact on consumers 
also generated mixed reactions from industry. One large bank commenter 
stated that imposing a zero percent tolerance rule when the consumer is 
not given a choice in selecting the service provider and the creditor 
has a degree of control over the provider is the right thing to do for 
the consumer. An industry trade association representing independent 
land title agents and a title company commenter supported expanding the 
zero percent tolerance category of fees to include fees paid to 
affiliates because they believed that it would encourage consumer 
shopping and promote consumer choice. The trade association commenter 
stated that it conducted a survey of its members and found that over 
half of the respondents thought that it was appropriate to subject 
affiliate fees to a zero percent tolerance on cost increases.
    In joint comments, associations representing State consumer 
financial services regulators expressed support for the expansion. The 
commenters stated that applying the zero percent tolerance rule to fees 
of lender affiliates and lender-required service providers will ensure 
consumers are not subject to abusive practices that were prevalent in 
the past, and it will additionally incent creditors to provide 
consumers with accurate Loan Estimates and Closing

[[Page 79820]]

Disclosures. The commenters stated that the proposal should lead to a 
healthier residential mortgage market because better informed consumers 
provided with accurate disclosures make better choices and are less 
likely to default, and creditors will have a less cumbersome and more 
certain process, reducing the risk of error and uncertainty associated 
with the disclosure process. The commenters, however, stated that the 
tolerance thresholds should be adjusted if they cause closings to be 
delayed unnecessarily because industry has raised concerns about 
possible disruptions and inconveniences to consumers flowing from the 
combination of the Bureau's proposed changes to the tolerance rules and 
the timing requirement for delivery of the Loan Estimate.
    Many industry commenters asserted that expanding the zero percent 
tolerance category of settlement costs to include fees paid to lender 
affiliates and lender-required service providers would harm consumers. 
They asserted that if creditors are held to a zero percent tolerance 
for fees paid to lender affiliates and lender-required nonaffiliated 
service providers, creditors may either increase their loan origination 
costs or quote higher third-party fees as a hedge against losses if the 
actual cost for a settlement service in the zero percent tolerance 
category charged at settlement is greater than the cost estimate 
disclosed on the Loan Estimate. A State housing finance agency 
expressed concern that overestimating third-party fees would harm 
consumers, because it would make the cost of the loan look higher than 
it actually is to consumers. An industry trade association representing 
community banks expressed concern that creditors may collude on prices 
with settlement service providers because the proposal creates pressure 
to disclose accurate cost estimates, and such collision would 
ultimately harm consumers.
    As noted above, industry trade associations representing banks and 
mortgage lenders suggested creditors may increase affiliation to manage 
settlement costs. The commenters asserted this, in turn, may mean less 
credit availability for consumers because increased affiliation would 
raise the risk of creditors exceeding the points and fees thresholds 
for qualified mortgages under the Bureau's 2013 ATR Final Rule,\203\ 
and for qualified residential mortgages under a credit risk retention 
proposal issued by other Federal regulators.\204\ The SBA expressed 
concern that the negative impact of affiliation on small, independent 
service providers may harm consumers by decreasing competition.
---------------------------------------------------------------------------

    \203\ 78 FR 6408 (Jan. 30, 2013).
    \204\ 76 FR 24090 (Apr. 29, 2011). On August 29, 2013, the 
agencies announced in a joint press release that a revised NPRM on 
the rule has been issued. See e.g., Board of Governors of the 
Federal Reserve System, et al. Agencies revise proposed risk 
retention rule, available at http://www.federalreserve.gov/newsevents/press/bcreg/20130828a.htm (last accessed Aug. 29, 2013).
---------------------------------------------------------------------------

    Still other commenters, including the SBA and industry trade 
associations representing banks, argued that the proposed application 
of the zero percent category of settlement costs would cause an 
increase in the number of revised Loan Estimates being issued. They 
asserted that this, in turn, could increase consumer confusion, cause 
information overload, create closing delays, and increase the cost of 
obtaining a loan because creditors would pass the cost of producing the 
revised Loan Estimates to consumers.
    Alternatives. Commenters presented a number of alternatives, 
including retaining the current tolerance rules. Several commenters 
suggested that the Bureau narrowly define the term ``affiliate'' so 
that the zero percent tolerance category of fees would only be expanded 
to include fees paid to affiliates in which the creditor has a majority 
ownership interest. As noted above, several commenters asserted that 
the Bureau should treat affiliated and unaffiliated settlement service 
providers equally. One such commenter suggested that the Bureau subject 
both affiliate provider fees and non-affiliated provider fees to a five 
percent tolerance on cost increases.
    Still other industry commenters advocated for more fundamental 
changes. A number of mortgage lenders and mortgage broker commenters 
submitted similar comments asserting that the current tolerance rules 
generally caused consumer harm, and it would be better for mortgage 
transactions to be subject to the rules that applied before HUD's 2008 
RESPA Final Rule became effective. A national industry association 
representing mostly mortgage brokers stated that a materiality 
standard, which measures the amount of a cost increase against the loan 
amount, would be a better way to address limitations on settlement cost 
increases.
    A State association representing escrow agents asserted that 
tolerance rules should only apply to loan costs. If a consumer must pay 
the same fee in a cash transaction, then the fee should not be subject 
to limitations on increases. Some commenters, including industry trade 
associations representing banks and mortgage lenders, requested that 
the Bureau permit fees in the zero percent tolerance category to 
increase so long as the aggregate amount of these fees do not increase. 
The commenters stated that the result would streamline the disclosures 
and consumers would not be harmed because the total amount the consumer 
pays would be the same.
    Finally, industry trade associations representing banks and 
mortgage lenders asserted that the Bureau should consider whether to 
offer lenders an exemption from compliance with section 8 of RESPA so 
lenders could negotiate with third-party settlement service providers 
and offer consumers settlement service packages with guaranteed prices. 
The trade associations representing banks and mortgage lenders 
expressed the view that relief from section 8 liability is needed so 
creditors do not accidentally exceed the points and fees thresholds for 
qualified mortgages and qualified residential mortgages.
Final Rule
    The Bureau has considered these comments, but is finalizing the 
proposed expansion of the current zero percent tolerance category of 
settlement costs to affiliate fees and fees of lender-required service 
providers. As discussed in greater detail below in the section-by-
section analysis of Sec.  1026.19(e)(3)(i), the final rule generally 
provides that any affiliate charge or charge of a lender-required 
provider paid by or imposed on the consumer that exceeds the amount for 
such charge estimated on the disclosures required by Sec.  
1026.19(e)(1)(i) is not in good faith, subject to legitimate cost 
revisions such as changed circumstances or borrower-requested changes.
    As noted, several industry commenters expressed support for the 
Bureau's rationale to expand the zero percent tolerance category of 
settlement costs to fees of lender affiliates. The Bureau also does not 
believe that expanding the zero percent tolerance category will 
negatively impact credit availability. As previously noted, some 
industry trade associations suggested creditors may increase 
affiliation to manage settlement costs. The commenters asserted this, 
in turn, may mean less credit availability for consumers, because 
increased affiliation increase the risk that mortgages would not be 
able to be qualified mortgages or qualified residential mortgages 
because creditors would exceed the points and fees thresholds. Also as 
noted above,

[[Page 79821]]

some commenters suggested that providing industry with relief from 
RESPA section 8 liability would be an effective way to solve the 
problem, because creditors and settlement service providers could agree 
on prices in advance and avoid exceeding the points and fees threshold.
    The Bureau believes that the substantial communication that already 
exists between creditors and their affiliates would enable creditors to 
determine, early in the mortgage origination process, whether a loan 
would exceed the points and fees threshold tests. Accordingly, the 
Bureau is not persuaded that the proposal would negatively impact 
credit availability. The Bureau also believes that the presence of this 
points and fees threshold may incent creditors to strengthen the 
already-substantial communication with their affiliates to obtain 
affiliate cost information with greater accuracy early in the process, 
which would, in turn, facilitate compliance with the final rule. In 
addition, the Bureau does not have information that the lack of such an 
exemption has had any detrimental effect on creditors' ability to 
comply with the current tolerance rules under Regulation X.
    Further, there is a longstanding debate about whether RESPA section 
8 liability casts a shadow over creditors and settlement service 
providers such that it hinders the ability of creditors to comply with 
tighter tolerances for settlement charges. As noted above, some 
industry trade associations suggested that creditors and settlement 
service providers should be provided with relief from section 8 
liability if they could guarantee the prices of certain settlement 
services. HUD proposed a similar solution in 2002,\205\ and a strong 
backlash from independent settlement service providers and consumer 
advocacy groups ensued.\206\
---------------------------------------------------------------------------

    \205\ 67 FR 49134 (Jul. 29, 2002).
    \206\ 73 FR 14030, 14032 (Mar. 14, 2008).
---------------------------------------------------------------------------

    Additionally, the Bureau believes that if a creditor denies 
consumers the opportunity to influence the quality or cost of 
settlement services through shopping by requiring consumers to use 
lender-selected settlement service providers, then the creditor should 
take responsibility for making accurate estimations and assuming the 
risk of under-estimation. As noted above, one large national provider 
of title insurance and settlement services stated that creditors enter 
into ``well-defined'' vendor agreements with lender-required service 
providers. The Bureau believes that the existence of such agreements 
supports the Bureau's rationale that creditors are in a superior 
position of knowledge with respect to the expected costs of the 
services of lender-required providers. The Bureau acknowledges that 
unforeseen circumstances and market forces could render estimates of 
settlement services inaccurate. To the extent that the variation is due 
to a changed circumstance or borrower-requested change, the final rule 
permits a creditor to revise the cost estimate it originally provided 
to the consumer. The Bureau recognizes that the ten percent cushion 
could help creditors and settlement service providers manage the risk 
of price fluctuations associated with market forces. But the Bureau 
believes creditors' ability to obtain information about their 
affiliate's or preferred provider's pricing means that creditors do not 
need the ten percent cushion under the current tolerance rules to 
manage such risk, because the final rule permits revisions based on 
legitimate changed circumstances and borrower-requested changes.
    With respect to the concerns expressed by some commenters about the 
competitive consequences of applying the zero percent tolerance 
category to affiliate fees and fees paid to lender-required service 
providers, the Bureau does not believe that this final rule will 
threaten competition by pushing small, independent settlement service 
providers out of business. The Bureau believes that this final rule may 
actually enhance competition in the market for settlement service 
providers. If a creditor does not want the zero percent tolerance rule 
to apply to the cost of a lender-required service, a creditor must 
permit the consumer to select the settlement service provider for that 
service, and the service provider cannot be an affiliate of the 
creditor. Further, if the creditor permits a consumer to select the 
settlement service provider, the creditor must provide the consumer 
with a written list identifying available providers, which as 
illustrated in the model written list the Bureau is finalizing in this 
final rule as form H-27 of appendix H to Regulation Z, would expressly 
disclose to the consumer that the consumer may choose a different 
settlement service provider. The Bureau believes that these provisions 
would promote consumer shopping and competition among settlement 
service providers.
    The Bureau also believes that the structural flaws in HUD's 2008 
RESPA Final Rule the Bureau identified in the proposal and described in 
this section-by-section analysis justify the Bureau taking this action 
in this final rule, even though the Bureau's empirical support rests on 
anecdotal evidence, rather than systemic data, because of the 
significant harm that can result from increased closing costs to 
consumers. Further, with respect to the argument that RESPA permits a 
creditor to provide consumers with an estimate of settlement costs, 
rather than requiring a creditor to disclose the exact amount of a 
settlement charge early in the loan origination process, the Bureau 
observes that the final rule incorporates the current tolerance rules' 
exceptions (i.e., the amount of settlement charges subject to the zero 
percent tolerance category, as well as the ten percent tolerance 
category, may change due to events such as changed circumstances and 
borrower-requested changes).
    With respect to the argument that an unintended consequence of the 
Bureau's proposal would be that creditors would increase their 
origination charges to compensate for increased costs due to settlement 
charges exceeding the expanded zero percent tolerance category of 
settlement costs, the Bureau doubts that creditors will, in fact, incur 
such increased costs for the reasons already discussed and also 
believes that competition among creditors should be an effective 
countervailing force to prevent creditors using affiliates from 
charging higher interest rates on their loans. The Bureau also doubts 
that the final rule will pressure creditors and settlement service 
providers to collude on prices or to limit business relationships to 
ones with established settlement service providers that can offer price 
guarantees or provide reimbursements if tolerance thresholds are 
crossed. The Bureau believes that current restrictions under section 8 
of RESPA on kickbacks, referral fees, and similar considerations should 
deter such behavior.
    Some commenters expressed concern that creditors would have to 
issue more revised Loan Estimates, and the Bureau acknowledges that 
this is a possibility. However, the Bureau believes that this result is 
adequately counter-balanced by the benefits that will flow to consumers 
from receiving more accurate cost estimates and better enabling 
consumer shopping. The Bureau believes that adopting the proposal would 
mean that consumers would have more certainty about their settlement 
costs early in the loan process, which can enhance the ability of 
consumers to shop among creditors. The Bureau does not believe that 
expanding the zero percent tolerance category as proposed would delay 
closings, which concerned some commenters, because as noted above, 
creditors would be able to revise cost

[[Page 79822]]

estimates subject to a tolerance in the event of a changed circumstance 
or borrower-requested change. In addition, as discussed in greater 
detail below in the section-by-section analysis of Sec.  1026.19(e)(4), 
this final rule does not prohibit disclosing revised costs that have 
changed due to a changed circumstance or borrower-requested change on 
the Closing Disclosure provided under Sec.  1026.19(f)(1)(i).
    The Bureau does not believe that the final rule must be adjusted to 
subject all affiliated and unaffiliated businesses to a zero percent 
tolerance because it does not believe that this final rule will treat 
affiliated businesses unfairly. As discussed above, the application of 
the zero percent tolerance category of settlement charges to affiliated 
settlement service providers and lender-required unaffiliated 
settlement service providers is based on the premise that in both 
cases, creditors that use affiliates or unaffiliated providers they 
require are in a superior position of knowledge with respect to the 
expected costs of the services of those providers and can provide more 
accurate disclosures than they are with respect to the expected costs 
of services of unaffiliated and non-required providers. It is not based 
merely on the premise that creditors should be able to estimate more 
accurately all settlement charges. Additionally, because the Bureau's 
justification is not primarily based on the existence of actual 
control, the Bureau does not believe that ``affiliates'' should be 
defined to include only entities in which the creditor holds a majority 
ownership interest.
    The Bureau also does not believe that fundamental changes must be 
made to the current tolerances framework on charges for settlement 
services. As noted above, the current tolerance rules resulted from 
HUD's ten-year-long investigation of problems in the settlement 
services industry. For reasons discussed above, the Bureau believes 
that it is reasonable to expect creditors to estimate affiliate fees 
and fees paid to service providers required by the creditors as if they 
were estimating their own fees. In addition, such accurate estimates 
will benefit consumers because accurate estimates will enable consumers 
to make more informed comparisons among different loans, thus 
facilitating shopping. Therefore, the Bureau does not believe it is 
appropriate to permit fees in the zero percent tolerance category to 
increase so long as the aggregate amount of these fees does not 
increase. Further, for the same reasons, the Bureau does not believe 
other alternative fundamental changes raised in the comments, such as 
setting limitations on cost increases based on the materiality of the 
change, changing the zero percent tolerance rule to a five percent 
tolerance rule, or limiting the application of the tolerance rules to 
loan costs, are appropriate.
    Legal authority. The Bureau is adopting in this final rule the 
expansion of the zero percent tolerance category generally as proposed, 
with the modifications described below, 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.
    For the reasons discussed above, the Bureau believes that expanding 
the zero percent tolerance category of settlement charges to include 
affiliate charges and charges of lender-required service providers is 
consistent with TILA's purpose in that it will ensure that the cost 
estimates are more meaningful and better inform consumers of the actual 
costs associated with obtaining credit. The Bureau also believes that 
this final rule will effectuate the statute's goals by ensuring more 
reliable estimates, which will increase the level of shopping for 
mortgage loans and foster honest competition for prospective consumers 
among financial institutions. The Bureau further believes that this 
final rule will prevent potential circumvention or evasion of TILA by 
penalizing underestimation to gain a competitive advantage in 
situations where TILA requires good faith.
    As noted above, 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. The Bureau has considered the purposes for which it may 
exercise its authority under TILA section 121(d) and, based on that 
review and for reasons discussed above, the Bureau believes that the 
tolerance categories adopted in this final rule are appropriate, will 
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, and prevent misleading 
disclosures. Additionally, the Bureau believes that the final rule is 
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 costs 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). Based on that review and for reasons discussed 
above, the Bureau believes that the 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. The Bureau has considered the purposes for which it may exercise 
its authority under RESPA section 19(a). Based on that review and for 
reasons discussed above, the Bureau believes that the final rule is 
appropriate. It will 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. Contrary to assertions 
made by certain commenters about the Bureau's authority to impose zero 
percent tolerance on any settlement charge, the Bureau's authority is 
broad and, as noted above, resides in a number of statutes.
19(e)(3)(i) General Rule
    As discussed above, Regulation X currently provides that the 
amounts imposed for certain settlement services and transfer taxes may 
not exceed the amounts included on the RESPA GFE, unless certain 
exceptions are met. The items included under this category are 
generally limited to charges paid to creditors and brokers, in addition 
to transfer taxes. The Bureau proposed to incorporate the zero percent 
tolerance rule in Regulation X in proposed Sec.  1026.19(e)(3)(i). 
Further, as discussed above in the general section-by-section analysis 
of Sec.  1026.19(e)(3), the Bureau proposed to expand the scope of the 
zero percent tolerance category to include fees paid to affiliates and 
lender-required service providers. Legitimate cost revisions when an 
unexpected event occurs, such as a changed circumstance or a change

[[Page 79823]]

requested by the consumer, would permit fees subject to the zero 
percent tolerance to increase from their initial estimates.
    Proposed Sec.  1026.19(e)(3)(i) would have provided that the 
charges paid by or imposed on the consumer may not exceed the estimated 
amounts of those charges required to be disclosed under Sec.  
1026.19(e)(1)(i), subject to permissible reasons for revision provided 
in Sec.  1026.19(e)(3)(iv), and except as otherwise provided under 
Sec.  1026.19(e)(3)(ii) and (iii). Proposed comment 19(e)(3)(i)-1 would 
have explained that Sec.  1026.19(e)(3)(i) imposes the 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 proposed Sec.  
1026.19(e)(3)(ii) and (e)(3)(iii) would have provided exceptions to the 
general rule for certain types of charges, the comment would have 
explained that those exceptions generally would 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 would have provided 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 proposed comment would have clarified that fees are not considered 
``paid to'' a person if the person does not retain the funds and would 
have provided examples. Proposed comment 19(e)(3)(i)-3 referred to 
other provisions addressing the distinction between transfer taxes and 
recording fees.
    Proposed comment 19(e)(3)(i)-4 would have provided examples 
illustrating the good faith requirement in the context of specific 
credits, rebates, or reimbursements. The proposed comment would have 
clarified that 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 
would not be 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 reduced the cost to the consumer. The 
proposed comment would have further clarified that specific credits, 
rebates, or reimbursements could 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 would have illustrated these 
requirements with examples.
    Proposed comment 19(e)(3)(i)-5 would have clarified how to 
determine ``good faith'' in the context of lender credits. The proposed 
comment would have explained that the disclosure of ``lender credits,'' 
as identified in Sec.  1026.37(g)(6)(ii), is required by Sec.  
1026.19(e)(1)(i). The proposed comment would have also explained that 
lender credits 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). The proposed comment would have further 
clarified that these non-specific credits are negative charges to the 
consumer--as the lender credit decreases the overall cost to the 
consumer increases. Thus, under the proposal 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) would have 
been an increased charge to the consumer for purposes of determining 
good faith under Sec.  1026.19(e)(3)(i). The proposed comments would 
have illustrated these requirements with examples. The proposed comment 
would have also included a reference to 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.
Comments
    The Bureau received a number of comments on its proposal to 
incorporate aspects of the current zero percent tolerance under 
Regulation X in this final rule. The comments addressed the Bureau's 
proposal to keep transfer taxes in the settlement costs subject to the 
zero percent tolerance category, the treatment of ``no cost'' loans, 
the treatment of lender credits and specific credits, and the 
definition of ``affiliate.''
    A number of industry commenters asserted that transfer taxes should 
not be subject to a zero percent tolerance. The commenters included 
industry trade associations representing banks and mortgage lenders, 
individual large banks, community banks, mortgage lenders, mortgage 
brokers, a rural creditor, and settlement and title agents. The 
commenters asserted that transfer taxes are neither paid to, nor set 
by, the creditor. The commenters asserted that the amounts charged for 
transfer taxes vary among different State and local jurisdictions, 
provisions of the real estate purchase and sale contract, and 
transaction-specific factors, like changes in the loan amount, and 
locality-specific factors, such as local law or custom that determines 
if the seller or consumer is ultimately responsible for paying the 
transfer tax.
    Some industry commenters, including industry trade associations 
representing banks and mortgage lenders, asserted that ``no cost'' 
loans should not be subject to tolerance rules because the creditor 
finances the consumer's closing costs. Industry commenters also 
expressed confusion about the treatment of lender and specific credits. 
They sought various clarifications about specific credits, including 
how to determine when a creditor has committed a tolerance violation 
regarding specific credits, how to disclose these credits on the Loan 
Estimate, and whether changed circumstances would apply to lender 
credits and specific credits.
    A State manufactured housing trade association sought an exemption 
that would permit creditors to decrease the amount of lender credits 
actually provided to the consumer at closing without causing a 
tolerance violation in transactions subject to the Federal Housing 
Administration's streamlined refinancing program and other similar 
programs. The trade association commenter explained that the program 
guidelines limit the amount of cash a creditor can pay to the consumer 
at closing. Accordingly, the creditor may need to reduce the amount of 
the actual lender credit at the real estate closing to remain in 
compliance with program guidelines. The trade association commenter 
stated that if the reduction was considered a tolerance violation, 
creditors may respond by reducing the number of rate lock offers on 
these transactions.
    Some commenters, including an individual title company commenter, 
suggested that the Bureau define the term ``affiliate.'' Lastly, the 
Bureau received requests from some title company commenters that sought 
an exemption from the proposed general rule with respect to the 
treatment of payments that affiliated title companies receive at 
closing that are disbursed to service providers not affiliated with the 
lender as payment for services performed by the unaffiliated service 
providers on behalf of the affiliated title companies.

[[Page 79824]]

Final Rule
    The Bureau has considered the comments, and is adopting Sec.  
1026.19(e)(3)(i) substantially as proposed. Section 1026.19(e)(3)(i) 
provides that an estimated closing cost disclosed pursuant to Sec.  
1026.19(e) is in good faith if the charge paid by or imposed on the 
consumer does not exceed the amount originally disclosed under Sec.  
1026.19(e)(1)(i), subject to permissible reasons for revision permitted 
under Sec.  1026.19(e)(3)(iv), such as a changed circumstance or a 
borrower-requested change, and except as otherwise provided under Sec.  
1026.19(e)(3)(ii) and (iii).
    The adoption of the final rule means that for purposes of 
conducting the good faith analysis, the creditor compares the actual 
charge paid by or imposed on the consumer to the estimated amount 
disclosed in the original Loan Estimate. If the originally estimated 
amount changed due to one of the valid reasons for revision set forth 
in this final rule, e.g., a changed circumstance or borrower-requested 
change, the creditor may compare the actual charge paid by or imposed 
on the consumer with the revised estimated amount, provided that the 
creditor provides the revised amount pursuant to the redisclosure 
requirements in this final rule, discussed in greater detail below in 
the section-by-section analysis of Sec.  1026.19(e)(4). The Bureau has 
adjusted the text of Sec.  1026.19(e)(3)(i) to harmonize the regulatory 
text with the related commentary.
    Comment 19(e)(3)(i)-1 is adopted substantially as proposed, with 
minor changes to enhance clarity. The Bureau has added a new comment 
19(e)(3)(i)-2 to explain that for purposes of Sec.  1026.19(e), a 
charge ``paid by or imposed on the consumer'' refers to the final 
amount for the charge paid by or imposed on the consumer at 
consummation or settlement, whichever is later. As discussed in greater 
detail in the section-by-section discussion of Sec.  1026.19(f)(1)(ii), 
some industry commenters expressed concern about the ability of 
creditors to determine the final cost for certain settlement services 
three business days before consummation, because in some jurisdictions, 
settlement does not occur until after consummation, and costs could 
change between consummation and settlement. The Bureau understands that 
recording fees, which are subject to the ten percent tolerance 
category, are an example of such costs that could change between 
consummation and settlement.
    The Bureau is concerned that by not clarifying what a charge ``paid 
by or imposed upon the consumer'' means, the proposed rule would not 
have adequately accounted for changes in actual closing costs in 
jurisdictions where consummation and settlement occur at different 
times, which in turn, could complicate the creditor's good faith 
analysis under Sec.  1026.19(e)(3)(i) and (ii). Accordingly, the Bureau 
believes that compliance will be facilitated if the Bureau clarifies 
that for purposes of Sec.  1026.19(e)(3), a charge ``paid by or imposed 
on the consumer'' refers to the final amount for the charge paid by or 
imposed on the consumer at consummation or settlement, whichever is 
later. The comment further explains that ``consummation'' is defined in 
Sec.  1026.2(a)(13), and that ``settlement'' is defined in Regulation 
X, 12 CFR 1024.2(b). The Bureau notes that current Regulation Z refers 
to ``settlement'' with respect to the determination of whether a 
finance charge is a prepaid finance charge under Sec.  1026.2(a)(23) 
(see comment 2(a)(23)-2.ii) and the timing of corrected disclosures for 
transactions secured by a consumer's interest in a timeshare plan under 
Sec.  1026.19(a)(5)(iii) (see comment 19(a)(5)(iii)-1). Comment 
19(e)(3)(i)-2 also provides illustrative examples. The Bureau further 
notes that final Sec.  1026.19(f)(2)(iii) generally requires the 
creditor to provide a revised Closing Disclosure after consummation if 
the Closing Disclosures provided pursuant to Sec.  1026.19(f)(1)(i) 
becomes inaccurate after consummation.
    The Bureau is making a modification to proposed comment 
19(e)(3)(i)-2, renumbered as comment 19(e)(3)(i)-3, to facilitate 
compliance. Proposed comment 19(e)(3)(i)-2 did not include an 
illustration of whether transfer taxes and recording fees are 
considered ``paid to'' the creditor for purposes of Sec.  1026.19(e). 
As adopted, comment 19(e)(3)(i)-2 provides such an illustration. The 
Bureau is finalizing proposed comment 19(e)(3)(i)-3, renumbered as 
comment 19(e)(3)(i)-4, substantially as proposed to streamline the 
references to commentary to Sec.  1026.37(g)(1) that discuss the 
differences between transfer taxes and recording fees.
    The Bureau is not finalizing proposed comments 19(e)(3)(i)-4 and -5 
on the treatment of lender credits and specific credits in 
consideration of the comments received. Instead, the Bureau is adopting 
new comment 19(e)(3)(i)-5 to clarify that the final rule is 
incorporating the guidance on lender credits under current Regulation 
X. The Bureau acknowledges industry's concern that the Loan Estimate 
does not permit lender credits and specific credits to be separately 
disclosed. But under current Regulation X, lender credits and specific 
credits are not separately disclosed on the RESPA GFE. Accordingly, the 
Bureau believes that maintaining the status quo on the treatment of 
lender credits and specific credits will reduce industry confusion and 
facilitate implementation of this final rule.
    New comment 19(e)(3)(i)-5 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), and that ``lender credits,'' as identified in 
Sec.  1026.37(g)(6)(ii), represents the sum of non-specific lender 
credits and specific lender credits. Non-specific lender credits are 
generalized payments from the creditor to the consumer that do not pay 
for a particular fee. Specific lender credits are specific payments, 
such as a credit, rebate, or reimbursement, from a creditor to the 
consumer to pay for a specific fee. Non-specific lender credits and 
specific lender credits are negative charges to the consumer. The 
actual total amount of lender credits, whether specific or non-
specific, provided by the creditor that is less than the estimated 
``lender credits'' identified in Sec.  1026.37(g)(6)(ii) and disclosed 
pursuant to Sec.  1026.19(e) is an increased charge to the consumer for 
purposes of determining good faith under Sec.  1026.19(e)(3)(i). 
Comment 19(e)(3)(i)-5 also provides illustrations of these 
requirements. The comment also references 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. With respect to whether a 
changed circumstance or borrower-requested change can apply to the 
revision of lender credits, the Bureau believes that a changed 
circumstance or borrower-requested change can decrease such credits, 
provided that all of the requirements of Sec.  1026.19(e)(3)(iv), 
discussed below, are satisfied.
    The Bureau is also adding new comment 19(e)(3)(i)-6 to provide 
guidance on how to perform the good faith analysis required by Sec.  
1026.19(e)(3)(i) with respect to lender credits. New comment 
19(e)(3)(i)-6 explains that for purposes of conducting the good faith 
analysis required under Sec.  1026.19(e)(3)(i) for lender credits, the 
total amount of lender credits, whether specific or non-specific, 
actually provided to the consumer is compared to the amount of ``lender 
credits'' identified in Sec.  1026.37(g)(6)(ii). The comment also 
explains that the total amount of lender credits actually

[[Page 79825]]

provided to the consumer for purposes of the good faith analysis is 
determined by aggregating the amount of the ``lender credits'' 
identified in Sec.  1026.38(h)(3) with the amounts paid by the creditor 
that are attributable to a specific loan cost or other cost, disclosed 
pursuant to Sec.  1026.38(f) and (g). As clarified in final comment 
19(e)(3)(i)-6, a creditor uses the actual total amount of lender 
credits, whether specific or non-specific, for purposes of the good 
faith analysis under Sec.  1026.19(e)(3)(i).
    However, with respect to the request that the Bureau provide a 
specific exemption that would allow the amount of lender credits to 
decrease so that the creditor would be able to stay within guidelines 
under streamlined refinancing programs that limit the amount of cash 
that the creditor could pay the consumer at closing, the Bureau 
declines. Lenders are not permitted to reduce the lender credits they 
provide to the borrower under current Regulation X. See HUD RESPA FAQs 
p. 27,  4 (``GFE--Block 2''). Under current Regulation X, the 
loan originator may only apply the amount of the excess lender credits 
to additional closing costs previously not anticipated to be included 
in the loan, apply the excess to a principal reduction to the 
outstanding balance of the loan, pay the consumer the excess in cash, 
or reduce the interest rate and the credit accordingly. Creditors will 
be able to take the same actions with respect to lender creditors in 
streamlined refinancing programs under this final rule.
    The Bureau is also adding commentary to Sec.  1026.19(e)(3)(i) to 
address a comment the Bureau received from a document preparation 
company about the proposed requirements set forth in proposed Sec.  
1026.37(o)(4) and Sec.  1026.38(t)(4) to disclose rounded numbers for 
certain charges on the Loan Estimate and Closing Disclosure. The 
commenter requested guidance on how numbers required to be rounded on 
the Loan Estimate pursuant to Sec. Sec.  1026.37(o)(4) and 
1026.38(t)(4) would be compared to the Closing Disclosure for the 
purposes of the tolerances provided in Sec.  1026.19(f)(1). New comment 
19(e)(3)(i)-7 explains that although Sec. Sec.  1026.37(o)(4) and 
1026.38(t)(4) require that the dollar amounts of certain charges 
disclosed on the Loan Estimate and Closing Disclosure, respectively, be 
rounded to the nearest whole dollar, to conduct the good faith analysis 
under Sec.  1026.19(e)(3)(i) and (ii), the creditor should use 
unrounded numbers to compare the actual charge paid by or imposed on 
the consumer for a settlement service with the estimated cost of the 
service.
    The Bureau does not believe that it would be appropriate to exempt 
``no cost'' loans from Sec.  1026.19(e)(3)(i). ``No cost'' loans must 
comply with the current limitations on settlement charge increases set 
forth in Regulation X. Additionally, the text of Sec.  1026.19(e)(3)(i) 
indicates that the general rule applies to both charges that are paid 
by the consumer, and charges that are imposed on the consumer. In a 
``no cost'' loan transaction, closing costs may not be paid by the 
consumer because they are financed by the creditor, but are nonetheless 
imposed on the consumer. The Bureau also believes that consumers should 
receive reliable cost estimates for ``no cost'' loans so the consumer 
could use the Loan Estimate to compare such loans, where the closing 
costs are financed, with loans that do not finance closing costs.
    The Bureau also declines to modify the rule to provide an exemption 
for payments that affiliated title companies receive at closing that 
are then disbursed to unaffiliated service providers as payment for 
services performed by the unaffiliated service providers on behalf of 
the affiliated title companies. If a lender requires a consumer to use 
an affiliated company for title services, then the fees the consumer 
pays to the affiliate company should be subject to zero percent 
tolerance, even if the affiliate uses vendors to perform the title 
services.
    The Bureau has also considered the comments about the application 
of the zero percent tolerance rule to transfer taxes. The Bureau 
believes that a creditor should be able to obtain information about 
transfer taxes with considerable precision based on its knowledge of 
the real estate settlement process and resources it has available, such 
as software that permits a creditor to estimate transfer taxes with 
considerable precision, even though it is originating a loan in a 
geographical area with which it is unfamiliar. In addition, the amount 
of transfer taxes could be obtained through other sources, such as 
directly from the government authority of the jurisdiction where the 
transaction is taking place. Further, because the final rule reflects 
the current rule, the Bureau believes that creditors have already 
adapted to this requirement. Further, the adoption of Sec.  
1026.19(e)(3)(iv) in this final rule, as discussed below, offers a 
level of flexibility for the creditor to make adjustments to its 
estimate for transfer taxes similar to the current rule under 
Regulation X if the amount of transfer taxes increases because of a 
changed circumstance or borrower-requested change. Lastly, as noted 
above, the Bureau has added a comment to Sec.  1026.19(e) to define 
``affiliate'' for purposes of Sec.  1026.19(e) by explaining that it 
has the same meaning as in Sec.  1026.32(b)(2) in current subpart E of 
Regulation Z.\207\
---------------------------------------------------------------------------

    \207\ Current Sec.  1026.32(b)(2), which sets the definition of 
``affiliate'' in subpart E of Regulation Z, will be renumbered as 
Sec.  1026.32(b)(5) when the Bureau's 2013 ATR Final Rule becomes 
effective on January 10, 2014.
---------------------------------------------------------------------------

19(e)(3)(ii) Limited Increases Permitted for Certain Charges
    Proposed Sec.  1026.19(e)(3)(ii) would have permitted the sum of 
recording fees and all charges for non-affiliated third-party services 
for which the creditor permits the consumer to shop for a provider 
other than those identified by the creditor, to increase by ten percent 
for the purposes of determining good faith. Proposed comment 
19(e)(3)(ii)-1 would have explained 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 ten percent. The proposed comment would also have explained that 
Sec.  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 would have clarified 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 ten percent, even if a particular charge does not increase by 
more than ten percent. The proposed comment would have also clarified 
that Sec.  1026.19(e)(3)(ii) provides flexibility in disclosing 
individual fees by focusing on aggregate amounts, and would have 
provided illustrative examples. Proposed comment 19(e)(3)(ii)-3 would 
have discussed the determination of good 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 would have explained that 
Sec.  1026.19(e)(3)(ii) provides that if the

[[Page 79826]]

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). The proposed comment also would have 
illustrated the requirement with examples.
    Proposed comment 19(e)(3)(ii)-4 would have discussed how the good 
faith determination requirements apply to recording fees. The proposed 
comment would have explained 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 
proposed comment would have also explained that 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, the 
proposed comment would have stated that estimates of recording fees 
would only have needed to satisfy the condition specified in Sec.  
1026.19(e)(3)(ii)(A) (i.e., that the aggregate amount increased by no 
more than ten percent) to be subject to the requirements of Sec.  
1026.19(e)(3)(ii).
Comments
    Commenters expressed concern that fees subject to the ten percent 
tolerance would be restricted to fees paid to non-affiliates for 
services for which creditors permit consumers to shop. A number of 
commenters opposed the Bureau's proposal to keep recording fees in the 
ten percent tolerance category. A number of commenters sought various 
clarifications of proposed Sec.  1026.19(e)(3)(ii).
    An industry trade association representing mortgage lenders 
asserted that whether a consumer is able to shop beyond the written 
list of providers for a settlement service should not be a condition 
that determines whether the ten percent tolerance applies to a fee 
charged by a settlement service provider. An industry trade association 
representing banks asserted that the ten percent tolerance rule should 
apply to lender-required service providers and that no tolerance rules 
should apply to fees paid to settlement service providers selected by 
the consumer without, or regardless of, a creditor's recommendation 
because the creditor has no knowledge of or control over the pricing 
set by such providers.
    The commenters opposing the application of the ten percent 
tolerance to recording fees included commenters that opposed the 
application of the zero percent tolerance to transfer taxes, and many 
based their opposition on similar arguments they made for transfer 
taxes. A large bank commenter observed that recording fees can increase 
shortly before, or even at, closing. A settlement agent commenter 
suggested that applying the ten percent tolerance rule to recording 
charges will delay closings and harm consumers. But a law firm employee 
commenter from a State that requires attorneys to conduct real estate 
closings suggested that the ten percent tolerance rule would not 
negatively impact the timeliness of closings.
    Industry trade association commenters representing banks and 
mortgage lenders observed that, in some cases, the creditor may 
disclose an amount for a settlement service on the original Loan 
Estimate but later on, the service is no longer required, due to 
unexpected events. The commenters asserted that the final rule should 
clarify that the estimated amount for that settlement service disclosed 
on the Loan Estimate be included in the sum of all estimated amounts 
for charges subject to Sec.  1026.19(e)(3)(ii) for purposes of the good 
faith analysis under Sec.  1026.19(e)(3)(ii), because the creditor 
could not have predicted the occurrence of the event that resulted in 
the nonperformance of a lender-required service.
    A large bank commenter requested the Bureau confirm that the ten 
percent tolerance applies where the creditor permits the consumer to 
shop for a settlement service, but the consumer still asks the creditor 
to select the settlement service provider. The large bank commenter 
also requested clarification on what tolerance rule applies when the 
consumer asks the creditor to select the settlement service provider, 
even though the creditor permits the consumer to shop pursuant to Sec.  
1026.19(e)(1)(iv)(A), and the creditor selects a non-affiliate that the 
creditor did not disclose to the consumer on the list required by Sec.  
1026.19(e)(1)(iv)(C).
Final Rule
    The Bureau has considered the comments and is adopting Sec.  
1026.19(e)(3)(ii) with minor revisions to enhance clarity. Section 
1026.19(e)(3)(ii) provides that an estimate of a charge for a third-
party service performed by an unaffiliated settlement service provider 
or a recording fee is in good faith if the aggregate amount of such 
charges paid by or imposed on the consumer does not exceed the 
aggregate amount of such charges disclosed under Sec.  1026.19(e)(1)(i) 
by more than 10 percent, provided that the creditor permits the 
consumer to shop for the third-party service, consistent with Sec.  
1026.19(e)(1)(vi). Comments 19(e)(3)(ii)-1 through -4 are adopted 
substantially as proposed.
    With respect to applying the ten percent tolerance rule to fees 
paid to service providers recommended by the creditor, the Bureau 
believes there needs to be a determination, pursuant to Sec.  
1026.19(e)(3)(ii), whether the fee is paid to an unaffiliated third 
party and whether the creditor permitted the consumer to shop for the 
service. The Bureau recognizes that some consumers may ask their 
creditor or mortgage broker for recommendations when selecting 
settlement service providers; however, the Bureau is concerned that 
some creditors and mortgage brokers may try to require the consumer to 
select certain providers while appearing to permit the consumer to shop 
for a provider. If the creditor or mortgage broker engages in this 
practice, the Bureau believes that it may raise similar consumer 
protection issues associated with creditors developing ``closed lists'' 
of ``preferred providers,'' discussed above in the general section-by-
section analysis of Sec.  1026.19(e)(3).
    The Bureau declines to incorporate in final Sec.  1026.19(e)(3)(ii) 
some commenters' suggestion that the estimated amount of a settlement 
service be included in the amount of charges used to conduct the good 
faith analysis required by Sec.  1026.19(e)(3)(ii), even when the 
service was not performed. Current Regulation X provides that if a 
service that was listed on the RESPA GFE was not obtained in connection 
with the transaction, then no amount for that service should be 
reflected on the RESPA settlement statement, and the estimated amount 
for that charge on the RESPA GFE should not be included in any amount 
used to determine whether a tolerance violation has occurred. 12 CFR 
part 1024, app. C. HUD explained that the reason for adopting this rule 
is that allowing loan originators to include in the good faith analysis 
charges from the RESPA GFE for settlement services that were not 
purchased could both induce loan originators to discourage consumers 
from purchasing settlement services in order to increase the cushion 
they have under the ten percent tolerance rule and to disclose on the 
RESPA GFE services that the consumer will not need in the transaction. 
76 FR 40612, 40614 (July 11, 2011). The final rule largely mirrors 
these requirements in that if the creditor discloses a cost estimate 
for a settlement service on the Loan Estimate, but the

[[Page 79827]]

settlement service was not obtained, the creditor cannot include the 
fee estimate in the estimated aggregate amount for purposes of 
conducting the good faith analysis under Sec.  1026.19(e)(3)(ii). To 
facilitate compliance, the Bureau is adopting new comment 19(e)(3)(ii)-
5. Comment 19(e)(3)(ii)-5 explains that in calculating the aggregate 
amount of estimated charges for purposes of conducting the good faith 
analysis pursuant to Sec.  1026.19(e)(3)(ii), the aggregate amount of 
estimated charges must reflect charges for services that are actually 
performed, and provides an illustrative example. The Bureau believes 
that the ten percent tolerance rule should continue to apply to 
recording fees. Because this is the current rule under Regulation X, 
the Bureau believes that creditors have already adapted. The comments 
also suggested that there was a concern that because recording fees can 
increase shortly before closing, closing can be delayed if a revised 
Loan Estimate must be provided. But pursuant to Sec.  
1026.19(e)(4)(ii), discussed below, a creditor complies with Sec.  
1026.19(e)(4) by listing the revised recording fee in the Closing 
Disclosure.
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 proposed Sec.  1026.19(e)(3)(iii), which would have provided 
that estimates of the following charges 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: 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). The Bureau 
reasoned that: (1) certain types of estimates, such as those for 
property insurance premiums, may change significantly after the 
original disclosures required under Sec.  1026.19(e)(1)(i) are 
provided; and (2) the existing Regulation X rule would be improved and 
compliance facilitated by specifically identifying which items are 
included in this category.
    Proposed comments 19(e)(3)(iii)-1, -2, and -3 would have clarified 
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 
proposed comments would have clarified 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 stated in the 
proposal that it was concerned that unscrupulous creditors could 
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. The Bureau also 
stated in the proposal its belief that this concern must be balanced 
against the fact that some items may change significantly and 
legitimately prior to consummation. Further, the Bureau stated that 
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 would have struck a balance between 
these considerations by imposing a general good faith requirement.
    Accordingly, proposed comment 19(e)(3)(iii)-1 would have explained 
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. 
Proposed comment 19(e)(3)(iii)-1 would have explained that differences 
may exist between the amounts of charges subject to Sec.  
1026.19(e)(3)(iii) disclosed pursuant to Sec.  1026.19(e)(1)(i) and the 
amounts of such charges paid by or imposed upon the consumer, 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. The 
proposed comment would have illustrated the requirement with an 
example.
    Proposed comment 19(e)(3)(iii)-2 would have discussed the good 
faith requirement for required services chosen by the consumer that the 
consumer has been permitted to shop for, consistent with Sec.  
1026.19(e)(1)(vi)(A). It would have explained that, if a service is 
required by the creditor, and the creditor permits the consumer to: 
shop for that service, provides the written list of providers, 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 their original estimates.
    Proposed comment 19(e)(3)(iii)-2 would have further clarified that 
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 and would have 
illustrated the requirement with an example. The proposed comment would 
have also clarified 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), then 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 would have clarified the good 
faith requirement for optional settlement services (i.e., service that 
are not lender-required) chosen by the consumer. It would have 
explained that 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 and 
would have illustrated the requirement with an example. Proposed 
comment 19(e)(3)(iii)-3 would have also explained that 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, 
and would have illustrated the requirement with an example.
Comments
    The Bureau received a number of comments seeking various 
adjustments and clarifications. Although an industry trade association 
representing affiliated real estate businesses expressed support for 
the inclusion of property insurance premiums in the category of charges 
not subject to a tolerance, even if the insurance provider is a lender 
affiliate, at least one industry commenter sought clarification on 
whether property insurance premiums would have been subject to 
tolerances. The commenter asserted that property insurance premiums 
should not be subject to

[[Page 79828]]

limitations on increases because there are too many variables that 
ultimately determine the premium amount due at closing on a consumer's 
property insurance policy.
    Some industry commenters asked the Bureau to clarify that property 
taxes, insurance premiums and homeowner's association, condominium, and 
cooperative fees are included in the costs subject to proposed Sec.  
1026.19(e)(3)(iii), regardless of whether these costs would have been 
placed into an escrow or similar account. An industry trade association 
representing community associations stated their belief that the good 
faith requirement would impose a burden on its members. The commenter 
expressed concern that the final rule would succeed in encouraging 
consumer shopping, which in turn would increase the number of 
information requests to community associations to which they must 
respond. The commenter was also concerned that the definitions of 
application and business day with respect to the original Loan Estimate 
delivery requirement would impose additional burden on community 
associations by shortening the amount of time community associations 
would have to respond to creditor inquiries. The commenter further 
expressed concern that under State consumer protection laws, community 
associations may be held liable if there is a difference between the 
estimated cost of community association assessments and the actual cost 
of the assessments. The commenter asserted that the Bureau should 
encourage creditors to use information about association assessments 
provided by either the seller or the buyer when preparing the Loan 
Estimate.
    State bar associations and individual law firm commenters from 
States that require attorneys to conduct real estate closings requested 
that the Bureau include attorney and title-related fees in final Sec.  
1026.19(e)(3)(iii). They asserted that it is inappropriate to subject 
these fees to limitations on increases because the provision of legal 
services is not a commodity and thus, cannot be priced as such. 
Further, the commenters asserted that price limitations are not 
necessary because of existing competitive pressures in the market. They 
also expressed concern that applying tolerance rules to their fees 
would incent creditors to require consumers to use certain lender-
selected providers to control closing costs.
    Two national consumer advocacy groups questioned the inclusion of 
prepaid interest in proposed Sec.  1026.19(e)(3)(iii). The commenters 
asserted that the creditor should not have any difficulty calculating 
prepaid interest if the creditor knows the closing date and the loan's 
interest rate. The commenters asserted creditors should be encouraged 
to provide new, timely disclosures, rather being permitted to provide 
misleading disclosures of costs that are known to the creditor. 
Industry trade associations representing banks and mortgage lenders 
asserted that the Bureau should require creditors to list the maximum 
possible amount of prepaid interest that could be paid by or imposed on 
the consumer on the original Loan Estimate because it will enhance the 
ability of the consumer to shop and compare loans. It appears that the 
commenters are concerned that without imposing this requirement, some 
creditors may underestimate prepaid interest.
    These trade association commenters also requested that the Bureau 
confirm that owner's title insurance and other charges for services 
that the creditor does not require are not subject to the tolerance 
rules, even if they are provided by an affiliate of the creditor. A 
settlement agent commenter also asserted that the good faith 
requirement should not apply to costs that the consumer incur for 
settlement services not required by the creditor. A community bank 
commenter stated that it strongly recommended that settlement provider 
fees should not be subject to tolerances if the provider of that 
service was not listed on the written list of providers the creditor 
provides to the consumer. Finally, a law firm commenter and a State 
association representing land title agents asserted that the Bureau 
appears to have eliminated the category of settlement service fees not 
subject to any tolerance that exists in current Regulation X.
Final Rule
    The Bureau has considered the comments and is adopting Sec.  
1026.19(e)(3)(iii) and comments 19(e)(3)(iii)-1 through -3 
substantially as proposed, with revisions to enhance clarity with 
respect to determining good faith under Sec.  1026.19(e)(3)(iii). The 
final rule also clarifies the treatment of optional settlement services 
(i.e., services not required by the lender). See Sec.  
1026.19(e)(3)(iii)(E). The Bureau believes that Sec.  
1026.19(e)(3)(iii) strikes the appropriate balance between the risk 
that some creditors may intentionally engage in bait and switch 
tactics, against the fact that some items may change significantly and 
legitimately prior to consummation. For example, the Bureau believes 
that prepaid interest is one such item and should be included in Sec.  
1026.19(e)(3)(iii). The Bureau believes that the risk that creditors 
may intentionally manipulate the disclosure of prepaid interest is low, 
compared to fees in the zero or ten percent tolerance categories, and 
the good faith requirement in Sec.  1026.19(e)(3)(iii) will deter 
intentional underestimation of prepaid interest. On a related issue, 
the argument made by some commenters that creditors should be required 
to disclose the maximum possible amount of prepaid interest that the 
consumer may pay at closing on the original Loan Estimate is 
inconsistent with the good faith requirement in the final rule.
    The Bureau does not believe that charges related to owner's title 
insurance should be included in the charges not subject to tolerances. 
Under current Regulation X, such fees are subject to the ten percent 
tolerance rule. The Bureau believes that changing the current rule 
weakens consumer protection. The Bureau also believes that attorney 
fees for conducting closings and title-related services in States that 
require attorneys to conduct real estate closings should be subject to 
a tolerance. In these States, the attorney is performing services that 
a settlement agent would provide, and thus, the attorney fees should be 
subject to the same tolerance rules as settlement agent charges. 
Additionally, the Bureau believes that the fees for conducting closings 
can be estimated with considerable accuracy at the time the Loan 
Estimate is provided. Further, these fees can be adjusted in cases of 
changed circumstances or borrower-requested changes.
    With respect to the concern that creditors may require consumers to 
use certain providers to control costs if attorney fees are subject to 
the tolerance rules, the Bureau has addressed the potential impact of 
the tolerance rules on competition in the general section-by-section 
analysis of Sec.  1026.19(e)(3), and has concluded that this final rule 
may actually enhance competition in the market for settlement service 
providers. In response to the argument that price limitations on 
attorney fees are not necessary because of market forces, the Bureau 
notes that the final rule does not limit what an attorney may charge 
for conducting settlement services. The only limitation these rules set 
on attorney fees for conducting closings and title-related services is 
the limitation on the amount by which the actual fee paid by or imposed 
on the consumer for such services may exceed the estimated fee for such 
services disclosed on the Loan Estimate. Further, as discussed above, 
under the final rule estimated closing costs will be able to be

[[Page 79829]]

revised to reflect cost increases due to a changed circumstance or 
borrower-requested changes. In this regard rule mirrors current 
Regulation X.
    The Bureau does not believe that optional services chosen by the 
consumer should be exempt from the good faith requirement. As discussed 
above, both RESPA and TILA establish good faith requirements related to 
closing costs, which includes optional services chosen by the consumer. 
In response to concerns raised by the industry trade association 
representing community associations, the Bureau has adjusted comment 
19(e)(3)(iii)-1 to clarify that the ``reasonably available'' standard 
in Sec.  1026.19(e)(3)(iii) means that the estimate for a charge 
subject to Sec.  1026.19(e)(3)(iii) was obtained by the creditor 
through due diligence. As applied to community association assessments, 
this means that the creditor normally may rely on the representations 
of the consumer or seller. The Bureau notes that this ``reasonably 
available'' standard is the same ``reasonably available'' standard for 
estimated disclosures set forth in comment 17(c)(2)(i)-1 of Regulation 
Z, and thus, final comment 19(e)(3)(iii)-1 contains a reference to 
comment 17(c)(2)(i)-1.
    Finally, as noted above, a number of the commenters sought 
clarification on various other aspects of the proposal. As is currently 
the case under Regulation X, final Sec.  1026.19(e)(3)(iii) provides 
that property insurance premiums are included in the category of 
settlement charges not subject to a tolerance, whether or not the 
insurance provider is a lender affiliate. The final rule also mirrors 
current Regulation X in that property insurance premiums, property 
taxes, homeowner's association dues, condominium fees, and cooperative 
fees are subject to tolerances whether or not they are placed into an 
escrow, impound, reserve, or similar account.
    On the question of whether proposed Sec.  1026.19(e)(3)(iii) would 
have included fees paid to service providers that were not listed on 
the written list of service providers set forth in Sec.  
1026.19(e)(1)(vi)(C), comment 19(e)(3)(iii)-2 provides guidance on this 
question. With respect to the question whether proposed Sec.  
1026.19(e)(3)(iii) would have included fees paid to lender affiliates 
for an optional settlement service, charges for third-party services 
not required by the creditor (other than owner's title insurance) are 
not subject to a tolerance category, even if a lender affiliate 
provides them. The Bureau recognizes that this position may appear to 
be at odds with the general treatment of affiliate fees. However, the 
Bureau believes that the optional nature of such services means that 
consumers may decide not to purchase these services later in the 
origination process, or choose a provider that offers a better price 
for the service. The Bureau believes that these factors distinguish 
fees paid to affiliates for optional services from fees paid to 
affiliates for lender-required services. Accordingly, the Bureau 
believes that it is not necessary to subject fees paid to affiliates 
for optional services to zero tolerance. However, the Bureau expects to 
closely monitor the implementation of this final rule, including Sec.  
1026.19(e).
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. The 
Bureau proposed to incorporate Sec.  1024.7(f) in Sec.  
1026.19(e)(3)(iv), which would have provided that, for purposes of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), 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 would have clarified the general requirement of Sec.  
1026.19(e)(3)(iv). The Bureau stated in the proposal that it agreed 
that there would be certain situations that could legitimately cause 
increases over the amounts originally estimated, and that the 
regulations should provide a clear mechanism for providing revised 
estimates in good faith. Consistent with current Regulation X,\208\ 
proposed comment 19(e)(3)(iv)-2 would have clarified 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 
would have provided an illustrative example of this requirement. 
Proposed comment 19(e)(3)(iv)-3 would have clarified 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 stated in the proposal that it 
believed that this requirement would have been encompassed within the 
requirements the Bureau proposed in Sec.  1026.25 with respect to 
recordkeeping. The proposed comment would have clarified that the 
creditors must retain records demonstrating compliance with the 
requirements of Sec.  1026.19(e) in order to comply with Sec.  1026.25. 
The proposed comment would have also provided illustrative examples.
---------------------------------------------------------------------------

    \208\ See Sec.  1024.7(f)(1), (2), (3), and (5).
---------------------------------------------------------------------------

    A mortgage broker commenter asserted that the Bureau should expand 
the categories of valid reasons for revisions to include mistakes made 
by mortgage brokers. The Bureau has considered the comment but believes 
that mistakes made by the mortgage broker should not be included among 
the valid reasons for a settlement charge to exceed the amount 
originally estimated for the charge. As a general matter, errors are 
not a basis for revising Loan Estimates, and the Bureau does not 
believe that mortgage broker errors should be treated differently than 
other errors.
    A community bank commenter stated that the Bureau should clarify 
that creditors are permitted to provide updated disclosures to 
borrowers anytime, even though the change is an increase beyond the 
applicable tolerance threshold. In consideration of this comment, the 
Bureau has revised proposed Sec.  1026.19(e)(3)(iv) and comment 
19(e)(3)(iv)-1. The Bureau believes that the revisions will clarify 
that Sec.  1026.19(e)(3)(iv) does not prohibit a creditor from 
providing updated disclosures. Rather, Sec.  1026.19(e)(3)(iv) provides 
an exception to the general rule in Sec.  1026.19(e)(3)(i) and (ii) 
that a charge paid by or imposed on the consumer must be compared to 
the amount in the original Loan Estimate.
    As adopted, Sec.  1026.19(e)(3)(iv) provides that for purposes of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), a 
creditor may use a revised estimate of a charge instead of the amount 
originally disclosed under Sec.  1026.19(e)(1)(i) if the revisions is 
due to one of the reasons set forth in Sec.  1026.19(e)(3)(iv)(A) 
through (F). Comment 19(e)(3)(iv)-1 explains that Sec.  
1026.19(e)(3)(iv) provides the exception to the rule that pursuant to 
Sec.  1026.19(e)(3)(i) and (ii), good faith is determined by 
calculating the difference between the estimated charges originally 
provided under Sec.  1026.19(e)(1)(i) and the charges paid by or 
imposed on the consumer. It clarifies that pursuant to Sec.  
1026.19(e)(3)(iv), for purposes of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii), the creditor may use a revised estimate of a 
charge instead of the amount originally disclosed under Sec.  
1026.19(e)(1)(i) if the revision is due to one of the reasons set forth 
in Sec.  1026.19(e)(3)(iv)(A) through (F). Comments 19(e)(3)(iv)-2 and 
-3 are adopted as proposed.

[[Page 79830]]

19(e)(3)(iv)(A) Changed Circumstance Affecting Settlement Charges
    In general. Section 1024.7(f)(1) of Regulation X 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 
proposed Sec.  1026.19(e)(3)(iv)(A), which would have also provided 
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 ten percent. Proposed comment 19(e)(3)(iv)(A)-1 
would have provided further explanation of this requirement and would 
have included several examples. The Bureau stated in the proposal its 
belief that creditors should be able to provide revised estimates if 
certain situations occur that increase charges.
    Changed circumstance. Section 1024.2 in current Regulation X 
generally defines changed circumstances as information and events that 
warrant revision of the estimated amounts included on the RESPA GFE. 
The Bureau proposed a similar definition, but with certain changes to 
address feedback that it had received suggesting that there was 
confusion about the Regulation X definition. Thus, the Bureau proposed 
in Sec.  1026.19(e)(3)(iv)(A) to define a changed circumstance as: (1) 
An extraordinary event beyond the control of any interested party or 
other unexpected event specific to the consumer or transaction; (2) 
information specific to the consumer or transaction that the creditor 
relied upon when providing the disclosures and that was inaccurate or 
subsequently changed; or (3) new information specific to the consumer 
or transaction that was not relied on when providing the disclosures.
    This proposed definition, most significantly, would have omitted 
the fourth prong of the existing definition of changed circumstances: 
``[o]ther circumstances that are particular to the borrower or 
transaction, including boundary disputes, the need for flood insurance, 
or environmental problems.'' The Bureau suggested in the proposal that 
the items listed in the fourth prong were already covered by other 
elements of the definition and questioned whether the overlap had 
contributed to the industry uncertainty surrounding what scenarios 
constitute a changed circumstance under the current definition of 
changed circumstances in Regulation X. The Bureau sought comment on 
whether its proposed definition of changed circumstances was 
appropriate, and specifically on whether there are scenarios that 
should be considered a changed circumstance that would not be captured 
under any of the three prongs set forth in the proposed definition.
    Proposed comment 19(e)(3)(iv)(A)-2 would have provided additional 
elaboration on the proposed definition and would have provided several 
examples of changed circumstances. Proposed comment 19(e)(3)(iv)(A)-3 
would have explained 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 would have explained 
that although 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, 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. 
The proposed comment would have further explained that 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 could 
not subsequently claim that the receipt of the property address was a 
changed circumstance, under Sec.  1026.19(e)(3)(iv)(A) or (B).
    Industry commenters had mixed reactions to the Bureau's proposed 
definition of changed circumstances. A regional bank holding company 
commenter and a community bank commenter stated that they supported the 
proposed definition. In contrast, a company that performs compliance 
training and consulting services to credit unions stated that the 
Bureau should not change the current definition of changed 
circumstances because the change is not required by the Dodd-Frank Act. 
The commenter also asserted that changing the definition of changed 
circumstances would result in an extended implementation period. A 
national provider of title insurance and settlement services stated 
that the Bureau should conduct more research as to the most common 
changed circumstances that occur in transactions that would be subject 
to Sec.  1026.19(e) and (f).
    Some commenters, including an industry trade association 
representing Federally-chartered credit unions, objected to the 
Bureau's proposal to omit the fourth prong in the current definition of 
changed circumstances. The commenters expressed concern that the 
elimination of the fourth prong meant that situations such as boundary 
disputes, which are included as instances of changed circumstances 
under the current definition, would not be included under the Bureau's 
final rule. However, this commenter also asserted that the Bureau 
should provide additional guidance on what scenarios would be included 
in the fourth prong of the definition of changed circumstances if it 
retains the fourth prong in the final rule.
    Several industry trade association commenters asserted that the 
Bureau should expand the definition of ``changed circumstances.'' 
Industry trade association commenters representing banks and mortgage 
lenders asserted that the Bureau should treat the scenario of a loan 
exceeding the points and fees thresholds for a qualified mortgage, 
HOEPA loan, or a qualified residential mortgage as a changed 
circumstance. In the alternative, they asserted that the Bureau should 
allow the creditor to deny the loan when the applicable threshold has 
been exceeded. An industry trade association representing Federally-
charted credit unions asserted that the proposed definition of changed 
circumstances should be expanded to include situations where the 
consumer increases the down payment amount because it is very likely 
that settlement charges will change as a result of the increase in the 
down payment amount. The commenter also stated that changed 
circumstances should include situations where the seller changes a 
condition that would result in a change to estimated costs disclosed on 
the Loan Estimate.
    Several industry commenters urged the Bureau to change the proposed 
definition of changed circumstances so that the term ``unexpected 
event'' is understood to mean an ``unexpected event'' from the 
creditor's point of view. Most of the commenters asserted that the 
change would reduce the incentive for the consumer to withhold 
information. Additional commenters requested clarification with respect 
to the term ``interested party,'' asserting that such clarification was 
necessary so that the creditor is not responsible for matters under the 
control of other parties.
    A State bankers association also requested guidance on whether a 
change to the loan amount or monthly payment would be considered a 
changed circumstance, if it does not result in a

[[Page 79831]]

cost increase or in the APR becoming inaccurate. The commenter reported 
that its members have been advised by their regulators to reissue the 
RESPA GFE in such circumstances and asserted that this guidance has 
resulted in compliance burden.
    A large bank commenter expressed concern that proposed Sec.  
1026.19(e)(3)(iv)(A) would not permit a creditor to reset estimates for 
purposes of the good faith analysis under Sec.  1026.19(e)(3)(ii) 
unless the aggregate amount of all such charges increased by more than 
ten percent due to a changed circumstance. The commenter also observed 
that the current definition of changed circumstances sets forth what 
situations are not considered changed circumstances. The commenter 
sought clarification on whether creditors may assume that situations 
that are not changed circumstances under the current definition of 
changed circumstances would be considered changed circumstances under 
the proposed definition.
    Lastly, a large bank commenter stated that the Bureau must provide 
additional clarity on whether it plans to issue guidance on changed 
circumstances that is similar to the HUD RESPA FAQs, or if the Bureau 
plans to adopt the HUD RESPA FAQs that address changed circumstances. 
The commenter stated that the HUD RESPA FAQs were critical to 
creditors' ability to establish compliance programs. Similarly, a 
software vendor commenter requested that the Bureau clarify whether the 
HUD RESPA FAQs on changed circumstances would still be valid after this 
rule is finalized.
Final Rule
    The Bureau has considered the comments, and is adopting Sec.  
1026.19(e)(3)(iv)(A) and comments 19(e)(3)(iv)(A)-1 through 3 
substantially as proposed, with revisions to enhance clarity. For the 
reasons stated below, the Bureau does not believe that the comments 
warrant material changes to proposed Sec.  1026.19(e)(3)(iv)(A). The 
Bureau believes that the final rule clearly indicates that unless a 
scenario falls under one of the three prongs listed under the 
definition of changed circumstances, the scenario is not a changed 
circumstance. The Bureau recognizes that the current definition of 
changed circumstance sets forth both scenarios that are changed 
circumstances and those that are not.\209\ The Bureau believes that 
this is a confusing formulation, and the Bureau's approach makes the 
meaning of changed circumstances clearer. But the Bureau agrees that 
there is value in explaining what changed circumstances do not include, 
and notes that for purposes of Regulation Z, explanations and 
clarifications are generally set forth in the official staff commentary 
to Regulation Z. The Bureau is taking this approach. For example, 
comment 19(e)(3)(iv)(A)-3 explains that a creditor may not claim that a 
changed circumstance has occurred if it provides the Loan Estimate 
pursuant to Sec.  1026.19(e)(1)(i) without collecting any of the six 
items of information that make up the definition of application. This 
reflects the current understanding of which scenarios are not changed 
circumstances.\210\
---------------------------------------------------------------------------

    \209\ 12 CFR 1024.2(b).
    \210\ Id.
---------------------------------------------------------------------------

    The Bureau also believes that it is appropriate to adjust the 
current definition of changed circumstances, notwithstanding the 
assertion that the Bureau should not change the current definition of 
changed circumstances because it is not required by the Dodd-Frank Act. 
The fact that an industry trade association representing Federally-
chartered credit unions requested additional guidance on the current 
definition supports the Bureau's belief that there is industry 
uncertainty surrounding what constitute a changed circumstance. The 
Bureau does not believe that the changes this final rule makes to the 
current definition of changed circumstances would result in an extended 
implementation period because the Bureau believes that the most 
significant change--the elimination of the fourth prong--is a change to 
streamline the current definition without narrowing the scope of 
changed circumstances. The Bureau also does not believe that additional 
research is needed on changed circumstances because the Bureau believes 
that the most common scenarios that should be considered a changed 
circumstance are encompassed in the final definition.
    The Bureau also declines to retain the fourth prong in the current 
definition of changed circumstances in the final rule. The Bureau 
believes that the final rule encompasses the scenarios that are 
currently addressed by the fourth prong. Comment 19(e)(3)(iv)(A)-2 
provides an example of how a boundary dispute is considered a changed 
circumstance.
    The Bureau recognizes that creditors are incented not to make loans 
that exceed the points and fees thresholds for qualified mortgages, 
HOEPA loans, or qualified residential mortgages. If a changed 
circumstance causes the loan to exceed the application threshold, then 
the creditor has a legitimate basis for revision. However, the Bureau 
does not believe that the fact that the event occurred is, by itself, a 
changed circumstance. A loan may exceed the threshold because of 
mistakes that the creditor made in the points and fees calculation. As 
stated elsewhere in the section-by-section analysis of Sec.  
1026.19(e), creditor errors are not legitimate reasons for revising 
Loan Estimates. The Bureau also believes that it is not necessary to 
specifically provide that a creditor may deny a loan once the 
applicable points and fees threshold has been exceeded because the Loan 
Estimate is not a loan commitment. However, the Bureau reminds 
creditors that Regulation B contains requirements that apply when the 
creditor denies a consumer's loan application.
    In response to the assertion that the definition of changed 
circumstances should include a scenario where the consumer increases 
the down payment amount, the Bureau believes that to the extent that 
the act of increasing the down payment amount actually increased 
settlement charges subject to the tolerance rules beyond the applicable 
tolerance, then the scenario would be considered a valid reason for re-
issuance under Sec.  1026.19(e)(3)(iv)(C), which the Bureau is adopting 
as proposed for reasons discussed below. Additionally, the Bureau 
believes that scenarios where the seller changes a condition that would 
result in a change to estimated costs disclosed on the Loan Estimate, 
are encompassed within the definition of changed circumstances.
    With respect to the argument that the Bureau should change the 
proposed definition of changed circumstances so that the term 
``unexpected event'' is understood to mean an ``unexpected event'' from 
the creditor's point of view because the modification would reduce the 
incentive for the consumer to withhold information, the Bureau 
declines. As illustrated in comment 19(e)(3)(iv)(A)-2, the term 
``unexpected event'' is meant to encompass scenarios that involve 
changes that take place after the original Loan Estimate has been 
provided to the consumer. The consumer would not be able to withhold 
information about events that have not occurred.
    The Bureau declines to clarify the term ``interested party.'' The 
Bureau believes that the term ``interested party'' should be 
interpreted broadly because mortgage loan transactions are complex and 
affect the interests of many parties. For example, the local government 
entity in which the property is located can be considered an interested 
party

[[Page 79832]]

because the government entity has an interest in the transfer taxes 
that would be collected upon the consummation of the transaction. 
Further, with respect to the assertion that clarifying the term 
``interested party'' is necessary to ensure that the creditor is not 
responsible for matters under the control of other parties, the Bureau 
believes adopting this position would undermine Sec.  
1026.19(e)(1)(ii), which provides that the creditor is responsible for 
ensuring that a mortgage broker complies with Sec.  1026.19(e) when the 
mortgage broker provides the disclosures required by Sec.  1026.19(e). 
The Bureau also believes that this position contradicts the tolerance 
rules, which makes creditors responsible for providing reliable 
estimates of costs under the control of other parties, such as third-
party settlement service providers and government jurisdictions.
    The Bureau believes that whether a change to the loan amount or 
monthly payment would be considered a changed circumstance depends on 
whether the reason for the change is a scenario that is described in 
one of the three prongs of the definition of changed circumstances.
    The Bureau declines to change the proposed rule such that each 
occurrence of a changed circumstance becomes an opportunity for a 
creditor to reset the estimates used for the good faith analysis under 
Sec.  1026.19(e)(3)(ii). Limiting legitimate reasons for revisions for 
charges subject to the ten percent tolerance rule to situations where 
the changed circumstance causes the aggregate amount of all such 
charges to increase by more than ten percent is the current rule under 
Regulation X and the Bureau's intention. Otherwise, if a creditor is 
allowed to reset the estimate used for the good faith analysis under 
Sec.  1026.19(e)(3)(ii) every time there is a changed circumstance, it 
weakens the ten percent tolerance rule. Finally, with respect to the 
status of the HUD RESPA FAQs that address changed circumstances, the 
final rule will replace the HUD RESPA FAQs with respect to transactions 
subject to Sec.  1026.19(e), (f), and (g). But with respect to 
transactions currently subject to Regulation X, but will not be subject 
to Sec.  1026.19(e), (f), and (g), the HUD RESPA FAQs will continue to 
apply. Accordingly, HUD RESPA FAQs, instead of the final rule, will 
continue to apply to reverse mortgage transactions and federally 
related mortgage loans made by persons that are not ``creditors'' under 
Regulation Z.
19(e)(3)(iv)(B) Changed Circumstance Affecting Eligibility
    Section 1024.7(f)(2) of Regulation X 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 proposed Sec.  1026.19(e)(3)(iv)(B), which 
would have provided 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 would have explained the requirement 
and provided illustrative examples. The Bureau did not receive any 
comments on proposed Sec.  1026.19(e)(3)(iv)(B). Accordingly, the 
Bureau is finalizing Sec.  1026.19(e)(3)(iv)(B) and comment 
19(e)(3)(iv)(B)-1 with minor revisions to enhance clarity.
19(e)(3)(iv)(C) Revisions Requested by the Consumer
    Section 1024.7(f)(3) of Regulation X 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 incorporated this same concept in 
proposed Sec.  1026.19(e)(3)(iv)(C), which would have provided 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 would have illustrated 
this requirement with an example.
    A law firm commenter asserted that it was unreasonable to require a 
creditor to provide revised disclosures even though the reason for the 
revision was due to a borrower-requested change. The Bureau has 
considered the comment but is finalizing Sec.  1026.19(e)(3)(iv)(C) and 
comment 19(e)(3)(iv)(C)-1 as proposed because Sec.  
1026.19(e)(3)(iv)(C) reflects the current rule in Regulation X, Sec.  
1024.7(f)(3). Creditors should be able to comply with this requirement, 
because currently they are required to comply with an identical 
requirement (Sec.  1024.7(f)(3)) under Regulation X.
19(e)(3)(iv)(D) Interest Rate Dependent Charges
    Section 1024.7(f)(5) of Regulation X 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. It also provides that when the interest rate is later 
locked, a revised RESPA GFE must be provided showing the revised 
interest rate-dependent charges and terms. The Bureau proposed to 
retain the same basic approach in proposed Sec.  1026.19(e)(3)(iv)(D) 
and to illustrate the requirement with examples. The Bureau sought 
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. 
Although the Bureau ultimately proposed taking the same approach as the 
current regulation, it acknowledged in the proposal a number of 
concerns that it believed warranted careful monitoring of the market. 
While the Bureau acknowledged that several costs are affected by the 
consumer's rate and thus may fluctuate until that rate is locked, the 
Bureau expressed concern that the current provision in Regulation X 
could be used to harm consumers by engaging in rent-seeking behavior or 
attempting to circumvent the requirements of TILA or RESPA. However, 
the Bureau was unaware of any evidence that creditors were in fact 
using current Regulation X Sec.  1024.7(f)(5) to harm consumers or to 
circumvent RESPA.
Comments
    A State trade association commenter representing bankers stated 
that it believed that the regulatory text in proposed Sec.  
1026.19(e)(3)(iv)(D) with respect to when a creditor must provide the 
revised disclosures to the consumer when the interest rate is set was 
in conflict with the general redisclosure rule proposed in Sec.  
1026.19(e)(4)(i) because proposed Sec.  1026.19(e)(3)(iv)(D) stated 
that the creditor must provide revised disclosures ``on the date that 
the interest rate is reset,'' whereas the general redisclosure rule 
gave the creditor three business days to deliver the revised 
disclosures. The commenter also requested that the Bureau clarify 
whether redisclosure is necessary when the locking of the interest rate 
does not change the interest rate or cost estimates disclosed on the 
original Loan Estimate. Similarly, a community bank commenter asserted 
that if the interest rate is locked after the creditor has provided the 
original Loan Estimate, the creditor should be permitted to determine 
whether to provide redisclosures if there is no change to the

[[Page 79833]]

disclosures that were originally provided.
    A large bank commenter stated that the final rule should require 
that the revised Loan Estimate that is provided after the interest rate 
has been set should reflect all the items impacted by the revisions to 
the interest rate, bona fide discount points, and lender credits. The 
commenter asserted that the requirement would help ensure that 
information about monthly payments, projected payments, the cash to 
close amount, loan costs, and disclosures in the ``Comparison'' section 
of the Loan Estimate are also revised.
Final Rule
    The Bureau has considered the comments, and for reasons set forth 
below, is finalizing Sec.  1026.19(e)(3)(iv)(D) and comment 
19(e)(3)(iv)(D)-1 with revisions to enhance clarity. The delivery 
requirement set forth in proposed 1026.19(e)(4)(i) was intended to 
establish the maximum amount of time that a creditor may let pass 
before providing the consumer with the revised Loan Estimate. The 
Bureau does not believe that creditors need that much time in 
situations where the interest rate is locked because the creditor 
controls when it executes the rate lock agreement. But in consideration 
of the comments, the Bureau is adding comment 19(e)(4)(i)-2 to explain 
the relationship between Sec.  1026.19(e)(4)(i) and Sec.  
1026.19(e)(3)(iv)(D). The comment clarifies that if the reason for the 
revision is provided under Sec.  1026.19(e)(3)(iv)(D), notwithstanding 
the three-business-day rule set forth in Sec.  1026.19(e)(4)(i), Sec.  
1026.19(e)(3)(iv)(D) requires the creditor to provide a revised version 
of the disclosures required under Sec.  1026.19(e)(1)(i) on the date 
the interest rate is locked. Comment 19(e)(4)(i)-2 also references 
comment 19(e)(3)(iv)(D)-1.
    Final Sec.  1026.19(e)(3)(iv)(D) and commentary also clarify that 
if the interest rate is simply set, but there is no rate lock 
agreement, Sec.  1026.19(e)(3)(iv)(D) does not apply. Upon a review of 
the proposed rule text and commentary, the Bureau acknowledges that the 
proposed language could have caused confusion about whether the setting 
of the interest rate requires redisclosure where a rate lock agreement 
does not exist. But the Bureau intended that Sec.  1026.19(e)(3)(iv)(D) 
only applies in situation where a rate lock agreement has been entered 
into between the creditor and borrower, or where such agreement has 
expired. The Bureau has made clarifying revisions to the rule text and 
commentary to address the potential confusion.
    With respect to the request that the final rule require that the 
revised Loan Estimate reflect all of the items that are impacted by the 
revisions to the interest rate, bona fide discount points, and lender 
credits, the Bureau has made adjustments to the final rule text to 
clarify that the revised version of the Loan Estimate shall contain 
revisions to any other interest rate dependent charges and terms. The 
Bureau notes that this is the current rule under Regulation X, Sec.  
1024.7(f)(5). Lastly, as discussed above, the Bureau intends that the 
creditor redisclose interest rate dependent charges and terms when the 
interest rate is locked. Accordingly, if the creditor has to redisclose 
points because the consumer is paying points to the creditor to reduce 
the interest rate, the consumer could be paying both bona fide discount 
points, as defined in Sec.  1026.32(b)(3), when the 2013 ATR Final Rule 
takes effect, and points that are not bona fide discount points. Final 
Sec.  1026.19(e)(3)(iv)(D) provides that on the date the interest rate 
is locked, the creditor shall provide a revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) to the consumer with 
the revised interest rate, the points disclosed pursuant to Sec.  
1026.37(f)(1),\211\ lender credits, and any other interest rate 
dependent charges and terms. The Bureau believes that this adjustment 
will facilitate compliance with this final rule because Sec.  
1026.19(e)(3)(iv)(D) now clearly indicates that to comply, the creditor 
must redisclose all the points disclosed pursuant Sec.  1026.37(f)(1), 
even if they include points in addition to the bona fide discount 
points under Sec.  1026.32(b)(3).
---------------------------------------------------------------------------

    \211\ The term ``bona fide discount points'' was not defined 
until the issuance of the Bureau's 2013 ATR Final Rule, which post-
dated the issuance of the TILA-RESPA Proposal.
---------------------------------------------------------------------------

19(e)(3)(iv)(E) Expiration
    Section 1024.7(f)(4) of Regulation X 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. Similarly, the Bureau proposed 
Sec.  1026.19(e)(3)(iv)(E), which would have provided 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 would have illustrated this 
requirement with an example. The Bureau explained in the proposal that 
it believed that it was important for consumers to be able to rely on 
the estimated charges for a sufficient period of time to permit 
shopping, and that ten business days was a reasonable period. Once it 
expired, however, the Bureau believed that creditors should be 
permitted to provide revised disclosures that may reflect new charges.
    The Bureau received few comments on the proposal. Some industry 
commenters sought clarification on how to count the ten-business-day 
period if the creditor provided the consumer with a revised Loan 
Estimate within the ten-business-day period before the consumer has 
indicated an intent to proceed. A mortgage broker commenter stated that 
mortgage brokers do not have control over third-party fees, and 
therefore, making the Loan Estimate binding on a mortgage broker for 
ten business days would be impractical.
    The Bureau is finalizing Sec.  1026.19(e)(3)(iv)(E) and comment 
19(e)(3)(iv)(E)-1 substantially proposed, with revisions to enhance 
clarity. As adopted, Sec.  1026.19(e)(3)(iv)(E) clarifies how to count 
the ten-business-day period, because it provides that the ten-business-
day period begins after the disclosures required under Sec.  
1026.19(e)(1)(i) are provided pursuant to Sec.  1026.19(e)(1)(iii). 
Lastly, with respect to the assertion that the mortgage broker should 
not be bound by the terms of the original Loan Estimate for ten 
business days after the mortgage broker provides it to the consumer, as 
noted above, the Bureau believes that a mortgage broker must comply 
with all of the requirements of Sec.  1026.19(e) if the mortgage broker 
provides a consumer with the Loan Estimate.
19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan
    Section 1024.7(f)(6) of Regulation X 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 RESPA GFE is provided, the loan originator cannot issue a 
revised RESPA 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 RESPA GFE. The Bureau concluded that this approach made 
sense where consummation will not occur for an extended period of time. 
Accordingly, proposed Sec.  1026.19(e)(3)(iv)(F) would have provided 
that a valid reason for

[[Page 79834]]

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 would 
have clarified 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) and would have illustrated the requirement with 
examples. The Bureau stated in the proposal that the proposed comment 
would be consistent with guidance provided by HUD in the HUD RESPA FAQs 
p. 21,  2 (``GFE--New construction''). The Bureau did not 
receive any comments on proposed Sec.  1026.19(e)(3)(iv)(F), and is 
adopting Sec.  1026.19(e)(3)(iv)(F) and comment 19(e)(3)(iv)(F)-1 as 
proposed, except for minor revisions to enhance clarity.
19(e)(4) Provision and Receipt of Revised Disclosures
19(e)(4)(i) General Rule
    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 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), and this requirement is set forth in current Sec.  
1026.19(a)(2)(ii). RESPA does not expressly address timing requirements 
for the delivery of revised RESPA GFEs, but Regulation X generally 
requires that a revised RESPA GFE must be provided within three 
business days of the creditor receiving information sufficient to 
establish a reason for revision.\212\
---------------------------------------------------------------------------

    \212\ ``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 does, but those changes may occur up to the day of 
settlement.
    The Bureau proposed adopting the Regulation X approach because it 
believed that 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, the Bureau stated its belief that 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 proposed Sec.  1026.19(e)(4)(i), which 
would have provided 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 would have illustrated this requirement with examples.
Comments
    The Bureau received a number of comments on the proposal, 
including, as discussed below, comments urging various alternative 
approaches to the incremental approach to redisclosure the Bureau 
proposed. A large bank commenter asserted that the proposed three-
business-day redisclosure requirement ignores the realities of how 
creditors process information and underwrite loans and is arbitrary. It 
stated that 50 percent of lender credits and refunds it issues as 
required by current Regulation X are caused by its inability to meet 
Regulation X's three-business-day redisclosure requirement. The 
commenter stated that documenting the day that the event that caused 
the changed circumstance is difficult and uncertain because information 
about the event may take time to reach the division inside the 
creditor's organization that is responsible for providing the revised 
disclosures, and that in most cases, information must be verified by 
the creditor. The commenter also stated that in many cases, it is 
simply not possible for the creditor to verify that a changed 
circumstance has occurred and ensure that a revised disclosure is 
issued within three business days. The large bank commenter also 
asserted that the three-business-day requirement for redisclosure is 
especially unworkable with respect to charges in the ten percent 
tolerance category because when the estimated sum of charges exceeds 
the ten percent threshold, it could be the cumulative result of 
multiple changed circumstances.
    Large bank commenters and industry trade associations urged the 
Bureau to adopt an alternative approach to the redisclosure requirement 
set forth in proposed Sec.  1026.19(e)(4)(i). The commenters described 
the approach as the ``milestone approach.'' Under the ``milestone 
approach,'' revised disclosures would only have to be provided to the 
consumer at specific points in the mortgage origination process, such 
as the time that the interest rate is set and at the time of loan 
commitment because the occurrence of these events usually trigger 
closing cost changes. The commenters asserted that adopting a 
``milestone approach'' would benefit consumers because it would address 
the issue of information overload. One of the supporters of the 
``milestone approach'' stated that a series of RESPA GFEs is often 
provided to the consumer under the current Regulation X and often 
desensitizes the consumer to the information provided. The commenter 
asserted that information overload would worsen under the proposal 
because the Bureau's proposed definition of ``application'' would lead 
to more redisclosures. Another large bank commenter supporting the 
``milestone approach'' stated that because the ``milestone approach'' 
would tie to key events in the origination process, the approach still 
ensures that the consumer gets a complete picture of the loan terms. 
One of the large bank commenters that supported the ``milestone 
approach'' also asserted that the approach would ease compliance burden 
because it would allow creditors to develop streamlined and efficient 
compliance programs, thus facilitating supervision.
    Industry trade associations representing banks and mortgage lenders 
also advocated for redisclosure requirements different than what the 
Bureau proposed. The same industry trade association representing 
mortgage lenders asserted that it would be far less confusing to 
consumers and less burdensome to creditors if a redisclosure made 
within 30 days after receipt of a consumer's intent to proceed is 
deemed timely for all changed circumstances that occurred more than 
three days before the redisclosure is provided. As discussed above in 
the section-by-section analysis of Sec.  1026.19(e)(1)(iii), industry 
trade associations representing banks and mortgage lenders expressed 
the view that the best solution to excessive redisclosure would be to 
require the creditor to provide a Loan Estimate

[[Page 79835]]

some number of days after the consumer communicates an intent to 
proceed, and the commenters indicated a preference that it be 30 days. 
With respect to the provision of revised Loan Estimates, commenters 
expressed the view that the creditor should not have to provide the 
revised Loan Estimate to the consumer if the only items that have 
changed after the original Loan Estimate was provided are the closing 
date and charges related to the closing date. They also expressed the 
view that sending revised Loan Estimates in these situations would be 
redundant.
    Industry trade associations representing banks and mortgage lenders 
asked if a revised Loan Estimate is required within three business days 
if fees increased due to a changed circumstance or borrower-requested 
change. They also asked if a revised Loan Estimate is ever required 
when there is not a changed circumstance or borrower-requested change. 
The commenters additionally asked if a creditor may redisclose based on 
underwriting information without receiving consumer approval to make 
the changes. The commenters also stated that it appeared that the 
proposal would have given the creditor the option of either delivering 
a revised Loan Estimate within three business days of a valid reason 
for revision, or waiting until four days before consummation to deliver 
the revised Loan Estimate.
    The commenters also asserted that when new information is received, 
such as partial income verification, more than three business days is 
needed for the creditor to evaluate the information to comply with 
ability-to-repay and investor requirements. The commenters requested 
confirmation from the Bureau that the three-business-day period does 
not begin until after the evaluation is complete. A community bank 
commenter requested specific guidance from the Bureau as to the 
determination of when the three-business-day period begins for changed 
circumstances in instances when there may be new information received 
by the borrower or inconclusive information received. The commenter 
stated that in order to prevent an endless stream of redisclosures, the 
three-business day period should begin when the lender has fully 
evaluated the information.
Final Rule
    After consideration of the comments, the Bureau is adopting the 
Regulation X approach to redisclosures that the Bureau proposed. The 
Bureau believes the approach best ensures that consumers are kept 
informed of incremental changes during the loan origination process by 
creditors, and thus, would best serve the policy goals of both TILA and 
RESPA, which the Bureau discussed in the proposal and above. 
Additionally, given that a number of industry commenters have raised 
concerns about the cost of redisclosures, the Bureau believes that 
creditors are incented to avoid excessive redisclosures. The Bureau 
also believes that the final rule facilitates the goal of limiting 
excessive redisclosures by limiting legitimate reasons for 
redisclosures to the six exceptions set forth in Sec.  
1026.19(e)(3)(iv). The Bureau also is not persuaded that there would be 
significant compliance burden because the final rule applies the 
current timing requirement in Regulation X for delivery of the revised 
RESPA GFE to the Loan Estimate.
    In response to the concern that the Bureau's proposed definition of 
``application'' would lead to more redisclosures, the Bureau has 
addressed the concern in great detail in the section-by-section 
analysis of Sec.  1026.2(a)(3), above, and has concluded that it does 
not believe that the final rule will lead to more redisclosures. In 
consideration of the various requests for clarification on the timing 
requirement for the delivery of the revised Loan Estimate, the Bureau 
has revised proposed Sec.  1026.19(e)(4)(i) and proposed comment 
19(e)(4)-1, renumbered as comment 19(e)(4)(i)-1, to facilitate 
compliance. Final Sec.  1026.19(e)(4)(i) provides that subject to the 
requirements of Sec.  1026.19(e)(4)(ii), if a creditor uses a revised 
estimate pursuant to Sec.  1026.19(e)(3)(iv) for the purpose of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), the 
creditor shall provide a revised version of the disclosures required 
under Sec.  1026.19(e)(1)(i) reflecting the revised estimate within 
three business days of receiving information sufficient to establish 
that one of the reasons for revision provided under Sec.  
1026.19(e)(3)(iv)(A) through (C), (E) and (F) applies. Comment 
19(e)(4)(i)-1 explains the three-business-day requirement set forth in 
Sec.  1026.19(e)(4)(i) and provides illustrative examples. 
Additionally, as noted above in the section-by-section analysis of 
Sec.  1026.19(e)(3)(iv)(D), the Bureau is adding comment 19(e)(4)(i)-2 
to clarify the relationship between Sec.  1026.19(e)(3)(iv)(D) and 
(e)(4)(i).
    Together with the revisions to the text of Sec.  1026.19(e)(3)(iv) 
and related commentary, the Bureau believes that the revisions to the 
text of Sec.  1026.19(e)(4)(i) and related commentary make it 
unnecessary to further clarify whether a revised Loan Estimate must be 
provided when there is not a changed circumstance or borrower-requested 
change, other than the fact that it is four days before closing.
    On the question of whether a creditor may issue a revised Loan 
Estimate without receiving consumer approval to make the changes, the 
Bureau believes that the final rule and commentary are clear that 
creditors are not required to obtain consumer approval before the 
creditor provides a revised Loan Estimate. The Bureau also believes 
that the final rule and commentary are clear that a creditor may not 
wait until four days before consummation to deliver the revised Loan 
Estimate when doing so violates the three-business-day requirement set 
forth Sec.  1026.19(e)(4) or the day-of requirement set forth in Sec.  
1026.19(e)(3)(iv)(D).
    With respect to requests that the Bureau clarify when the three-
business-day delivery period begins, the Bureau believes that the 
examples set forth in comment 19(e)(1)(4)(i)-1 clearly illustrate that 
the three-business-day begins on the date that the creditor receives 
information that sufficiently establishes the reason for revision. The 
Bureau believes that the comment is clear in explaining that the burden 
is on the creditor to show that it has a reasonable basis to believe 
that the information it receives does not sufficiently establish the 
reason for the revision.
    Lastly, in response to the comment from a large bank creditor that 
the proposed redisclosure delivery requirement would be especially 
unworkable for charges in the ten percent tolerance category, the 
Bureau believes that comment 19(e)(4)(i)-1.ii clearly illustrates that 
with respect to fees included in the ten percent tolerance category, 
the three-business day period is counted from the date on which the 
creditor has received sufficient information to establish that the sum 
of all fees included in the category of fees subject to the ten percent 
tolerance rule has exceeded the original estimated sum of such fees by 
more than ten percent due to changed circumstances. In other words, if, 
for example, the creditor receives information on May 1, that a fee 
included in the ten percent tolerance category will increase by an 
amount totaling six percent of the originated estimated sum of charges 
in the ten percent tolerance category, and then on May 8th, the 
creditor receives information that a changed circumstance will cause a 
different fee

[[Page 79836]]

included in the ten percent tolerance category to increase by an amount 
totaling two percent of the originated estimated sum of charges in the 
ten percent tolerance category, and then on June 15th the creditor 
receives information that a changed circumstance will cause a different 
fee included in the ten percent tolerance category to increase by an 
amount totaling four percent of the originated estimated sum of charges 
in the ten percent tolerance category, to comply with Sec.  
1026.19(e)(4)(i), the creditor would have to provide revised 
disclosures reflecting the 12 percent increase by June 18th, assuming 
that June 16th, 17th, and 18th are business days for purposes of Sec.  
1026.2(a)(6). The Bureau adopts Sec.  1026.19(e)(4)(i) 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.
19(e)(4)(ii) Relationship to Disclosures Required Under Sec.  
1026.19(f)(1)(i)
    Proposed Sec.  1026.19(e)(4)(ii) would have provided 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 proposed 
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). Proposed 
comment 19(e)(4)-2 would have clarified that revised disclosures may 
not be delivered at the same time as the final disclosures. The 
proposed comment would have also explained that creditors would 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 proposed comment would have also 
included illustrative examples of the requirement.
    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 stated in the proposal 
that it was aware that, in some cases, creditors have provided a 
revised RESPA GFE at the real estate closing along with the RESPA 
settlement statement. The Bureau stated in the proposal its concern 
that this practice may be confusing for consumers and may diminish 
their awareness and understanding of the transaction.
    The Bureau also stated in the proposal that it recognized there 
were cases in which a consumer might not have been 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 would match the actual costs, the Bureau 
expressed concern that consumers could be confused by seemingly 
duplicative disclosures. The Bureau was also concerned that this 
duplication could contribute to information overload stemming from too 
many disclosures, which could, in turn, inhibit the consumer's ability 
to understand the transaction. Accordingly, the Bureau proposed Sec.  
1026.19(e)(4)(ii) to prohibit 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 would not have 
complied with the requirements of proposed Sec.  1026.19(e) if the 
consumer received revised versions of the disclosures required under 
Sec.  1026.19(e)(1)(i) on the same business day as the consumer 
received the disclosures required by Sec.  1026.19(f)(1)(i).
Comments
    Reaction to the proposed prohibition on the simultaneous delivery 
of the Loan Estimate and the Closing Disclosure was mixed. In joint 
comments, trade associations representing State financial services 
regulators supported the prohibition. They stated that the proposed 
prohibition would incent creditors to avoid surprising consumers and 
intentionally under-estimating closing costs to get borrowers to select 
loans that may not be in the borrower's best interest. A non-depository 
lender that makes manufactured home loans stated that it supported the 
aspect of the proposal that would have permitted the creditor to 
reflect a revised disclosure on the Closing Disclosure.
    In contrast, an industry trade association commenter representing 
non-depository financial services providers stated that the proposed 
prohibition on the simultaneous delivery of the Loan Estimate and 
Closing Disclosure could delay closings because settlement costs could 
increase shortly before the closing, and the creditor must be able to 
provide the revised Loan Estimate to reflect the increase. Industry 
trade associations representing banks and mortgage lenders stated that 
the requirement that a revised Loan Estimate must be received by the 
consumer four days before the consummation does not take into account 
the significance of the change or the burden associated with the 
waiting period. The commenters asserted that a four-day waiting period 
between the receipt of the revised Loan Estimate and consummation was 
unnecessary because the Bureau was also proposing to impose a three-
business-day waiting period between the receipt of the Closing 
Disclosure and consummation in proposed Sec.  1026.19(f)(1)(ii). A 
regional bank holding company expressed concern that under the 
proposal, a consumer could receive the Loan Estimate and the Closing 
Disclosure simultaneously if the creditor sends the disclosures by 
mail.
Final Rule
    The Bureau has considered the comments and believes that Sec.  
1026.19(e)(4)(ii), as proposed, would not have delayed closings or 
limited a creditor's ability to manage cost increases and disclose them 
to the consumer, because although it would have prohibited simultaneous 
delivery of the Loan Estimate and the Closing Disclosure, proposed 
comment 19(e)(4)-2 would have clarified that under certain 
circumstances, a creditor could comply with Sec.  1026.19(e)(4) by 
reflecting revised disclosures on the Closing Disclosure. The Bureau 
acknowledges that some commenters did not understand proposed Sec.  
1026.19(e)(4)(ii). Accordingly, the Bureau is revising the text of 
proposed Sec.  1026.19(e)(4)(ii) and comment 19(e)(4)-2, renumbered as 
19(e)(4)(ii)-1. As adopted, Sec.  1026.19(e)(4)(ii) provides that the 
creditor shall not provide a revised version of the disclosures 
required under Sec.  1026.19(e)(1)(i) on or after the date on which the 
creditor provides the disclosures required under Sec.  
1026.19(f)(1)(i). Section 1026.19(e)(4)(ii) also provides that the 
consumer must receive a revised version of the disclosures required 
Sec.  1026.19(e)(1)(i) not later than four business days prior to 
consummation.

[[Page 79837]]

The Bureau believes that this addresses the regional bank holding 
company commenter's concern with the proposal that a consumer could 
receive the Loan Estimate and the Closing Disclosure simultaneously. 
Lastly, Sec.  1026.19(e)(4)(ii) provides that if the revised version of 
the disclosures required under Sec.  1026.19(e)(1)(i) is not provided 
to the consumer in person, the consumer is considered to have received 
such version three business days after the creditor delivers such 
version or places such version in the mail. This aspect of Sec.  
1026.19(e)(4)(ii) mirrors Sec.  1026.19(e)(1)(iv). Accordingly, comment 
19(e)(4)(ii)-1 references comments 19(e)(1)(iv)-1 and -2. The Bureau 
adopts Sec.  1026.19(e)(4)(ii) and comment 19(e)(4)(ii)-2 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).
19(f) Mortgage Loans Secured by Real Property--Final Disclosures
    As discussed in the section-by-section analysis of Sec.  1026.19 
above, the disclosure requirements prior to consummation of a closed-
end credit transaction under TILA apply only to creditors. For certain 
mortgage transactions, TILA requires creditors to furnish a corrected 
disclosure to the consumer not later than three business days before 
the date of consummation of the transaction if the prior disclosed APR 
has become inaccurate. See 15 U.S.C. 1638(b)(2)(A), (D). In contrast, 
RESPA generally applies to lenders and settlement agents. RESPA 
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. See 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 currently 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. See 12 CFR 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. See 12 CFR 1024.10(a).
    As noted above, 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. In 
addition, sections 1098 and 1100A of the Dodd-Frank Act amended RESPA 
section 4(a) and TILA section 105(b), respectively, to require that the 
Bureau establish the integrated disclosure requirements for ``mortgage 
loan transactions'' that are ``subject to both or either provisions 
of'' RESPA sections 4 and 5 (the RESPA GFE and RESPA settlement 
statement requirements) and TILA. See 12 U.S.C. 2604(a); 15 U.S.C. 
1604(b). As noted above, although Congress mandated that the Bureau 
integrate the rules under TILA and RESPA, it did not reconcile the 
timing requirements or the division of responsibilities between the 
creditor and settlement agent in TILA and RESPA.
    In general, the proposed rule would have required that consumers 
receive the Closing Disclosure three business days before consummation 
in all circumstances and that, if any revisions were made to the 
Closing Disclosure before consummation, consumers would receive a 
revised Closing Disclosure that would have triggered an additional 
three-business-day waiting period, subject to several limited 
exceptions. Those exceptions would have included changes made due to 
consumer-seller negotiations, changes to reflect refunds curing 
violations of the good faith analysis at proposed Sec.  1026.19(e)(3), 
and changes in which the amount actually paid by the consumer at 
closing does not exceed $100. The Bureau also would have included a 
limited waiver provision that would have allowed consumers to waive or 
modify the timing requirements in cases involving a bona fide personal 
financial emergency.
    In response to public comment, the final rule narrows the 
circumstances in which changes that occur between initial provision of 
the Closing Disclosure and consummation would trigger a new three-
business-day waiting period. These changes are discussed in more detail 
below in the section-by-section analyses of Sec.  1026.19(f)(1)(ii) and 
(f)(2).
    The proposed rule also set forth two alternative requirements for 
who would be responsible for providing the Closing Disclosure. Under 
alternative 1, the creditor would have been solely responsible for 
providing the Closing Disclosure. Under alternative 2, the creditor 
would have been responsible for providing the Closing Disclosure, but 
would have been expressly permitted to share responsibility with a 
settlement agent. Settlement agents would have been required to comply 
with the provisions of Sec.  1026.19(f) and the creditor would have 
been responsible for ensuring the requirements of Sec.  1026.19(f) have 
been satisfied. In response to comments, the Bureau is finalizing 
alternative 2, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.19(f)(1)(v) below.
    The Bureau received extensive public comment on the proposed rules 
for the delivery of the Closing Disclosure. In general, commenters 
focused on the proposed timing and responsibility for providing the 
Closing Disclosure. The vast majority of commenters were concerned the 
Bureau's proposed timing requirements would delay most or a large 
percentage of transactions. Commenters also provided extensive feedback 
on whether the creditor or settlement agent should bear responsibility 
for preparing and delivering the Closing Disclosure. The Bureau also 
received comment on other aspects of proposed Sec.  1026.19(f), as 
described more fully below in their respective sections. The final rule 
revises the proposal in response to these comments, as described 
throughout this section.
19(f)(1) Provision of Disclosures
19(f)(1)(i) Scope
    As discussed above, the integrated disclosure mandate requires the 
Bureau to reconcile several aspects of the disclosure requirements 
under TILA and RESPA. 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 proposed to integrate the disclosure requirements in TILA 
section 128 and RESPA section 4 in Sec.  1026.19(f)(1)(i). This section 
would have provided 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 would have provided 
illustrative examples of this provision.

[[Page 79838]]

Comments
    As noted above and discussed in greater detail in Sec.  
1026.19(f)(1)(ii)(A) below, the Bureau received extensive public 
comment regarding the timing requirements for delivery of the Closing 
Disclosure. Among other things, many commenters from across the real 
estate and mortgage lending industries were concerned that a general 
requirement to disclose the ``actual terms'' of the transaction to the 
consumer three business days before consummation would prove 
impracticable because many costs are not known by that time. Commenters 
also observed that the proposed delivery rules, which would have 
created a presumption that the consumer received the Closing Disclosure 
three business days after it was placed in the mail, would have 
required that creditors and settlement agents disclose a large amount 
of information on the Closing Disclosure at least six business days, 
and possibly more, before consummation. Commenters further explained 
that information required to be disclosed on the Closing Disclosure 
derives from many sources, including settlement agents and other 
settlement service providers, and that creditors frequently do not 
select settlement service providers.
    Both creditor and settlement agent commenters were concerned that 
they could not guarantee that the ``actual terms'' of the transaction 
could be provided three business days before consummation in every 
case. Commenters also were concerned that a requirement to disclose the 
``actual terms'' of the transactions before consummation would delay 
closings because creditors would not provide the Closing Disclosure 
until all parties have finalized their information. Because settlement 
costs currently are not disclosed to borrowers until the day before or 
the day of settlement on the RESPA settlement statement, industry 
commenters were concerned about the feasibility of providing the 
``actual terms'' of the transaction before consummation, 
notwithstanding the proposed exceptions for consumer-seller 
negotiations, tolerance cures, and $100 or less increase in the cash to 
close amount. Commenters were concerned that the proposed exceptions 
would be too narrow to account for the many reasons closing costs could 
change before consummation, and that the need for revisions would arise 
inevitably, triggering a series of three-business-day waiting periods.
    Settlement agent commenters recommended that the Bureau integrate 
the final TILA disclosure with the RESPA settlement statement by cross-
referencing in Regulation Z certain RESPA-related disclosure 
requirements in Regulation X.\213\ A trade association representing the 
settlement agent and title insurance industry recommended that the 
final rule divide the Closing Disclosure requirements among Regulation 
Z and Regulation X, as a modification to one of the alternatives 
proposed by the Bureau with respect to who would be responsible for 
providing the Closing Disclosure. The commenter submitted draft 
language for the Bureau to consider adopting in the final rule.
---------------------------------------------------------------------------

    \213\ Although commenters provided these comments in response to 
the Bureau's proposal for which party would be responsible for 
providing the Closing Disclosure, discussed in more detail in the 
section-by-section analysis of Sec.  1026.19(f)(1)(v) below, the 
Bureau is addressing them here because they implicate the decision 
to integrate the disclosures in Sec.  1026.19(f).
---------------------------------------------------------------------------

Final Rule
    Actual terms. The Bureau believes consumers must receive accurate 
information about the actual terms of their transactions. The Bureau 
also appreciates that some information about the transaction may not be 
known with certainty three business days before consummation. The 
Bureau further understands that consumers and other parties may face 
costs if closings are delayed, as discussed in greater detail in the 
section-by-section analyses of Sec.  1026.19(f)(1)(ii)(A) and (f)(2) 
below. From the extensive public comments it received on this aspect of 
the proposal, the Bureau understands that creditors and settlement 
agents obtain transaction cost information from a wide variety of 
sources and third parties. The Bureau understands that some costs may 
only be known before or even after consummation. In light of these 
concerns, the final rule clarifies the requirements in Sec.  1026.19(f) 
with respect to the accuracy of the information contained in the 
Closing Disclosure provided three business days before consummation, as 
discussed in more detail below, and with respect to changes that may 
occur before and after consummation, as discussed in the section-by-
section analyses of Sec.  1026.19(f)(1)(ii)(A) and (f)(2) below.
    Final Sec.  1026.19(f)(1)(i) is adopted as proposed with a 
technical revision to the heading of Sec.  1026.19(f)(1). Final Sec.  
1026.19(f)(1)(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 creditor shall provide the consumer with 
the disclosures in Sec.  1026.38 reflecting the actual terms of the 
transaction.
    Proposed comment 19(f)(1)(i)-1 is adopted substantially as 
proposed, with revisions to conform to the final rule. The Bureau 
recognizes that changes may occur after the Closing Disclosure is first 
provided three business days before consummation. Accordingly, comment 
19(f)(1)(i)-1 states that if the disclosures provided pursuant to Sec.  
1026.19(f)(1)(i) do not contain the actual terms of the transaction, 
the creditor does not violate Sec.  1026.19(f)(1)(i) if the creditor 
provides corrected disclosures that contain the actual terms of the 
transaction and complies with the other requirements of Sec.  
1026.19(f), including the timing requirements in Sec.  
1026.19(f)(1)(ii) and (f)(2). The comment includes a reference to the 
timing requirements of Sec.  1026.19(f)(2) because that provision, as 
revised, includes timing and delivery requirements applicable to 
changes that may occur after the Closing Disclosure is first provided 
under Sec.  1026.19(f)(1)(ii)(A) three business days before 
consummation. See the section-by-section analysis of final Sec.  
1026.19(f)(2) for a discussion of these redisclosure requirements.
    The final rule also amends the example in the final sentence of 
proposed comment 19(f)(1)(i)-1 to reflect revisions made in the final 
rule to address changes that may be made before consummation without 
triggering additional three-business-day waiting periods under Sec.  
1026.19(f)(2). Specifically, the comment includes an example in which 
the consumer adds a mobile notary service after the creditor provides 
the Closing Disclosure, which requires that the creditor provide 
corrected disclosures at or before consummation, pursuant to Sec.  
1026.19(f)(2)(i). In addition, comment 19(f)(1)(i)-1 refers to 
``corrected disclosures'' rather than ``new disclosures'' to reflect 
the terminology currently used with respect to the final TILA 
disclosures in Regulation Z and for greater consistency throughout 
Sec.  1026.19(f).
    Best information reasonably available standard. As discussed in 
more detail in the section-by-section analyses of Sec.  
1026.19(f)(1)(ii)(A), (f)(2)(i), and (f)(2)(ii), the Bureau recognizes 
that the Closing Disclosure provided to consumers three business days 
before consummation pursuant to Sec.  1026.19(f)(1)(ii)(A) may require 
revisions, and that creditors may face compliance difficulties 
providing the ``actual terms'' of the transaction three business days 
before consummation. Accordingly, as discussed in more detail below, 
the final rule clarifies the

[[Page 79839]]

accuracy standards applicable to the Closing Disclosure provided three 
business days before consummation.
    While the Bureau acknowledges that the Closing Disclosure provided 
three business days before consummation may require subsequent 
revisions, the Bureau does not expect revisions will be made to terms 
that will impose significant, long-term costs to consumers. First, the 
final rule expands the zero percent tolerance category that applies to 
the estimated charges under Sec.  1026.19(e) from the category that is 
applicable to the RESPA GFE under current Regulation X to include 
charges paid to affiliates of the creditor or a mortgage broker and 
charges for which the consumer cannot shop for the service provider, as 
discussed in the section-by-section analysis of Sec.  1026.19(e)(3) 
above. Second, the final rule imposes redisclosure requirements 
resulting in a new three-business-day waiting period for certain 
changes to the APR, loan product, and prepayment penalties, discussed 
in the section-by-section analysis of Sec.  1026.19(f)(2) below. With 
respect to revisions resulting from the consumer's participation in the 
transaction, such as third-party services that the consumer shops for 
independently (e.g., owner's title insurance), the Bureau believes the 
consumer will be aware of cost increases associated with such services. 
In addition, to the extent changes occur between the time the Closing 
Disclosure is first provided and consummation that may affect the Cash 
to Close disclosure under Sec.  1026.38, the Bureau believes creditors 
and settlement agents will have an incentive to keep consumers informed 
of such changes to ensure the efficient operation of closings. In 
addition, the Bureau believes the final rule will provide industry with 
additional incentive to ensure consumers receive disclosures that are 
as accurate as possible at the time they are provided to minimize 
subsequent revisions.
    The accuracy standards with respect to the final TILA disclosures 
and the RESPA settlement statement currently differ under Regulation X 
and Regulation Z. RESPA section 4 requires that the RESPA settlement 
statement itemize all charges imposed upon the borrower and the seller, 
and current Regulation X Sec.  1024.8(b)(1) requires the disclosure of 
the ``actual charges'' paid by the borrower and seller. However, 
Regulation Z currently accounts for the practical difficulties that 
creditors may face in providing information on disclosures delivered 
before consummation. Regulation Z Sec.  1026.17 contains general 
disclosure requirements applicable to closed-end transactions, 
including mortgage loans. Section 1026.17(c)(2)(i) states that, ``[i]f 
any information necessary for an accurate disclosure is unknown to the 
creditor, the creditor shall make the disclosure based on the best 
information reasonably available at the time the disclosure is provided 
to the consumer, and shall state clearly that the disclosure is an 
estimate.'' Comments 17(c)(2)(i)-1, -2, and -3 contain guidance 
explaining the application of the best information reasonably available 
standard.
    While the Bureau did not propose to amend the text of Sec.  
1026.17(c)(2)(i), it did propose amendments to the commentary of that 
section to clarify the applicability of the best information reasonably 
available standard to the particular estimation and redisclosure 
requirements of Sec.  1026.19(e) and (f). For example, as discussed in 
the section-by-section analysis of Sec.  1026.17(c)(2)(i), proposed 
comment 17(c)(2)(i)-1 would have added a clause to the first sentence 
of the comment that states, ``[e]xcept as otherwise provided in 
Sec. Sec.  1026.19, 1026.37, and 1026.38, disclosures'' may be 
estimated when the exact information is unknown at the time disclosures 
are made. Proposed comment 17(c)(2)(i)-1 also would have added a 
sentence to the end of the existing comment that states, ``[f]or 
purpose of Sec.  1026.17(c)(2)(i), creditors must provide the actual 
amounts of the information required to be disclosed pursuant to Sec.  
1026.19(e) and (f), subject to the estimation and redisclosure rules in 
those provisions.'' Thus, creditors would have had to disclose the 
actual terms of the transaction for the disclosures under Sec.  
1026.19(f), including for disclosures provided three business days 
before consummation. Proposed comment 17(c)(2)(i)-2 (labeling 
estimates) would have added a sentence to the current comment to 
clarify that, for disclosures required by Sec.  1026.19(e), use of the 
Loan Estimate form H-24 of appendix H, pursuant to Sec.  1026.37(o), 
satisfies the requirement that the disclosure state clearly that the 
disclosure is an estimate, and that ``for all other disclosures,'' 
creditors have flexibility in labeling estimates.
    The Bureau believes the actual charges standard applicable to the 
RESPA settlement statement under Regulation X and the best information 
reasonably available standard generally applicable to closed-end 
disclosures provided before consummation under Regulation Z must be 
reconciled to integrate the disclosure requirements of RESPA and TILA. 
Accordingly, the final rule revises proposed comment 17(c)(2)(i)-1 to 
clarify that the best information reasonably available standard applies 
to the Closing Disclosure in certain circumstances. In addition, as 
discussed below, the final rule includes comment 19(f)(1)(i)-2, which 
is similar to the commentary generally applicable to Sec.  
1026.17(c)(2)(i), but differs in certain respects.
    Comment 17(c)(2)(i)-1 explains that creditors may estimate when the 
exact information is unknown to the creditor at the time disclosures 
are made, and that information is unknown if it is not reasonably 
available to the creditor at the time the disclosures are made. Comment 
19(f)(1)(i)-2 is substantially similar, but uses the phrase ``actual 
term'' instead of ``exact information'' to reflect the requirements of 
Sec.  1026.19(f)(1)(i) that the creditor provide the consumer with 
disclosures in Sec.  1026.38 reflecting the ``actual terms'' of the 
transaction. Because the best information reasonably available standard 
applies to the Closing Disclosure when it is provided three business 
days before consummation, comment 19(f)(1)(i)-2 provides that creditors 
may estimate disclosures provided under Sec.  1026.19(f)(1)(ii)(A) and 
(f)(2)(ii) when the actual term is unknown to the creditor at the time 
disclosures are made, consistent with Sec.  1026.17(c)(2)(i).
    Like comment 17(c)(2)(i)-1, comment 19(f)(1)(i)-2.i explains that 
the ``reasonably available'' standard requires that the creditor, 
acting in good faith, exercise due diligence in obtaining information. 
An actual term is unknown only if it is not ``reasonably available'' to 
the creditor at the time the disclosures are made, and the ``reasonably 
available'' standard requires that the creditor, acting in good faith, 
exercise due diligence in obtaining the information.
    The due diligence requirement is a critical element of the best 
information reasonably available standard. The Bureau expects creditors 
will conduct due diligence, and coordinate with settlement agents and 
other parties as necessary, to obtain information about the terms of 
the consumer's transaction so that the consumer receives a reliable 
Closing Disclosure three business days before consummation.
    To clarify the due diligence requirement, comment 19(f)(1)(i)-2.i 
includes guidance similar to comment 17(c)(2)(i)-1 with respect to how 
a creditor exercises due diligence in obtaining information. Unlike 
comment 17(c)(2)(i)-1, comment 19(f)(1)(i)-2.i includes settlement 
agents as an additional example of a third-party

[[Page 79840]]

source the creditor may rely on in obtaining information. The comment 
includes this example because the Bureau understands that creditors are 
likely to rely on settlement agents for many types of information that 
must be provided in the Closing Disclosure. Thus, the comment 
illustrates that creditors might look to a settlement agent for 
homeowners association dues or other information in connection with a 
real estate settlement. This comment is intended to be illustrative and 
not exhaustive of the types of parties or information that a creditor 
might consult in performing due diligence.
    If the creditor does not itself have the information regarding the 
actual terms, such as for the disclosures under Sec.  1026.38(j) and 
(k), the creditor may rely on a third party settlement agent for the 
transaction in obtaining information regarding the actual terms of the 
transaction. The creditor would not be considered to have conducted due 
diligence if the creditor did not attempt to obtain such information 
from the settlement agent. In such case, the creditor would not be 
permitted to use an estimate for the disclosure provided under Sec.  
1026.19(f)(1)(ii)(A).
    Comment 19(f)(1)(i)-2.i includes examples illustrating how a 
creditor exercises due diligence for purposes of Sec.  
1026.19(f)(1)(i). Comment 19(f)(1)(i)-2.i.A includes an example in 
which a creditor does not exercise due diligence in connection with the 
cost of the lender's title insurance policy to be purchased by the 
consumer. Comment 19(f)(1)(i)-2.i.B includes an example in which a 
creditor has exercised due diligence in connection with amounts 
disclosed under Sec.  1026.38(j) and (k) because it bases disclosures 
on information about the consumer's transaction obtained from the 
settlement agent.
    Like comment 17(c)(2)(i)-1, comment 19(f)(1)(i)-2.ii clarifies 
that, if an actual term is unknown, the creditor may use estimates in 
making disclosures even though the creditor knows that more precise 
information will be available at or before consummation. Similar to 
comment 17(c)(2)(i)-1, comment 19(f)(1)(i)-2 highlights the creditor's 
obligations to make subsequent disclosures. Comment 19(f)(1)(i)-2.ii 
specifically discusses the creditor's obligations to provide corrected 
disclosures at or before consummation containing the actual terms of 
the transaction under Sec.  1026.19(f)(2), subject to the exceptions 
provided for in Sec.  1026.19(f)(2).
    Comment 19(f)(1)(i)-2 does not state that the creditor must label 
disclosures based on the best information reasonably available as 
estimates. Instead, comment 19(f)(1)(i)-2.ii clarifies that the 
labeling rules under Sec.  1026.38 apply to the Closing Disclosures 
with a reference to comment 17(c)(2)(i)-2 to direct creditors to 
guidance on labeling estimates. The disclosure requirements in Sec.  
1026.38 generally do not permit creditors to label disclosures on the 
Closing Disclosure as estimates because creditors are required to use 
the master headings, headings, subheadings, labels, and designations 
required by that section.
    The Bureau is aware that other disclosures provided under 
Regulation Z are labeled as estimates when information is unknown. 
However, the Bureau is concerned that labeling certain items on the 
Closing Disclosure as estimates may result in consumer confusion 
regarding the nature of the Closing Disclosure. In addition, the 
Closing Disclosure uses the term ``estimated'' in specific areas to 
inform the consumer when certain recurring costs may change in the 
future, such as future payments for taxes and property insurance. The 
Bureau believes the intended meaning of the term ``estimated'' for 
those disclosures may be affected by use of that term in other places 
on the Closing Disclosure form. Further, at the Bureau's Quantitative 
Study, consumer participants using the Closing Disclosure performed 
statistically significantly better at understanding their final loan 
terms and costs than consumer participants using the current RESPA 
settlement statement and final TILA disclosure. See Kleimann 
Quantitative Study Report at 68-69.
    The Bureau notes that under Sec.  1026.19(f)(2)(i) and (ii), 
creditors must provide corrected disclosures if information on 
disclosures provided under Sec.  1026.19(f)(1)(i) becomes inaccurate. 
Thus, consumers will receive by consummation corrected disclosures 
stating the actual terms of the transaction. In addition, under final 
Sec.  1026.19(f)(2)(iii), consumers will receive corrected disclosures 
after consummation if a subsequent event changes an amount actually 
paid by the consumer during the 30-day period following consummation. 
This approach is consistent with what the Bureau believes is the 
current practice under Regulation X, which provides that the RESPA 
settlement statement must state the actual charges paid by the borrower 
and seller, and does not provide for labeling charges as estimates, 
even if the RESPA settlement statement is subsequently revised.
    Unlike comment 17(c)(2)(i)-1, comment 19(f)(1)(i)-2.iii explains 
how the best information reasonably available standard applies if a 
settlement agent provides certain disclosures under Sec.  
1026.19(f)(1)(i) instead of a creditor, pursuant to Sec.  
1026.19(f)(1)(v). As discussed in the section-by-section analysis of 
Sec.  1026.19(f)(1)(v), a settlement agent may provide a consumer with 
the Closing Disclosure, provided the settlement agent complies with all 
relevant requirements of Sec.  1026.19(f). Comment 19(f)(1)(i)-2.iii is 
intended to illustrate the applicability of the best information 
reasonably available standard to provisions as applied to settlement 
agents providing the Closing Disclosure three business days before 
consummation.
    Comment 19(f)(1)(i)-2.iii explains that the settlement agent 
normally may rely on the representations of other parties in obtaining 
information, but the settlement agent also must satisfy the ``best 
information reasonably available'' standard. Accordingly, the 
settlement agent is required to exercise due diligence to obtain 
information if it is providing the Closing Disclosure pursuant to Sec.  
1026.19(f)(1)(v). Comment 19(f)(1)(i)-2.iii illustrates a scenario in 
which the settlement agent is considered to have conducted due 
diligence if it obtained from the creditor information for the loan 
terms table required to be disclosed under Sec.  1026.38(b).
    As discussed in the section-by-section analysis of Sec.  
1026.19(f)(1)(v), even if the settlement agent provides the Closing 
Disclosure, the creditor remains responsible under Sec.  
1026.19(f)(1)(v) for ensuring that the Closing Disclosure is provided 
in accordance with Sec.  1026.19(f). Comment 19(f)(1)(v)-3 explains 
that the creditor is expected to maintain communication with the 
settlement agent to ensure that the settlement agent is acting in place 
of the creditor. Comment 19(f)(1)(i)-2.iii references this obligation 
and includes a cross-reference to comment 19(f)(1)(v)-3.
    Denied or withdrawn applications. As discussed in the section-by-
section analysis of Sec.  1026.19(f)(1)(ii)(B) below, a trade 
association representing the timeshare industry requested that the 
final rule include commentary clarifying that, if the consumer's 
application will not or cannot be approved on the terms requested or 
the consumer has withdrawn the application, the Closing Disclosure is 
not required. Although the commenter provided this recommendation in 
the context of timeshare transactions, the Bureau

[[Page 79841]]

believes such guidance would be helpful as applied to all transactions 
subject to Sec.  1026.19(f). Thus, as discussed below, the final rule 
includes comment 19(f)(1)(i)-3 to provide guidance for such situations, 
which reflects similar guidance applicable to the Loan Estimate.
    Under Sec.  1026.19(f)(1)(i), the creditor must provide a Closing 
Disclosure reflecting ``the actual terms of the transaction.'' 
Additionally, under Sec.  1026.19(f)(1)(ii)(A) and (f)(2)(ii), the 
Closing Disclosure must be provided three business days before 
consummation; under Sec.  1026.19(f)(2)(i), the Closing Disclosure must 
be provided at or before consummation; and for loans secured by 
timeshares under Sec.  1026.19(f)(1)(ii)(B), creditors must ensure that 
the consumer receives the Closing Disclosure no later than 
consummation. If the consumer's application for credit is denied or 
withdrawn before the creditor provides the Closing Disclosure under 
Sec.  1026.19(f)(1)(ii)(A), (f)(1)(ii)(B), (f)(2)(i), or (f)(2)(ii), 
creditors would be unable to disclose ``the actual terms of the 
transaction,'' and providing a Closing Disclosure in such cases would 
provide relatively little consumer benefit.
    In other cases, an application may be denied or withdrawn after the 
three-business-day deadline by which the Closing Disclosure must be 
provided under Sec.  1026.19(f)(1)(ii)(A) and, as applicable, Sec.  
1026.19(f)(2)(ii). In these cases, however, the denial or withdrawal of 
an application that may occur subsequent to the three-business-day 
deadline does not excuse a creditor's obligation to provide the Closing 
Disclosure by that deadline. Where the consumer is considering whether 
to withdraw a credit application in the days before consummation, the 
consumer's receipt of the Closing Disclosure three business days before 
consummation would provide critical information about whether it is in 
the consumer's interest to proceed with the transaction.
    Accordingly, comment 19(f)(1)(i)-3 clarifies that the creditor is 
not required to provide the disclosures required under Sec.  
1026.19(f)(1)(i) if, before the time the creditor is required to 
provide the disclosures under Sec.  1026.19(f), the creditor determines 
the consumer's application will not or cannot be approved on the terms 
requested, or the consumer has withdrawn the application, and, as such, 
the transaction will not be consummated. The comment also includes a 
cross-reference to comment 19(e)(1)(iii)-3, which provides examples in 
which an application will not or cannot be approved on the terms 
requested or has been withdrawn by the consumer.
    Integration of Closing Disclosure requirements in Regulation Z. 
Section 1032(f) of the Dodd-Frank Act generally requires that the 
Bureau propose 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. In addition, Dodd-Frank Act sections 1098 and 1100A 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. Although Congress imposed this integrated 
disclosure requirement, it did not harmonize the underlying statutes, 
as discussed in greater detail in the Legal Authority discussion in 
part IV above. Thus, to meet the Dodd-Frank Act's express requirement 
to integrate the disclosures required by TILA and RESPA, the Bureau 
must reconcile the differences between these two statutes.
    The Bureau understands the concerns raised by commenters with 
respect to placing the requirements regarding disclosure of settlement 
charge information, which is traditionally considered to be only RESPA-
required information, in Regulation Z. However, the Bureau believes it 
is appropriate to integrate the requirements of RESPA and TILA into a 
single Closing Disclosure set forth in Regulation Z. Section 1419 of 
the Dodd-Frank Act amended TILA by adding section 128(a)(17), which 
generally 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. Accordingly, creditors would have to include in 
the TILA disclosures information that was traditionally known only to 
settlement agents in advance of consummation. Although TILA section 
128(a)(17) requires that creditors disclose aggregate information, to 
meaningfully implement this requirement, the Bureau believes it is 
reasonable to require that creditors base such disclosure on the 
specific elements comprising the aggregate figure. Accordingly, and in 
light of the integration mandate, the Bureau believes it is appropriate 
to integrate the specific requirements of RESPA and Regulation X into 
Regulation Z.
    In addition, the Bureau believes there are substantial practical 
benefits to locating the disclosure requirements in Regulation Z, 
including the benefits of facilitating industry compliance and 
improving consumer comprehension. The Closing Disclosure was subjected 
to extensive consumer testing as a single, integrated document. Were 
the Closing Disclosure divided as separate documents based on disparate 
requirements located in Regulation X and Regulation Z, there is risk 
that consumers would receive different parts of the Closing Disclosure 
at different times, which the Bureau believes would undermine consumer 
comprehension. Even if the rule were to require that the information be 
provided to consumers by the same deadline, there is a risk that 
consumers would receive separate, disjointed disclosures at separate 
times if, for example, parties providing the disclosures used different 
delivery services. Accordingly, the Bureau believes it is necessary to 
ensure that consumers receive the Closing Disclosure as a single, 
integrated document.
    The Bureau believes ensuring consumer comprehension requires that 
the information in the Closing Disclosure be disclosed and delivered in 
a consistent manner. The Closing Disclosure was designed to facilitate 
the consumer's comparison of terms disclosed in the Loan Estimate. As a 
result, a number of the disclosure requirements applicable to the 
Closing Disclosure set forth in Sec.  1026.38 cross-reference the 
disclosure requirements applicable to the Loan Estimate set forth in 
Sec.  1026.37, rather than setting forth their own requirements.\214\ 
This approach helps ensure consumers can easily compare the Closing 
Disclosure against the Loan Estimate. To this end, the Bureau believes 
the Closing Disclosure should be subject to rules relying on a single 
set of terminology, timing requirements, recordkeeping requirements, 
and a consistent set of other general disclosure requirements and 
commentary.
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    \214\ See, e.g., Sec.  1026.38(a)(5) (loan information 
disclosures requiring disclosure of the information required to be 
disclosed under Sec.  1026.37(a)(8) through (11)); Sec.  1026.38(c) 
(projected payment disclosures requiring disclosure of the 
information required to be disclosed under Sec.  1026.37(c)); Sec.  
1026.38(f) (closing loan cost information described in Sec.  
1026.37(f)(1) and (3), and the total of loan costs based, inter 
alia, on such disclosures).
---------------------------------------------------------------------------

    The Bureau believes the final rule will facilitate compliance 
because it will obviate potential conflicts between Regulation X and 
Regulation Z that might otherwise arise. For example, as described in 
more detail above,

[[Page 79842]]

Sec.  1026.19(f)(1)(i) clarifies the applicability of the best 
information reasonably available standard set forth in the general 
disclosure requirements applicable to closed-end consumer credit 
transactions under Sec.  1026.17(c)(2)(i), and Sec.  1026.17 contains a 
number of other general disclosure requirements that address compliance 
questions raised by commenters, such as questions about delivery 
requirements in the case of multiple consumers. See section-by-section 
analysis of Sec.  1026.19(f)(1)(iii) below; Sec.  1026.17(d) (providing 
disclosures in the case of multiple consumers). Regulation Z also 
contains extensive commentary that interprets many of the provisions of 
Regulation Z, including the general disclosure requirements in Sec.  
1026.17. The Bureau believes this extensive commentary will assist 
industry in complying with the final rule. By contrast, locating 
certain Closing Disclosure requirements in Regulation X, with other 
information in Regulation Z, likely would present compliance 
difficulties for creditors and settlement agents. Because the Loan 
Estimate requirements will be located in Regulation Z, and because 
elements of the Closing Disclosure cross-reference elements of the Loan 
Estimate, creditors or settlement agents would be required to regularly 
consult Regulation Z. The Bureau is concerned that compliance with two 
sets of regulations for one disclosure would increase the risk of 
inconsistencies.
    One trade association representing settlement agents and the title 
insurance industry implied that the Bureau could resolve any such 
discrepancies by including a provision in Regulation X stating that, 
for loans subject to Sec.  1026.19(e) and (f), the definitions and 
rules of construction of Regulation Z would control, to the extent of 
any inconsistency. This commenter also recommended that the Closing 
Disclosure provisions in Regulation X cross-reference applicable Loan 
Estimate requirements located in Regulation Z. However, the Bureau does 
not believe such an approach will facilitate compliance, which is one 
of the purposes of the integrated disclosures. See Dodd-Frank Act 
sections 1098, 1100A. Because many of the individual elements of the 
Closing Disclosure cross-reference the Loan Estimate, and because the 
timing, delivery, and other general disclosure standards applicable to 
the Closing Disclosure rely on definitions and other provisions located 
in Regulation Z, coordination with Regulation Z would be unavoidable. 
The Bureau is concerned that separating the disclosure requirements 
between Regulation Z and Regulation X would foster confusion and 
inefficiencies, while not facilitating compliance with the disclosure 
requirements. See Dodd-Frank Act sections 1098, 1100A. For example, 
while the approach preferred by commenters may reconcile differences in 
terminology, the Bureau does not believe it would reconcile other 
differences, such as the general disclosure requirements in Sec.  
1026.17.\215\
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    \215\ The commenter recommending this approach, in which the 
settlement agent would provide elements of the Closing Disclosure 
contained in Regulation X, explained that doing so would facilitate 
industry compliance and enhance consumer understanding. The Bureau 
has addressed settlement agent responsibility for the Closing 
Disclosure in the section-by-section analysis of Sec.  
1026.19(f)(1)(v).
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    The Bureau believes integrating the Closing Disclosure requirements 
in Regulation Z also satisfies the Dodd-Frank Act integration mandate. 
To meet the integration mandate, the Bureau must reconcile several 
important differences between RESPA and TILA. For example, to reconcile 
the different timing requirements under RESPA and TILA with respect to 
when the Closing Disclosure must be provided, the final rule generally 
requires that the Closing Disclosure be provided three business days 
before ``consummation.'' Regulation Z currently defines 
``consummation'' as ``the time that a consumer becomes contractually 
obligated on a credit transaction.'' See Sec.  1026.2(a)(13). 
Regulation X, by contrast, provides that the RESPA settlement statement 
must be delivered by ``settlement,'' which is defined as ``the process 
of executing legally binding documents regarding a lien on property 
that is subject to a federally related mortgage loan.'' See 12 CFR 
1024.2(b). As noted by commenters representing the views of settlement 
agents, discussed in the section-by-section analysis of Sec.  
1026.19(f)(1)(ii)(A), ``consummation'' and ``settlement'' may not 
necessarily occur at the same time. To ensure consumers consistently 
receive a single, integrated Closing Disclosure in a timely manner, the 
Bureau believes it must reconcile these differences. Accordingly, as 
discussed in more detail in the section-by-section analysis of Sec.  
1026.19(f)(1)(ii)(A), the final rule requires that the Closing 
Disclosure be received three business days before ``consummation.'' 
Thus, as described above, the Bureau believes integrating the TILA and 
RESPA requirements applicable to the Closing Disclosure in Sec.  
1026.19(f)(1)(i) will satisfy TILA, RESPA, and the Dodd-Frank Act's 
integration mandate, will facilitate industry compliance, and will 
enhance consumers' understanding of their transactions.
    Comments related to the integration of particular disclosure 
requirements are addressed where applicable below in the section-by-
section analysis of Sec.  1026.38. Comments related to liability issues 
raised by integrating the Closing Disclosure requirements in Regulation 
Z are addressed in the beginning of part V above. The final rule makes 
certain amendments to the proposal in response to comments regarding 
the timing and delivery requirements applicable to the Closing 
Disclosure, as discussed in greater detail throughout the section-by-
section analysis of Sec.  1026.19(f) below.
    Final provisions. For the reasons discussed above, and based on the 
authority cited in the proposal as well as sections 1098 and 1100A of 
the Dodd-Frank Act, the final rule integrates the disclosure 
requirements in TILA section 128 and RESPA section 4 in final Sec.  
1026.19(f), as proposed. The final rule adopts the language in proposed 
Sec.  1026.19(f)(1)(i) as proposed, with a technical revision to the 
heading of Sec.  1026.19(f)(1). The final rule adopts proposed comment 
19(f)(1)(i)-1 substantially as proposed, and adopts new comments 
19(f)(1)(i)-2 and -3 pursuant to the Bureau's authority under sections 
105(a) of TILA, 19(a) of RESPA, and sections 1098, 1100A and 1032(f) of 
the Dodd-Frank Act.
19(f)(1)(ii) Timing
19(f)(1)(ii)(A) In General
    The Bureau explained in the proposal that the integrated disclosure 
mandate requires the Bureau to reconcile two statutory timing regimes 
that are currently not synchronized. The Bureau explained that 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.'' The Bureau recognized in the proposal 
that 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 business days 
before consummation. The Bureau explained that this would afford 
consumers sufficient time to review, analyze, and question the 
information reflected in the disclosure, such that consumers are aware 
of and understand the

[[Page 79843]]

transactions by the time consumers become obligated.
    The Bureau also explained that if consumers receive the disclosures 
three business days before consummation, they would have sufficient 
time to identify and correct errors, discuss and negotiate cost 
increases, and have the necessary funds available. The Bureau expected 
that this also could eliminate the opportunity for bad actors to 
surprise consumers with unexpected costs at the closing table, when 
consumers are committed to going through with the transaction. Further, 
the Bureau explained that providing consumers with more time to review 
the Closing Disclosure may encourage creditors to take greater care to 
ensure the accuracy of the Loan Estimate. The Bureau noted that while 
the proposal's expanded Loan Estimate tolerances would reduce the 
likelihood of such tactics, requiring advance disclosure of the Closing 
Disclosure would make it easier for consumers to identify any changes 
and provide additional incentive for creditors to avoid such changes.
    The Bureau acknowledged that a three-business-day period could 
result in closing delays, which would impose costs on some consumers. 
The Bureau also noted that, in extreme situations, such delays could 
cause a transaction to fall through if a consumer is under a 
contractual obligation to close by a certain date. The Bureau reasoned, 
however, that creditors and settlement agents currently coordinate to 
provide the RESPA settlement statement at closing and that these 
parties would have an incentive to complete closings as scheduled, and 
therefore the Bureau believed that they would adjust their business 
practices to provide the Closing Disclosure in a timely manner, making 
closing delays infrequent. The Bureau also noted that delayed or 
canceled closings could impose costs on covered persons as well, such 
as a loss in revenue for transactions that fall through due to a delay. 
The Bureau also noted that the proposed rule could create legal and 
reputational risks for creditors or settlement agents that are unable 
to close loans as planned.
    Section 105(a) of TILA authorizes the Bureau to modify and add 
requirements under certain circumstances, and the Bureau stated its 
belief 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 proposed Sec.  
1026.19(f)(1)(ii)(A), which would have provided that, except for 
transactions secured by timeshares, or as provided under proposed Sec.  
1026.19(f)(2), the creditor shall ensure that the consumer receives the 
disclosures no later than three business days before consummation. 
Pursuant to proposed Sec.  1026.2(a)(6), the definition of ``business 
day'' that would have applied to Sec.  1026.19(f)(1)(ii) would have 
been the specific definition that also applies to the right of 
rescission under Sec.  1026.23: a business day would include all 
calendar days except Sundays and the legal public holidays specified in 
5 U.S.C. 6103(a).
    Proposed comment 19(f)(1)(ii)-1 would have provided illustrations 
of this requirement. Proposed comment 19(f)(1)(ii)-2 would have 
explained the requirement that consumers must receive disclosures no 
later than three business days in advance of consummation, and would 
have provided practical examples illustrating appropriate delivery 
methods.
Comments
    The Bureau received extensive public comment and ex parte 
submissions regarding the timing of the Closing Disclosure's delivery 
requirements. Some industry commenters representing views from across 
the real estate market \216\ and some individual consumers expressed 
support for a general three-business-day disclosure requirement. These 
commenters explained that a general three-business-day period would 
provide consumers an opportunity to review documents, ask questions, 
negotiate to reduce costs, gather necessary funds, transfer funds to 
the settlement agent, and reduce opportunity for bait-and-switch 
tactics. Settlement agents and attorney commenters explained that a 
general three-business-day requirement also would provide settlement 
agents more time to prepare settlement documents in an unpressured 
environment.
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    \216\ Commenters included title and insurance companies, 
settlement agents, law firms, mortgage brokers, attorneys, a large 
bank, community banks, and trade associations representing 
creditors, attorneys, and settlement agents.
---------------------------------------------------------------------------

    A variety of settlement agent commenters and an individual consumer 
explained that consumers are sometimes surprised at the closing table 
when they discover important changes to their loan terms, such as the 
discovery that they are receiving an adjustable rate mortgage loan 
rather than a fixed rate loan, or an adjustable rate mortgage loan with 
different loan terms than what they anticipated. Settlement agent 
commenters explained that a general three-business-day period would 
allow consumers to review the Closing Disclosure with an attorney or 
another advisor. Some of these commenters, however, expressed concern 
about triggering an additional waiting period as a result of 
redisclosing the Closing Disclosure and about how the Bureau's proposal 
would interact with other rules. Comments relating to the circumstances 
under which revisions to the Closing Disclosure would trigger an 
additional waiting period are discussed in more detail in the section-
by-section analysis of Sec.  1026.19(f)(2) below.
    Commenters who represent consumer interests supported the three-
business-day requirement. Two consumer advocacy groups submitting a 
joint comment supported the Bureau's proposal. A housing counseling 
agency noted that a mandatory period would address a common consumer 
complaint that refinancing settlements are frequently rushed. A State 
attorney general stated that a three-business-day period was necessary 
for consumers to consider all of the costs in light of the significant 
obligation assumed by the consumer in a mortgage transaction, 
particularly in the context of purchasing a home. Several associations 
of State banking regulators submitting a joint comment also supported a 
general three-business-day requirement, explaining that the three-
business-day requirement would create consistency where there was a 
discrepancy between RESPA and TILA. This commenter noted that the 
proposed changes to the disclosures were perhaps the most sweeping and 
significant reform to the mortgage origination process in recent 
history, but cautioned that careful and coordinated implementation was 
essential to avoiding potentially significant market disruption.
    However, many commenters from across the mortgage and real estate 
industry and a Federal agency opposed a general three-business-day 
disclosure requirement, arguing that providing ``final'' settlement 
costs three business days before consummation would be impracticable, 
unnecessary, and result in frequent closing delays that would impose 
costs on consumers, sellers, industry, and the market. Commenters 
explained that certain settlement costs were unknown three to six days 
in advance and usually are not known until a day or two before 
closing.\217\ A

[[Page 79844]]

community bank representative stated that, while it would be feasible 
to prepare a borrower's closing costs three days in advance, it may be 
more difficult to account for the seller's transaction accurately by 
that time.
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    \217\ Commenters observed that they would have to prepare the 
Closing Disclosure at least six business days before consummation 
because proposed Sec.  1026.19(f)(1)(iii) would add three business 
days to the timeframe to obtain the benefit of a presumption that 
the consumer receives it three business days before consummation. As 
discussed in the section-by-section analysis of Sec.  
1026.19(f)(1)(iii), the proposed rule would have provided that if 
the Closing Disclosure is not provided to the consumer in person, 
the consumer is presumed to have received it three business days 
after it is mailed or delivered to the address specified by the 
consumer.
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    Difficulties with obtaining final costs three business days before 
consummation. Many commenters concerned about the general three-
business-day requirement cited the likelihood of coordination problems 
between creditors, settlement service providers, and other third-
parties. Both creditors and settlement agents expressed concern that 
they could not guarantee that other parties, such as government 
entities or third-party settlement service providers, would be able to 
provide final closing figures in a timely manner. As a result, 
commenters explained that it is common practice for consumers to review 
final settlement costs the day before settlement or several hours 
before settlement.
    Settlement agent commenters explained that the RESPA settlement 
statement includes certain loan information and requires coordination 
with lenders, but that they do not receive the lender's settlement 
statement figures until the day of or day before closing. One escrow 
agent commenter explained that it is not uncommon for lenders and 
settlement agents to revise the RESPA settlement statement frequently 
because of differences in software used by those parties and 
miscommunications between them. Settlement agents also explained that 
the work of clearing known title defects can sometimes occur during the 
days leading up to consummation because certain defects may not come to 
light until after a title report is analyzed.
    Creditors expressed similar coordination concerns and explained 
that many settlement service fees are outside of the control of the 
creditor or the creditor's affiliate. Community banks explained that 
they cannot ensure they receive accurate information in a timely manner 
from third parties such as realtors, attorneys, title companies, 
insurance agents, and other third-party lenders responsible for 
providing payoffs or subordination agreements. Commenters explained 
that third-party payoff information may become stale as a result of 
closing delays. A settlement agent commenter operating in a rural area 
explained that in an active real estate market, it can be difficult for 
creditors to obtain an appraisal more than three days before closing, 
and without underwriting being complete, creditors are unable to 
produce the exact numbers needed for the settlement statement. One non-
depository lender explained that it is not uncommon for loan amounts to 
be adjusted in refinancings where appraisals or payoff figures from 
third parties arrive soon before consummation. Commenters also 
explained that final settlement costs could not be known in advance if 
consumers shop or otherwise request changes to the transaction, if 
settlement agent due diligence uncovers new obligations or 
encumbrances, or if delays cause per diem or prorated amounts to 
accumulate.
    Costs associated with a general three-business-day period. A 
variety of settlement agents, title insurance companies, individual 
attorneys and law firms, a variety of creditors, industry trade 
associations, and a member of Congress, identified costs that consumers 
would face as a result of delayed closings caused by a mandatory three-
business-day waiting period, including breach or expiration of real 
estate agreements; the expiration of interest rate locks; inconvenience 
and financial costs associated with rearranging closings (such as, if a 
consumer is required to arrange for temporary housing needs, or if a 
seller's subsequent purchase also is delayed); additional pre-closing 
diligence costs and attorney's fees; and, in the case of refinancings, 
especially those subject to the right of rescission's post-consummation 
funding delay, prolonged interest payments on outstanding debts.
    Non-depository lenders, credit unions, community banks, mortgage 
brokers, settlement agents, trade associations representing those 
industries, a mortgage compliance company and an individual consumer 
stated that a general three-business-day period would inconvenience and 
impose logistical costs on consumers. Commenters explained consumers 
would have difficulties scheduling moving vans, time away from work, 
temporary housing, and could face delays up to 12 days or more before 
they could close. A mortgage company commenter noted that consumers in 
the military who are purchasing a home frequently stay in a hotel 
before they move in, and that, in those instances, closing delays could 
result in longer hotel stays. Law firms, settlement agents, and trade 
associations representing attorneys and credit unions anticipated that 
a general three-business-day period would lead consumers to ask more 
questions and engage in additional diligence before consummation, which 
would require more time on the part of settlement agents and attorneys 
per closing and, thus, increase costs to consumers.
    Commenters also identified financial and opportunity costs that 
consumers could incur as a result of closing delays. Trade associations 
representing banks and settlement agents, a community bank and a 
community bank holding company, non-depository lenders, and a member of 
Congress indicated that a consumer's interest rate lock could expire as 
a result of a delay. As a result, commenters explained, consumers would 
have to pay a higher interest rate or pay additional fees to extend 
their rate lock or obtain a new one. Commenters expected that creditors 
would price rate locks higher and may limit their availability to 
account for closing delays across the market. A non-depository lender 
and a large bank estimated that the proposal's general three-business-
day period, a three-business-day presumption of delivery, and two 
business days to prepare the disclosure would mean preparing and 
delivering the Closing Disclosure would take eight business days, or 
ten calendar days. Estimating that the cost of a rate lock at 
approximately two basis points per day, the non-depository lender 
commenter estimated consumers would pay approximately 20 basis points, 
or $400 on a $200,000 loan.
    In addition to interest rate lock expiration, a large number of 
commenters expressed concern that a consumer's purchase agreement with 
a seller could expire, potentially putting the consumer in breach of 
the agreement. The consumer could lose the opportunity to purchase the 
home or incur per diem penalties, which in turn could jeopardize other 
of the consumer's arrangements. Numerous commenters also raised 
concerns about the ``domino effect'' of closing delays on sellers who 
may schedule coinciding settlements in which they are a buyer. 
Commenters were concerned this could affect the efficient operation of 
the residential real estate market. Commenters also explained that 
sellers in short-sales may be harmed, where a creditor may require that 
a sale occur within a specified period of time. Commenters also 
explained that, in the case of refinancings, where no seller is 
present, delays could force consumers to pay additional interest on an 
outstanding loan or delay their ability to meet an upcoming expense. 
One commenter suggested that the three-business-day timing requirement 
could

[[Page 79845]]

be an unlawful interference with the right of buyers and sellers to 
contract.
    Banks, non-depository lenders, and a trade association representing 
banks were concerned that a three-business-day receipt requirement 
would increase loan processing costs, including compliance costs or 
costs to extend expired rate locks or underwriting verifications, and 
costs necessary to secure warehouse financing capacity. For example, a 
community bank explained that it would have to add five days to its 
secondary market rate locks to meet the proposal's timelines to prevent 
the interest rate lock from expiring, and that such costs would be 
passed on to consumers. In addition, trade associations representing 
creditors and community banks expressed concern that delayed closings 
would require them to pay for additional warehouse financing capacity. 
Creditor and settlement agent commenters also were concerned that they 
would face liability and reputational risk arising from incorrect 
figures obtained from or delays caused by third parties, particularly 
where delays may result in the breach of a consumer's real estate 
agreement. One creditor requested that the final rule protect creditors 
from such liability and ensure that settlement agents bear 
responsibility for their mistakes.
    Commenters also raised concerns that closing delays would be 
problematic for sellers who are paying off existing Federal Housing 
Administration (FHA) loans or consumers who are refinancing existing 
FHA loans. Commenters explained that FHA has traditionally charged 
borrowers a whole month's interest if they pay off their loans after 
the first day of any month; thus, many borrowers schedule closings at 
the end of the month to avoid this extra interest payment. Commenters 
explained that delayed closings could push scheduled end-of-month 
closings into the next month, causing consumers to pay additional 
interest.
    In addition to general compliance costs, creditors noted they would 
face additional costs related to preparing revised Closing Disclosures. 
Settlement agents, law firms, credit unions, title insurance companies, 
and trade associations representing attorneys explained that delayed 
closings would result in fewer closings and increased burden on the 
part of settlement agents in terms of additional time and costs related 
to preparing the Closing Disclosure and answering consumers' questions. 
Some commenters thought that the pressure to avoid closing delays would 
lead to the circumvention of the closing process.
    Uncertain benefits of a general three-business-day period. Many 
commenters maintained that a general three-business-day waiting period 
was unnecessary in light of the current tolerance rules because they 
limit increases in certain settlement costs, TILA rescission rights 
that impose a mandatory post-consummation three-business-day waiting 
period, other rulemakings under title XIV of the Dodd-Frank Act, and 
because a consumer's primary interest is in closing the transaction in 
a timely manner.
    A wide variety of commenters also maintained that the APR accuracy 
requirements in Regulation Z and the good faith estimate tolerance 
requirements currently in Regulation X render additional waiting 
periods unnecessary. A trade association representing banks indicated 
that a consumer's cash to close amount would most likely increase due 
to consumer choice, rather than because of a loan origination charge, 
and that very few closed loans have increases in closing costs that 
result in tolerance violations requiring reimbursement, and therefore a 
three-business-day period was unjustified. Other commenters, including 
trade associations representing real estate agents, banks, and 
financial companies stated that other Bureau rulemakings under title 
XIV of the Dodd-Frank Act, such as the ability-to-repay, loan 
originator compensation, and HOEPA rulemakings made an additional 
three-business-day waiting period unnecessary.
    A mortgage broker, a title insurance company and trade associations 
representing attorneys, banks, and financial companies maintained that 
a pre-consummation period would not enhance consumer understanding 
because consumers already have a long period of time to negotiate and 
review closing costs. A compliance company and a settlement agent 
commenter suggested that advance disclosure of real estate agent fees 
and other costs was unnecessary because consumers receive information 
about many fees during the course of the transaction. Commenters also 
emphasized that consumers are primarily interested in closing the 
transaction as quickly as possible and would not benefit from a waiting 
period.
    Law firm commenters and a professional association representing 
attorneys did not think a waiting period would be useful without 
someone to help the consumer understand the Closing Disclosure. Law 
firm commenters explained that they expected many consumers would wait 
until consummation to review the document. The association representing 
attorneys believed it would be necessary to schedule separate meetings 
with consumers to help them understand the Closing Disclosure. One law 
firm commenter recommended that the final rule should require that 
consumers have an attorney present at settlement to explain the Closing 
Disclosure.
    Transactions subject to the right of rescission. A variety of 
industry commenters critical of the Bureau's proposed three-business-
day waiting period questioned the necessity of the pre-consummation 
waiting period in light of the right of rescission available to 
consumers for certain transactions under Sec.  1026.23. These 
commenters explained that rescission rights render a pre-consummation 
waiting period unnecessary and that a pre-consummation waiting period 
would further delay the funding of a consumer's loan. Some commenters 
said that consumers could experience a nine-day waiting period at the 
earliest to fund such a loan.\218\ A community bank commenter explained 
that creditors sometimes permit a post-consummation waiting period for 
transactions not subject to TILA rescission rights as a courtesy to 
consumers, and that a pre-consummation waiting period would further 
delay these transactions as well.
---------------------------------------------------------------------------

    \218\ Commenters explained the nine-day period would be due to a 
three-day period by operation of proposed Sec.  1026.19(f)(1)(iii), 
a three-day waiting period before consummation, and a three-day 
post-consummation waiting period by operation of the rescission 
rule.
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    Some commenters requested that the Bureau exempt refinancings from 
a three-business-day waiting period or permit the three-business-day 
waiting period to run concurrently with the rescission period because 
the rescission rule already protects consumers. A large bank 
recommended that, for transactions subject to the right of rescission, 
the three-business-day right to cancel should begin with the consumer's 
receipt of the Closing Disclosure to shorten the waiting period by four 
days while still preserving the consumer's opportunity to review the 
transaction and rescind.
    Alternatives recommended by commenters. Commenters recommended a 
number of alternatives to the proposed three-business-day period. 
Commenters including non-depository lenders, community banks, credit 
unions, and trade associations representing credit union suggested that 
a two-day or 48-hour period would better balance the need for advance 
disclosure with the consumer's interest in closing in a timely manner. 
Similarly, a one-day or 24-hour period was

[[Page 79846]]

recommended by many commenters, including a State housing development 
authority, mortgage brokers, individual consumers, non-depository 
lenders, community banks, law firms, as well as trade associations 
representing mortgage brokers, banks and community banks, credit 
unions, and the manufactured housing industry. Commenters believed a 
one-day period would provide consumers enough time to review the 
disclosure and would be less disruptive than a three-business-day 
requirement, although some thought that even a one-day delay could be 
problematic for consumers.
    Other commenters, including a large bank, credit unions and trade 
associations representing credit unions, title insurance companies and 
a law firm, recommended that the final rule include no pre-consummation 
period, or that a pre-consummation period apply only if there is a 
tolerance violation. The large bank commenter explained that the Bureau 
could accomplish this by exempting all closed-end consumer mortgage 
loans secured by real property from the requirement under TILA section 
128(b)(2) that an inaccurate APR triggers the obligation that a 
consumer receive a corrected final TILA disclosure no later than three 
business days before consummation. The commenter stated that this would 
harmonize the timing between TILA and RESPA and would facilitate 
compliance with the Dodd-Frank Act's integrated disclosure mandate.
    One individual consumer was concerned that a three-business-day 
period could negatively affect a purchase transaction, but the 
commenter also questioned whether a three-business-day period would 
provide consumers sufficient time to question charges. One settlement 
agent commenter recommended that the final rule adopt a post-
consummation period in which adjustments to the transaction could 
occur. A mortgage broker commenter recommended, as alternatives to a 
three-business-day advance disclosure, requiring the consumer's 
signature of the Closing Disclosure at closing or requiring that the 
Closing Disclosure be read aloud to consumers at closing to ensure the 
consumer understood the transaction. A settlement agent recommended 
that consumers should be able to determine how much time they would 
like before closing, or that the final rule should apply different 
timing requirements to different classes of consumers, depending on how 
experienced they are with mortgage transactions, such as by requiring 
that first-time home buyers receive the Closing Disclosure six days in 
advance, while all other consumers would receive the disclosure one-to-
three days in advance, at their option.
    In addition to recommending alternative timing regimes, commenters 
recommended that the final rule provide more flexible exemptions from 
the general three-business-day period. A trade association representing 
real estate agents, a financial holding company, a compliance company, 
and various settlement agents recommended that the final rule 
distinguish between loan and settlement costs for purposes of imposing 
a pre-consummation period. Commenters recommended either separating 
TILA and RESPA disclosures and requiring a three-business-day period 
for TILA disclosures and no waiting period for RESPA disclosures, or 
imposing a general three-business-day period but permitting settlement 
figures to be finalized at closing. One trade association representing 
settlement agents requested that the Bureau consider an exemption from 
the three-business-day period if the final cash to close amount does 
not increase beyond a certain tolerance. The commenter explained that 
this would allow transactions that have been estimated more accurately 
at the Loan Estimate stage to close without advance delivery of the 
Closing Disclosure.
    Consummation v. settlement. The proposed rule would have required 
that the Closing Disclosure be delivered three business days before 
``consummation,'' consistent with other provisions under TILA and 
Regulation Z. RESPA and Regulation X, by contrast, require the 
settlement statement to be delivered at ``settlement.'' Some settlement 
agents and various trade associations representing settlement agents, 
the title insurance industry, and banks requested clarification on how 
``consummation'' would be defined and how the proposal would apply in 
jurisdictions in which settlement and consummation occur at different 
times.
    Trade associations representing settlement agents and the title 
insurance industry explained that in some States, the signing of 
legally binding documents may occur at one time, while consummation may 
not occur until one or more days later, such as when the documents are 
recorded. Commenters requested clarification on whether, in this case, 
the Closing Disclosure would be provided when the documents are 
recorded. Other commenters were concerned that settlement may not occur 
until after consummation, and that the proposed rule did not adequately 
account for post-consummation changes occurring during the course of 
settlement.
    Business day. As discussed in the section-by-section analysis of 
Sec.  1026.2(a)(6), the Bureau received comments on the proposed 
definitions of ``business day'' applicable to the proposed rule. As 
noted in the section-by-section analysis of Sec.  1026.2(a)(6), a 
variety of commenters supported establishing a consistent definition of 
business day to promote consistency across the provisions of 
Regulations X and Z. Commenters observed that the specific definition 
would allow one less day to comply with the timing requirements. One 
commenter was concerned that an inconsistent business day definition 
could create confusion if different products are treated differently 
(e.g., refinancings). A trade association representing banks and 
financial companies recommended that business days should include 
Saturdays because doing so would allow consumers to close sooner.
    Authority issues. Several industry trade associations and a large 
bank stated that the Bureau lacks authority under TILA and the Dodd-
Frank Act to implement this aspect of the proposal, and that TILA and 
RESPA both would permit the Closing Disclosure to be provided at or 
before consummation. A compliance company commenter maintained that the 
Dodd-Frank Act does not specifically mandate that the Bureau improve 
disclosure of realtor fees or other transaction costs outside of the 
cost of financing. These commenters pointed out that RESPA does not 
require that settlement costs be disclosed in advance and that TILA 
requires a three-business-day waiting period only if a loan's APR 
changes outside of the tolerance. A large bank, a trade association 
representing banks and financial companies, and a trade association 
representing banks stated that the three-business-day waiting period 
under TILA only applies to the disclosure of the APR and not to other 
loan or settlement-related costs. A trade association representing 
banks and financial companies and a trade association representing 
banks pointed out that, soon after RESPA was enacted, Congress 
substantially amended its original early settlement cost disclosure 
requirement after substantial public protest, which the commenter 
believed indicates Congress prohibited such waiting periods 
thereafter.\219\
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    \219\ As originally enacted on December 22, 1974, RESPA 
contained a requirement that lenders disclose in writing, not later 
than 12 days before settlement, the amount of each charge for 
settlement services. See Public Law 93-533, section 6 (12 U.S.C. 
2605, repealed 1976). Congress subsequently amended RESPA to, among 
other things, repeal the requirement to provide advance disclosure 
of actual settlement costs and replace it with a requirement that 
lenders provide good faith estimates of likely settlement charges. 
Congress also added the requirement for settlement agents to make 
settlement costs available for inspection by the borrower upon 
request. See 12 U.S.C. 2603(b) (1976).

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[[Page 79847]]

Final Rule
    After considering public comment and the ex parte submissions, the 
Bureau continues to believe there is significant consumer benefit to 
requiring that the Closing Disclosure be provided three business days 
before consummation. As described below, the final rule requires 
creditors to ensure that consumers receive the Closing Disclosure no 
later than three business days before consummation.
    As noted above, the timing requirements of TILA and RESPA are not 
synchronized. TILA requires, for certain mortgage transactions, that 
creditors furnish a corrected disclosure to the consumer so that it is 
received not later than three business days before the date of 
consummation of the transaction if the prior disclosed APR has become 
inaccurate. See 15 U.S.C. 1638(b)(2)(A), (D). In contrast, RESPA 
requires that the person conducting the settlement (e.g., the 
settlement agent) complete a settlement statement and make it available 
for inspection by the borrower at or before settlement. See 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.
    The Dodd-Frank Act amended TILA and RESPA to mandate that the 
Bureau establish a single disclosure scheme for use by lenders or 
creditors in complying comprehensively with the ``disclosure 
requirements'' of those statutes.\220\ However, Congress did not define 
``disclosure requirements'' and did not instruct the Bureau on how to 
integrate the different timing requirements under TILA and RESPA with 
respect to final disclosures. The Bureau believes that harmonizing the 
timing requirements is a component step towards achieving the goals of 
integration: to facilitate compliance and to ensure that consumers 
receive disclosures that will aid in their understanding of their 
mortgage loan transactions. Accordingly, the Bureau is adopting final 
Sec.  1026.19(f)(1)(iii)(A) to adjust both TILA's and RESPA's timing 
requirements, using its authorities 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.
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    \220\ 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).
---------------------------------------------------------------------------

    Integrating the disclosures without reconciling the timing 
requirements would result in a series of disclosures provided by both 
the creditor and the settlement agent. Creditors would provide 
integrated disclosures three business days before consummation when 
necessary under TILA, as amended by MDIA, and then again at 
consummation. See TILA section 128(b)(2)(B)(ii) and (b)(2)(D); 15 
U.S.C. 1638(b)(2)(B)(ii) and (b)(2)(D). Settlement agents would be 
required to permit the borrower to inspect the integrated disclosures 
one business day before settlement based on the information known by 
the settlement agent, and then would be required to provide them at or 
before ``settlement,'' which may occur before, concurrent with, or 
after ``consummation.''
    The Bureau believes this uncoordinated approach to the timing of 
the disclosures could result in consumer confusion and unnecessary 
burden for industry. Therefore, the Bureau is using its authorities 
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 to adjust both TILA and RESPA 
to require creditors to deliver Closing Disclosures at least three 
business days before consummation in all cases, and not only when the 
APR previously disclosed exceeds tolerance. Providing all consumers 
with three business days to review the Closing Disclosure will greatly 
enhance consumer awareness and understanding of the costs associated 
with the entire mortgage transaction.\221\
---------------------------------------------------------------------------

    \221\ See also the discussion in this section-by-section 
analysis below for reasons why the final rule uses the TILA term 
``consummation'' rather than the RESPA term ``settlement'' as the 
event around which disclosures must be provided.
---------------------------------------------------------------------------

    Disclosure to consumers of such component settlement charges three 
business days prior to consummation would represent an increased 
benefit for consumers from the current disclosure requirements under 
RESPA. Currently, RESPA requires that settlement agents disclose 
settlement costs and certain loan terms on the RESPA settlement 
statement at or before settlement, and inspection of the statement is 
permitted during the business day before settlement at the consumer's 
request. By affirmatively requiring that all consumers receive a 
Closing Disclosure listing loan terms and settlement charges three 
business days before consummation, the Bureau believes the potential 
for consumers to be surprised at closing will be reduced.
    As the Bureau explained in the proposal, one of the purposes of the 
integrated disclosures is to aid consumer understanding of their 
transaction through the use of disclosures. To that end, the Bureau has 
developed the Loan Estimate and the Closing Disclosure to facilitate a 
comparison between the two, so that consumers can easily compare their 
estimated and actual charges. The Bureau's Quantitative Study, as 
described in part III above, determined that the integrated disclosures 
better enable consumers to compare their estimated and actual terms and 
costs than the current disclosures. See Kleimann Quantitative Study 
Report at 46-47. The Bureau believes this consumer benefit will be 
achieved best if consumers receive the Closing Disclosure three 
business days before consummation to compare the terms with the Loan 
Estimate, ask questions, and consider all of their options before 
proceeding with the transaction. To the extent changes occur between 
the time the Closing Disclosure is first provided three business days 
before consummation and consummation, consumers only will need to 
compare changes between two Closing Disclosures.
    The benefits of a three-business-day period are not exclusive to 
consumers. The Bureau believes a general three-business-day requirement 
also will benefit industry because settlement agents, like consumers, 
will have time to review the Closing Disclosure in an unpressured 
environment and incorporate other changes to the transaction that may 
occur before consummation. Both creditor and settlement agent 
commenters explained that they have had problems coordinating to ensure 
the timely receipt of information necessary to prepare the RESPA 
settlement statement. Commenters, particularly settlement agents, 
explained that this

[[Page 79848]]

frequently results in a pressured, last-minute preparation of the RESPA 
settlement statement, increasing the risk of errors. As noted above, 
some individual settlement agent commenters supported a general three-
business-day requirement because it would reduce the pressured 
atmosphere of last-minute closings. The Bureau believes a general 
three-business-day requirement will help correct for this problem by 
providing a strong incentive for parties to coordinate earlier. Thus, 
the Bureau believes a general three-business-day requirement will 
improve the operation of closings for all parties involved.
    The Bureau recognizes that providing settlement cost and other 
information on the Closing Disclosure three business days before 
consummation will require that industry adjust current practice with 
respect to the disclosure of settlement charges. However, the Bureau 
notes that industry would have to adjust current practice to comply 
with the Dodd-Frank Act's impact on TILA. TILA, as amended by MDIA, and 
Regulation Z currently require redisclosure of all changed terms three 
business days before consummation when the APR is inaccurate. Under 
TILA section 128(b)(2)(D), the creditor must provide a corrected 
disclosure statement if the previously disclosed APR becomes 
inaccurate. See 15 U.S.C. 1638(b)(2)(A), (D).\222\ As discussed above, 
section 1419 of the Dodd-Frank Act also amended TILA section 128(a) by 
adding paragraph (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; and to disclose the 
aggregate figure, the Bureau believes creditors must know the itemized 
settlement charges. Accordingly, even if the final rule implemented the 
requirements of TILA, as amended by MDIA and the Dodd-Frank Act, in a 
manner similar to the current rule, the Bureau believes industry would 
have to implement systems necessary to disclose settlement cost 
information before consummation on the final TILA disclosures. The 
Bureau further believes that, in the absence of this final rule, it is 
possible that when the loan's previously disclosed APR becomes 
inaccurate, creditors would elect to provide final TILA disclosures 
with all changed terms, including settlement cost information required 
by TILA section 128(a)(17), to all consumers as a matter of practice to 
manage their TILA liability risk.\223\
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    \222\ MDIA amended TILA section 128(b)(2)(D) to require that 
creditors provide a corrected disclosure so that it is received by 
the consumer no later than three business days before consummation, 
if the APR changes outside of the TILA tolerances. See 15 U.S.C. 
1638(b)(2)(D). In its final rule implementing MDIA, the Board 
explained that ``[t]he requirement in TILA Section 128(b)(2)(D) for 
a creditor to provide a corrected disclosure is essentially a 
requirement for the creditor to provide an additional set of the 
early disclosures required by TILA Section 128(b)(2)(A).'' See 74 FR 
23289, 23296 (May 19, 2009). The Bureau agrees with this 
interpretation. Current Sec.  1026.19(a)(2)(ii) of Regulation Z 
implements the MDIA amendments, requiring creditors to provide final 
TILA disclosures with all changed terms, pursuant to the statutory 
timing requirements. As a general rule, a disclosed APR is 
considered accurate if it is within a percentage of the actual APR. 
This percentage is commonly referred to as the ``APR tolerance'' or 
the ``TILA tolerance.'' In general, the tolerance specified for 
closed-end ``regular transactions'' (those that do not involve 
multiple advances, irregular payment periods, or irregular payment 
amounts) is one eighth of one percent; the tolerance specified for 
``irregular'' transactions (those that involve multiple advances, 
irregular payment periods, or irregular payment amounts, such as an 
adjustable rate mortgage with a discounted initial interest rate) is 
one quarter of one percent. See 12 CFR 1026.22(a).
    \223\ As noted in the proposal, the Bureau received extensive 
feedback indicating that APR estimates included in the early TILA 
disclosures are so rarely accurate by the time of consummation that 
most creditors provide corrected disclosures at least three business 
days before consummation as a standard business practice, instead of 
analyzing the accuracy of the disclosed APR to ensure compliance 
with MDIA.
---------------------------------------------------------------------------

    Commenters opposed to the proposal were concerned that a general 
three-business-day timing requirement would lead to closing delays. As 
discussed below, the Bureau does not believe such a requirement alone 
would be the primary cause of any such delays. The Bureau believes 
creditors and settlement agents will be able to coordinate in advance 
based on when consummation is expected to occur to ensure that 
consumers receive a timely Closing Disclosure that includes the actual 
terms or is based on the best information reasonably available at the 
time it is provided. See the section-by-section analysis of Sec.  
1026.19(f)(1)(i). With a three-business-day requirement, the timing of 
particular actions by creditors and settlement agents may shift 
forward, further reducing the probability of closing delays. The Bureau 
further believes industry will have additional incentive to coordinate 
preparation of the Closing Disclosure in light of the interest in 
avoiding closing delays shared by consumers, sellers, and other 
parties.
    Thus, the Bureau believes creditors or settlement agents can 
provide the Closing Disclosure so that it is received by the consumer 
no later than three business days before consummation without delaying 
consummation while they await more precise information about the actual 
terms of the transaction. In addition, the Bureau believes the 
revisions to the proposed redisclosure requirements will significantly 
reduce the risk of closing delays, as discussed in the section-by-
section analysis of Sec.  1026.19(f)(2)(i) and (f)(2)(ii).
    Some commenters were concerned that a three-business-day rule would 
lead to additional closing conferences or time spent with consumers, 
and some commenters suggested that the Bureau require that attorneys or 
other settlement service providers be present to assist consumers with 
understanding their transaction. The final rule does not require the 
scheduling of closing conferences or the presence of particular 
personnel at a closing. The Bureau is concerned that such a requirement 
would be burdensome. The Bureau further believes that the design of the 
Loan Estimate and Closing Disclosure will help consumers understand 
their transaction, even if additional personnel are not available, as 
discussed in the Kleimann Quantitative Study Report.\224\
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    \224\ As noted above, the Bureau's Quantitative Study determined 
that the integrated disclosures better enable consumers to compare 
their estimated and actual terms and costs than the current 
disclosures, and to understand their final transaction better than 
the current disclosures. See Kleimann Quantitative Study Report at 
46-48.
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    To the extent consumers ask creditors, settlement agents, or other 
parties questions about their transaction based on the information in 
the Closing Disclosure, the Bureau believes a general three-business-
day requirement will improve consumer awareness and understanding of 
their transaction, consistent with Dodd-Frank Act section 1405(b). 
Enhancing consumer awareness and understanding is one of the principal 
goals of this rulemaking and is consistent with the purpose of the 
integration mandate. Thus, the Bureau believes a potential increase in 
burden associated with additional engagement with consumers is 
justified. In addition, to the extent consumers have an opportunity to 
ask questions and identify errors before they arrive at closing, a 
general three-business-day requirement may increase the efficient 
operation of closings.
    Some commenters were concerned that a three-business-day 
requirement would be difficult to comply with because loan underwriting 
is sometimes not completed until soon before consummation, particularly 
in active real estate markets. While the Bureau

[[Page 79849]]

appreciates that it may be difficult in certain cases to complete 
underwriting in advance, the Bureau does not believe such problems will 
be widespread as a result of a general three-business-day requirement 
because creditors already must be in a position to know a mortgage 
loan's APR as necessary to comply with MDIA's three-business-day 
requirement.
    Commenters were concerned that a three-business-day requirement 
would have a negative impact on consumer choice. As discussed below, 
the Bureau believes the final rule affords consumers flexibility to 
make a wide variety of changes to their transaction between the time 
the Closing Disclosure is first provided and consummation without 
triggering a new three-business-day period. In fact, the Bureau 
believes a requirement to provide the Closing Disclosure so that it is 
received by consumers no later than three business days before 
consummation will help consumers make more informed decisions because 
they will have more information about the entire transaction before 
consummation. Further, in light of the revisions made to the proposed 
redisclosure requirements, discussed in greater detail in the section-
by-section analysis of Sec.  1026.19(f)(2) below, the Bureau does not 
believe a three-business-day period will frustrate consumer choice. The 
Bureau believes these revisions also address commenters' concern that 
closing delays would lead consumers to incur an additional month's 
interest based on FHA payoff rules.\225\
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    \225\ In addition, the Bureau believes the prepayment penalty 
provisions adopted in the Bureau's 2013 ATR Final Rule and May 2013 
ATR Final Rule will reduce the likelihood that consumers will incur 
such charges in the future.
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    Several commenters stated that a three-business-day requirement was 
unnecessary because consumers already have time during the loan 
application, underwriting, and closing process to inform themselves 
about their transaction. However, the Bureau is concerned that a 
consumer's ability to understand the transaction and ask questions is 
limited without a single disclosure that presents all of the terms. 
Consumers may have difficulty making purchase decisions or other 
tradeoffs without accurate information about all of the costs involved 
in their transactions. As commenters explained, mortgage loan 
transactions involve many pieces of information from a variety of 
sources and, in some cases, underwriting and title exams may not 
conclude until later in the process. Because creditors and settlement 
agents are in a better position than consumers to coordinate this 
information and account for disbursements, the Bureau believes it is 
appropriate for consumers to receive this information in a single, 
integrated disclosure before consummation. The Bureau understands that 
consumers have an interest in completing their transaction in a timely 
manner, but the Bureau believes this goal can be achieved while also 
providing consumers timely information about the terms of their 
transaction.
    The Bureau also believes a general three-business-day requirement 
is warranted, notwithstanding the Bureau's other Title XIV Rulemakings. 
While regulations adopted in the 2013 ATR Final Rule, 2013 Loan 
Originator Final Rule, and the 2013 HOEPA Final Rule provide important 
consumer protections, they do not specifically address the goal of 
enhancing consumers' awareness and understanding of the specific terms 
of their transaction. Moreover this final rule will work in concert 
with other consumer protections. For example, the Bureau's 2013 HOEPA 
Final Rule adopted counseling requirements, including requirements that 
creditors cannot extend a high-cost mortgage to a consumer unless the 
creditor receives written certification that the consumer has obtained 
counseling on the advisability of the mortgage from an approved 
counselor. See 12 CFR 1026.34(a)(5). In addition, the 2013 HOEPA Final 
Rule adopted requirements that lenders provide loan applicants a 
written list of counseling organizations that provide counseling 
services in the applicant's area. See 12 CFR 1024.20(a)(1). While 
counselors can provide general guidance, they can provide much more 
effective counseling if their advice is tailored to the terms of a 
consumer's transaction, based on information in the Closing Disclosure. 
To this end, the Bureau believes a general three-business-day review 
period will provide consumers time to consult a housing counselor or 
other professionals about the particulars of their transaction before 
consummation.
    Other timing standards recommended by commenters. With respect to 
the suggestion that the Bureau exempt all closed-end consumer credit 
transactions secured by real property from MDIA's three-business-day 
redisclosure requirement (triggered by an inaccurate APR), the Bureau 
declines. For the reasons discussed below, the Bureau believes an 
exemption from the MDIA requirement that consumers receive the TILA 
disclosures three business days before consummation when the APR is 
inaccurate would be inconsistent with both TILA and the goals that this 
final rule seeks to achieve.
    While such an exemption might eliminate concerns about delayed 
closings and reduce some burden on industry, it would remove what the 
Bureau believes is an important existing consumer protection under 
MDIA. As noted above, the Bureau believes consumers should be provided 
the opportunity to review their final loan terms and costs in an 
unpressured environment to identify mistakes, ask questions, and 
generally understand their transaction before becoming obligated to it. 
Providing consumers with information about their final loan terms and 
costs three business days prior to consummation also was recognized by 
the Board and HUD as providing important consumer benefits and was 
recommended by those agencies to Congress. See Board-HUD Joint Report 
at 43-44. In addition, the Bureau has developed the Loan Estimate and 
Closing Disclosure to match closely to enable consumers to easily 
compare their estimated and actual loan terms and costs. Further, as 
noted above, the Bureau's Quantitative Study has determined that the 
Bureau's integrated disclosures perform better than the current 
disclosures at enabling consumers to identify differences between the 
early and final disclosures. See Kleimann Quantitative Study Report at 
46-47.
    Because the Closing Disclosure contains a significant amount of 
detailed content necessary to inform consumers about their loan and 
their settlement charges, the Bureau believes that providing consumers 
with at least three business days before consummation to review the 
information and ask questions provides an important benefit to 
consumers. The Bureau believes the good faith estimate tolerance rules 
under Sec.  1026.19(e)(3) will protect consumers against the most 
significant bait-and-switch risks. However, they do not provide 
protection against all changes that may occur between the time the Loan 
Estimate is provided and consummation. These changes include increases 
in certain real estate-related costs and disbursements to others, which 
could create legal issues for consumers after consummation. Further, 
the Bureau believes that providing consumers with better disclosures to 
identify changes or inaccuracies, as well as providing them with more 
time in which to do so, will further encourage creditors to provide 
more accurate Loan Estimates and Closing Disclosures, and discourage 
the use of bait-and-switch tactics.

[[Page 79850]]

    The Bureau has considered commenters' suggestions that the Closing 
Disclosure be provided earlier than three business days before 
consummation. However, as stated in the proposal, the Bureau also is 
concerned that it would be impractical to require delivery earlier than 
three business days before consummation. Thus, the final rule provides 
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 
regarding electronic delivery or hand delivery. See comments 
19(f)(1)(ii)-2 and 19(f)(1)(iii)-2. In addition, as explained in more 
detail in the section-by-section analysis of Sec.  1026.19(f)(1)(iii) 
below, the final rule makes amendments to the proposal, which the 
Bureau believes will facilitate compliance with the delivery 
requirements.
    The Bureau believes a general three-business-day requirement will 
benefit consumers more than a requirement for creditors to ensure the 
consumer receives the Closing Disclosure two days or one day before 
consummation.\226\ While shorter periods would reduce the extent of 
revisions to the Closing Disclosure before consummation, they would 
provide consumers less time to review the transaction. As noted above, 
the Closing Disclosure, like the current final TILA disclosure and 
RESPA settlement statement, contains a significant amount of 
information regarding the credit and the real estate transaction. The 
Bureau believes a three-business-day period in which to review the 
information is a reasonable amount of time considering this significant 
amount of information on the disclosure. The Bureau also believes a 
three-business-day period is appropriate because the three-business-day 
period was the period recently instituted by Congress under its MDIA 
amendments to TILA with respect to creditor disclosures when the loan's 
previously disclosed APR becomes inaccurate.
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    \226\ While the final rule does not impose a requirement for 
creditors to ensure that consumers receive the Closing Disclosure 
one or two days before consummation, the final rule does include a 
requirement for creditors to permit consumers a right to inspect the 
Closing Disclosure the business day before consummation upon the 
consumer's request. See the section-by-section analysis of Sec.  
1026.19(f)(2)(i).
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    Transactions subject to the three-business-day right of rescission. 
The Bureau declines to exempt transactions subject to the three-
business-day right of rescission from Sec.  1026.19(f)(1)(ii)(A) or 
otherwise amend the rescission rules.\227\ The Bureau believes the pre-
consummation waiting period and the post-consummation waiting period 
for transactions subject to the right of rescission serve different 
purposes. The pre-consummation period permits the consumer an 
opportunity to understand the specific elements of the transaction, 
question specific charges, ask questions, consider other options, or 
potentially improve the terms of the transaction prior to consummation. 
On the other hand, the right of rescission provides consumers an 
opportunity to unwind the entire transaction and receive any fees they 
may have paid for the transaction. Exempting transactions subject to 
the right of rescission from the general three-business-day pre-
consummation review period would mean many consumers would lose the 
opportunity to review the transaction details and resolve any concerns 
before consummation. The Bureau further notes that the Congresses that 
passed the Dodd-Frank Act and MDIA did not exempt rescindable 
transactions from MDIA's three-business-day waiting period. Currently 
under Regulation Z, creditors must provide the final TILA disclosures 
so that consumers receive them no later than three business days before 
consummation if the loan's previously disclosed APR becomes inaccurate, 
even if the loan is subject to the post-consummation three-business-day 
right of rescission.
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    \227\ For certain transactions, including refinancings with a 
new creditor or refinancings with the same creditor where new money 
is advanced, TILA grants consumers a three-day right to rescind the 
transaction where a security interest is or will be retained in the 
consumer's principal dwelling. See 15 U.S.C. 1635(a). The right of 
rescission permits consumers time to reexamine their credit 
contracts and cost disclosures and to reconsider whether they want 
to put their home at risk by offering it as security for credit. See 
12 CFR 1026.23.
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    While the Bureau has authority to exempt transactions from TILA's 
requirements in certain circumstances, an exemption is not warranted 
here because the amendments made to the final rule's redisclosure 
requirements in Sec.  1026.19(f)(2) will significantly reduce the 
potential for closing delays. In addition, refinancings that are 
subject to the right of rescission typically involve fewer parties and 
require less coordination than purchase-money transactions. Thus, the 
Bureau believes creditors in those transactions should be able to 
provide disclosures for transactions subject to the right of rescission 
three business days before consummation without imposing burdensome 
delays on consumers.
    Consummation v. settlement. The final rule requires that the 
Closing Disclosure be provided three business days before 
``consummation,'' rather than before ``settlement.'' In general, TILA 
and Regulation Z require that creditors provide final TILA disclosures 
in certain circumstances three business days before ``consummation'' of 
the credit transaction, while RESPA and Regulation X require settlement 
agents to provide the RESPA settlement statement at or before 
``settlement.'' Regulation Z currently defines ``consummation'' as 
``the time that a consumer becomes contractually obligated on a credit 
transaction.'' See 12 CFR 1026.2(a)(13). Regulation X, by contrast, 
provides that the RESPA settlement statement must be delivered by 
``settlement,'' which is defined as ``the process of executing legally 
binding documents regarding a lien on a property that is subject to a 
federally related mortgage loan.'' See 12 CFR 1024.2(b). The Bureau 
appreciates that ``consummation'' and ``settlement'' may not always 
coincide in some jurisdictions. The Bureau believes that reconciling 
this difference between TILA and RESPA satisfies the integration 
mandate. The Bureau believes ``consummation'' is appropriate because 
TILA section 128(b)(2)(D) requires that the creditor provide final TILA 
disclosures no later than three business days before consummation where 
the loan's previously disclosed APR becomes inaccurate. See 15 U.S.C. 
1638(b)(2)(D). This is the standard that applies to TILA disclosures 
currently under MDIA, which, as amended by Dodd-Frank Act section 1419, 
include the disclosure of settlement cost information. See 15 U.S.C. 
1638(a)(17). In addition, TILA requires that the early TILA disclosures 
be provided no later than seven business days before ``consummation.'' 
15 U.S.C. 1638(b)(2)(A). The Bureau believes that the early and final 
TILA disclosures should be provided in the sequence set forth under 
TILA to ensure consumers benefit from the time necessary to review the 
respective disclosures before becoming obligated on the credit 
transaction. In addition, because ``consummation'' is a particular 
point in time, while ``settlement'' is defined as a ``process,'' the 
Bureau believes the rule provides clarity with respect to when the 
disclosures must be provided. Accordingly, the final rule uses 
``consummation'' as the timing standard

[[Page 79851]]

applicable to the provision of the Closing Disclosure.
    As noted above, the Bureau recognizes that ``consummation'' and 
``settlement'' may not coincide in some jurisdictions. Indeed, the 
definition of ``settlement'' in Regulation X indicates that a 
settlement is not necessarily a singular event involving the execution 
of one agreement, but is instead a ``process of executing legally 
binding documents'' regarding a lien on property that is subject to a 
federally related mortgage loan. See 12 CFR 1024.2(b). Thus, in some 
jurisdictions, a settlement may begin before ``consummation'' under 
Regulation Z, and, in some jurisdictions, may conclude later.
    The Bureau believes that the final rule should account for the 
variety of ways settlements are handled across the country without 
imposing unnecessary costs on consumers, sellers, or industry. 
Accordingly, the final rule provides additional flexibility by 
narrowing the triggers for new three-business-day waiting periods when 
changes occur to the terms of the transaction, as discussed in the 
section-by-section analysis of Sec.  1026.19(f)(2). The Bureau believes 
these changes will help ensure the efficient operation of closings. To 
account for situations in which consummation may occur before a 
settlement concludes, the final rule provides additional flexibility 
for post-consummation events, as discussed in the section-by-section 
analysis of Sec.  1026.19(f)(2)(iii) below.
    Some commenters requested clarification of when ``consummation'' 
occurs, specifically inquiring whether it occurs when documents are 
recorded. As noted above, ``consummation'' is defined as ``the time 
that a consumer becomes contractually obligated on a credit 
transaction.'' See 12 CFR 1026.2(a)(13). Existing commentary to 
Regulation Z explains that when a contractual obligation on the 
consumer's part is created is a matter to be determined under 
applicable law, and that Regulation Z does not make this determination. 
See comment 2(a)(13)-1. Existing commentary also explains that 
consummation does not occur when the consumer becomes contractually 
committed to a sale transaction, unless the consumer also becomes 
legally obligated to accept a particular credit arrangement. See 
comment 2(a)(13)-2.
    Business day. As noted in the section-by-section analysis of Sec.  
1026.2(a)(3), the final rule adopts the specific definition of business 
day applicable to Sec.  1026.19(f)(1)(ii), as proposed. The Bureau 
believes the specific definition in Sec.  1026.19(f)(1)(ii) is 
appropriate because the delivery requirement in Sec.  
1026.19(f)(1)(iii), as discussed in the section-by-section analysis for 
that section, provides that the consumer is deemed to have received the 
Closing Disclosure three business days after they are mailed or 
delivered, if not provided to the consumer in person. That provision 
uses the specific definition of business day to account for the current 
practice of United States postal service delivery on Saturday. Using 
the specific definition for the Closing Disclosure delivery 
requirements in this rule also will assist industry and consumers by 
facilitating the efficient delivery of the Closing Disclosure to reduce 
the potential for closing delays.
    The Bureau does not expect that such use of the specific definition 
of business day in this rule will impose costs on industry because it 
would not operate to require that a creditor's or settlement agent's 
office be open on Saturday. It only enables them to count Saturday as a 
day on which the consumer received the disclosures. The Bureau believes 
that using the general definition of business day in Sec.  
1026.19(f)(1)(ii) and (f)(1)(iii) would create unnecessary delays in 
many cases because it would mean that creditors and settlement agents 
could not count Saturdays as a day of receipt, unless the creditor's or 
settlement agent's offices were open to the public for carrying on 
substantially all of its business functions. The Bureau believes it 
would be incongruous if the regulation did not recognize a consumer's 
actual receipt of the Closing Disclosure on a Saturday simply because 
the creditor's offices were not open. The Bureau recognizes that using 
a consistent definition of business day, both within Regulation Z and 
between Regulation X and Regulation Z, could benefit industry and 
consumers alike by providing more certainty regarding regulatory 
requirements and reducing compliance costs. However, the Bureau 
believes that streamlining the definition of business day should be 
part of a more comprehensive assessment of Regulation Z, which the 
Bureau believes is outside of the scope of this rulemaking. See the 
section-by-section analysis of Sec.  1026.2(a)(6) for additional 
discussion of the definition of business day.
    Other issues raised by commenters. With respect to a commenter's 
request that the final rule include protections for the creditor from 
breach of contract claims arising from delayed closing, the final rule 
does not expressly address such limitations on creditor liability. The 
final rule addresses disclosure obligations under TILA and RESPA; other 
creditor duties are outside the scope of this rulemaking. With respect 
to the commenter's request that the final rule address creditor 
liability for the accuracy of the Closing Disclosure, see the section-
by-section analyses of Sec.  1026.19(f)(1)(i) and (f)(1)(v).
    Final provisions. For the aforementioned reasons, the final rule 
adopts Sec.  1026.19(f)(1)(ii)(A) and comment 19(f)(1)(ii)-1 
substantially as proposed. Final Sec.  1026.19(f)(1)(ii)(A) makes 
technical revisions by adding references to other provisions of Sec.  
1026.19(f) that serve as exceptions to the general three-business-day 
requirement under Sec.  1026.19(f)(1)(ii)(A). Specifically, the final 
rule replaces the reference to Sec.  1026.19(f)(2) with more specific 
references to Sec.  1026.19(f)(2)(i) and (f)(2)(iii) through (f)(2)(v). 
This change has been made because final Sec.  1026.19(f)(2) has been 
revised to narrow the circumstances under which a new pre-consummation 
three-business-day period is required, as discussed in the section-by-
section analysis of Sec.  1026.19(f)(2)(i) and (ii) below. The final 
rule makes conforming changes to comment 19(f)(1)(ii)-1. Comment 
19(f)(1)(ii)-1 also includes a technical revision by omitting a 
reference to comment 2(a)(6)-1 so that comment 19(f)(1)(ii)-1 cross-
references only comment 2(a)(6)-2, which discusses the specific 
definition of business day applicable to Sec.  1026.19(f)(1)(ii).
    The final rule also adopts comment 19(f)(1)(ii)-2, with 
modifications. The comment has been reorganized for clarity, makes 
technical revisions, and includes additional discussion. The comment 
references the receipt rule in Sec.  1026.19(f)(1)(iii) and includes 
examples illustrating when the Closing Disclosure would have to be 
delivered or placed in the mail to ensure the consumer receives the 
Closing Disclosure no later than three business days before 
consummation. The Bureau believes this language helps clarify the 
example that follows. In that example, consummation is scheduled for 
Thursday, and the comment explains that a creditor would satisfy the 
requirements of Sec.  1026.19(f)(1)(ii)(A) if the creditor places the 
disclosures in the mail on Thursday of the previous week, because, for 
the purposes of Sec.  1026.19(f)(1)(ii), Saturday is a business day, 
pursuant to Sec.  1026.2(a)(6), and, pursuant to Sec.  
1026.19(f)(1)(iii), the consumer would be considered to have received 
the disclosures on the Monday before consummation is scheduled. The 
comment also includes a cross-reference to comment 19(f)(1)(iii)-1, 
which further clarifies the requirements of

[[Page 79852]]

Sec.  1026.19(f)(1)(iii) applicable to mail delivery. The comment also 
explains that a creditor would not satisfy the requirements of Sec.  
1026.19(f)(1)(ii)(A) in this example if the creditor places the 
disclosures in the mail on the Monday before consummation.
    The comment also includes more detail than proposed comment 
19(f)(1)(ii)-2 in explaining how a creditor in the above example could 
satisfy the requirements of Sec.  1026.19(f)(1)(ii)(A) by delivering 
the Closing Disclosure by way of electronic mail on a day (Monday) that 
is three business days before consummation (Thursday). The comment also 
revises the proposal's reference to Sec.  1026.17(a)(1) relating to 
disclosures in electronic form. The final comment refers to Sec.  
1026.38(t)(3)(iii) instead, which permits the Closing Disclosure to be 
provided in electronic form, subject to compliance with the E-Sign Act. 
As revised, the comment explains that the creditor in the above example 
could satisfy the requirements of Sec.  1026.19(f)(1)(ii)(A) by 
delivering the disclosures on Monday, for instance, by way of 
electronic mail, provided the requirements of Sec.  1026.38(t)(3)(iii) 
relating to disclosures in electronic form are satisfied and assuming 
that each weekday is a business day, and provided that the creditor 
obtains evidence that the consumer received the emailed disclosures on 
Monday. The comment also includes a cross-reference to comment 
19(f)(1)(iii)-2, which discusses how Sec.  1026.19(f)(1)(iii) applies 
to delivery methods other than mail delivery.
    Final Sec.  1026.19(f)(1)(ii)(A) and comments 19(f)(1)(ii)-1 and -2 
are adopted 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 rule and commentary are appropriate. 
The final rule and commentary will 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. The final rule and commentary 
are 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 also has considered the purposes for which it may 
exercise its authority under section 19(a) of RESPA and, based on that 
review, believes that the final rule and commentary are appropriate. 
The final rule and commentary will 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.
    The final rule and commentary are 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 a manner that permits consumers to understand 
the costs, benefits, and risks associated with the mortgage loan and 
settlement services if consumers receive the disclosures reflecting the 
terms and costs associated with their transactions three business 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 final rule and commentary 
are appropriate. The final rule and commentary will improve consumer 
awareness and understanding of the mortgage loan transaction by 
ensuring that consumers receive the disclosures reflecting the terms 
and costs associated with their transactions three business days in 
advance of consummation. The final rule and commentary also will be in 
the interest of consumers and in the public interest because they 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 the timing requirement in Sec.  
1026.19(f)(1)(ii)(A) 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. Id. at 29. While the final rule continues to require 
that the Closing Disclosure be provided to consumers three business 
days before consummation in all circumstances, the final rule has 
provided for more flexibility, in part, because of the concern of the 
rule's impact on the market. As discussed above in the section-by-
section analysis of Sec.  1026.19(f)(1)(i), the final rule includes new 
comment 19(f)(1)(i)-2, which clarifies when creditors may use the best 
information reasonably available when providing the disclosures 
required under Sec.  1026.19(f)(1)(i). In addition, the final rule 
narrows the circumstances under which a new waiting period will be 
triggered for revisions to the Closing Disclosure, as discussed in more 
detail in the section-by-section analysis of Sec.  1026.19(f)(2) below. 
Further, the final rule clarifies the receipt requirements in Sec.  
1026.19(f)(1)(iii), which the Bureau believes will facilitate 
compliance. The Bureau believes these modifications will reduce burden 
on small entities.
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 from MDIA's three-business-day requirement.\228\ 
Accordingly, the Bureau proposed Sec.  1026.19(f)(1)(ii)(B), which 
would have provided 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 Sec.  1026.19(f)(1)(i) no later than consummation. The 
Bureau proposed these requirements pursuant to its authority under 
sections 105(a) of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank 
Act.
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    \228\ See MDIA, Public Law 110-289, section 2502(a)(6), 122 
Stat. 2654, 2857 (2008); 15 U.S.C. 1638(b)(2)(G). ``Timeshare'' is 
defined in 11 U.S.C. 101(53D).
---------------------------------------------------------------------------

    Proposed comment 19(f)(1)(ii)-3 would have explained that, for 
loans secured by timeshares, 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 would have included 
illustrative examples of this requirement.
    Comments. A trade association representing the timeshare industry 
supported the Bureau's proposed exemption from the Closing Disclosure's 
timing requirements. The commenter also explained that proposed comment 
19(f)(1)(ii)-3 should be modified to clarify that, if the creditor in 
the case of a transaction secured by a consumer's

[[Page 79853]]

interest in a timeshare plan provides the credit application and 
consummates the transaction on the same day, or if consummation occurs 
a day after the application is received, there should be no requirement 
to provide the Loan Estimate required by Sec.  1026.19(e)(1)(iii), and 
that the creditor would comply with Sec.  1026.19(e)(1)(iii) and 
(f)(1)(i) by providing the Closing Disclosure. As discussed in the 
section-by-section analysis of Sec.  1026.19(e)(1)(iii) above, the 
commenter noted that timeshare transactions are typically consummated 
on the same or very next day after the creditor receives the 
application.
    The commenter also requested that comment 19(f)(1)(ii)-3 be amended 
to clarify that timeshare transactions covered by the rule may be 
consummated at any time after the Closing Disclosure is provided, 
similar to language in existing comment 19(a)(5)(ii)-1. The commenter 
further requested that language be added to the comment explaining that 
the disclosures required by Sec.  1026.19(e)(1)(iii) and (f)(1)(i) are 
not required to be provided if the consumer's application will not or 
cannot be approved on terms requested by the consumer or if the 
consumer has withdrawn the application, similar to language in existing 
comment 19(a)(5)(ii)-4.
    The commenter also requested that the Bureau also exempt timeshares 
from many of the Dodd-Frank Act's amendments to TILA by, for example, 
allowing timeshare lenders to use a timeshare-specific Closing 
Disclosure form or to strike out or omit inapplicable disclosures on 
the proposed forms. The commenter indicated that this would fulfill the 
exemption for timeshares recognized in the Dodd-Frank Act.
    Final rule. The Bureau adopts Sec.  1026.19(f)(1)(ii)(B) and 
comment 19(f)(1)(ii)-3 substantially as proposed, but has added 
additional commentary in response to the comments received. As 
discussed in the section-by-section analysis of Sec.  1026.19(f)(1)(i), 
the final rule includes comment 19(f)(1)(i)-3 explaining that, for 
transactions covered by Sec.  1026.19(f)(1)(i), creditors may rely on 
comment 19(e)(1)(iii)-3 in determining that disclosures are not 
required by Sec.  1026.19(f)(1)(i) because the consumer's application 
will not or cannot be approved on the terms requested or the consumer 
has withdrawn the application. Thus, for timeshare transactions covered 
by Sec.  1026.19(f)(1)(ii)(B), creditors need not provide the Closing 
Disclosure if a consumer's application is denied or withdrawn, in 
accordance with comment 19(f)(1)(i)-3.
    Comment 19(f)(1)(ii)-3 adds language to proposed comment 
19(f)(1)(ii)-3 clarifying that timeshare transactions may be 
consummated at the time or any time after the disclosures required by 
Sec.  1026.19(f)(1)(i) are received by the consumer. To avoid 
uncertainty over whether consummation may occur after only the Closing 
Disclosure is provided, the comment also indicates that, in some cases, 
the Loan Estimate must be provided under Sec.  1026.19(e) and includes 
a cross-reference to comment 19(e)(1)(iii)-4. Comment 19(f)(1)(ii)-3 
amends the examples in proposed comment 19(f)(1)(ii)-3 to demonstrate 
that the Closing Disclosure must be provided no later than 
consummation. The comment includes an example in which an application 
is received on a Monday and consummation occurs on Friday of that week. 
The comment also includes an example in which an application is 
received on a Monday and consummation occurs the next day, on Tuesday 
of that week. In both examples, the Closing Disclosure must be provided 
no later than consummation.
    To conform the comment to the language in Sec.  
1026.19(f)(1)(ii)(B), the comment omits language in proposed comment 
19(f)(1)(ii)-3 that would have explained that, if an application is 
received on a Monday and consummation is scheduled for Friday, ``the 
creditor may provide the consumer with the disclosures required by 
Sec.  1026.19(f)(1)(i) on Tuesday, June 2, if doing so is reasonably 
practicable.'' The comment also revises proposed guidance that would 
have addressed compliance with Sec.  1026.19(e). Comment 19(f)(1)(ii)-3 
explains that, in some cases, a Loan Estimate also must be provided 
under Sec.  1026.19(e) and includes a cross-reference to comment 
19(e)(1)(iii)-4, which addresses the provision of the Loan Estimate in 
timeshare transactions, as discussed in the section-by-section analysis 
of Sec.  1026.19(e)(1)(iii).
    Section 1026.19(f)(1)(ii)(B) and comment 19(f)(1)(ii)-3, as 
finalized, carry 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, the final rule and commentary 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).

19(f)(1)(iii) Receipt of Disclosures

    TILA and RESPA differ in their treatment of delivery requirements 
for the final disclosures. Section 128(b)(2)(E) of TILA, as amended by 
MDIA, 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 12 CFR 
1026.19(a)(2)(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. See 12 CFR 1024.10(b), (c).
    To establish a consistent standard for the Closing Disclosure, the 
Bureau proposed to adopt Sec.  1026.19(f)(1)(iii), which would have 
provided 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. The Bureau 
proposed these requirements pursuant to its authority under sections 
105(a) of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank Act. 
Proposed Sec.  1026.2(a)(6) would have applied the specific definition 
of ``business day'' to Sec.  1026.19(f)(1)(iii). The specific 
definition of business day is the definition that applies to the right 
of rescission in Sec.  1026.23 and includes all calendar days except 
Sundays and the legal public holidays specified in 5 U.S.C. 6103(a).
    Proposed comment 19(f)(1)(iii)-1 would have explained 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. The 
proposed comment would have further explained that this is a 
presumption which may be rebutted by providing evidence that the 
consumer received the disclosures earlier than three business

[[Page 79854]]

days. The proposed comment also would have included illustrative 
examples. Proposed comment 19(f)(1)(iii)-2 would have clarified that 
the presumption established in Sec.  1026.19(f)(1)(iii) applies to 
methods of electronic delivery, such as email. However, the comment 
also would have explained that creditors using electronic delivery 
methods, such as email, must also comply with Sec.  1026.17(a)(1). This 
proposed comment also would have included illustrative examples.
    The Bureau recognized in the proposal 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 would have created a presumption that the 
disclosures are received three business days after they are mailed or 
delivered to the address provided by the consumer. The Bureau was 
concerned that the current rule may not be appropriate for the Closing 
Disclosure, which contains much more information than the final TILA 
disclosures subject to the current rule, and therefore would require 
more time to review and understand. The Bureau reasoned that 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.
    The Bureau solicited feedback regarding whether the proposed rule 
would create uncertainty regarding compliance and whether the rule 
should be made analogous to Sec.  1026.19(a)(2), which uses ``deem'' 
instead of ``presume,'' or 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.
Comments
    The Bureau received public comment and an ex parte submission 
regarding the proposed rule's presumption of receipt. A variety of 
commenters identified the proposed three-day presumption of receipt as 
a potential source of additional costs and delays. Commenters observed 
that the three-day presumption of receipt would add three more business 
days to the general three-business-day pre-consummation period, which 
could require that the Closing Disclosure be provided a minimum of six 
business days before consummation. Many commenters had questions about 
what type of evidence would be sufficient to demonstrate compliance 
with the rule and to respond to challenges to the presumption that the 
Closing Disclosure was not timely received.
    Some commenters, including the SBA, expressed concern that 
demonstrating evidence of physical delivery, such as by using an 
overnight courier service, could be burdensome, and asked that the 
Bureau provide flexibility in the delivery rules such as by recognizing 
methods of electronic delivery and by providing clear guidance on what 
forms of proof are sufficient to demonstrate compliance. The SBA 
observed that the three-day presumption applied even for disclosures 
that are emailed, unless it could be proved that they were received 
earlier. A trade association representing settlement agents asked 
whether delivery by facsimile machine would be acceptable. A number of 
commenters suggested that electronic delivery methods, such as 
facsimile or email, could raise questions about how to demonstrate 
evidence of delivery, such as by read receipt, return receipt, an email 
from the person to be obligated on the loan, or email tracking metrics, 
such as open and click-through rates.
    Several bank and credit union commenters, trade associations 
representing banks and financial companies, settlement agents, and 
title insurance commenters expressed concern that use of the word 
``presumed'' meant the presumption could be defeated by an assertion 
that a consumer received it more than three business days after mailing 
or by denying that they received the disclosure by presenting oral 
evidence or a written affidavit. Commenters expressed concerns that 
managing compliance risk associated with defeating the presumption 
would likely delay closings and increase costs.
    Trade associations representing banks expressed concern that the 
rebuttable presumption could delay closings because creditors or 
settlement agents would wait until they obtained sufficient evidence of 
receipt, particularly if a consumer waited to notify someone that it 
did not receive a timely disclosure. One trade association representing 
banks explained that creditors would not know that a consumer did not 
receive a mailed disclosure, or that receipt had been delayed, unless 
the consumer informed the creditor, and that the pre-consummation 
waiting period could be delayed if consumers wait to tell creditor that 
they did not receive the Closing Disclosure. A credit union commenter 
observed that a three-day presumption for electronic communications 
would encourage industry to send documents in-person or by overnight 
delivery to guarantee receipt.
    A large bank commenter was concerned that creditors could face TILA 
liability for mail delivery delays that are outside of the creditor's 
control. A title insurance company explained that the rebuttable 
presumption would increase post-closing litigation, and that higher 
litigation risk would increase costs that would be passed on to 
consumers.
    Rural lenders, settlement agents, and trade associations 
representing attorneys and settlement agents expressed concern about 
how the timing of the Closing Disclosure could impact closings in rural 
areas. Commenters explained that consumers are frequently in transit 
over long distances to attend a closing and may not always be able to 
receive documents electronically, that delivery can take longer than 
three days in certain areas and that certain carriers will not deliver 
documents on Saturdays. A rural lender explained that in-person 
delivery is not always an option in rural areas, so creditors would 
likely have to mail the Closing Disclosure six business days before 
consummation, but that proving timely delivery would be difficult.
    To address these concerns, a large bank commenter recommended that 
the Bureau clarify in commentary that the presumption may be rebutted 
only by evidence that consumer received the disclosure earlier than 
three business days after mailing or delivery, but that it could not be 
challenged by assertions or evidence that the disclosures were in fact 
received more than three business days after mailing. A variety of 
commenters recommended retaining the current rule in Regulation Z that 
disclosures are deemed to be received three days after placed in the 
mail. A title insurance company commenter explained that ``deemed'' 
would make compliance more certain and would not delay transactions 
while creditors and settlement agents obtain evidence of receipt. The 
commenter suggested that the term ``presume'' would lead to post-
closing litigation when persons in default on their loans attempt to 
rebut the presumption that disclosure was received within three days, 
which would increase costs to consumers because creditors and 
settlement agents would be forced to defend such litigation, and 
litigation costs would ultimately be passed on to consumers in the form 
of higher fees.
    Credit union commenters recommended that the final rule establish a 
presumption of instant

[[Page 79855]]

receipt based on electronic delivery in all cases, or in cases where 
consumers have agreed to receive electronic communications. The 
commenter explained that electronic communications are received nearly 
instantly after sending, and it is likely that individuals involved in 
important transactions will check their electronic communications more 
than once per day. One trade association representing credit unions 
explained that it is reasonable to assume that members who have agreed 
to receive electronic communications expect to receive disclosures by 
email, and that a consumer's agreement to receive notices 
electronically should constitute adequate notice of expected delivery. 
A credit union commenter stated that electronic delivery should not 
require evidence to defeat the presumption in any case. One non-
depository lender recommended that the presumption of delivery for 
emailed disclosure be shortened to 24 hours.
    Commenters asked for clarification on what forms of evidence could 
be used to demonstrate the consumer received the disclosures for 
purposes of demonstrating compliance or rebutting the three-day 
presumption (and, by extension, defeating such rebuttals). A large bank 
in an ex parte comment asked that the Bureau confirm that an 
applicant's representation to the creditor, such as a recorded verbal 
acknowledgement or a signed statement, could defeat the presumption 
(i.e., to prove that they received it earlier, or later, than three 
days). A trade association representing settlement agents and the title 
insurance industry asked, if the disclosure is delivered by the United 
States Postal Service or a courier service, whether a delivery 
confirmation, signature confirmation service, return receipt, or 
certified mail, could rebut the presumption of receipt. The commenter 
also asked whether a certificate of mailing or track-and-confirm 
receipt could establish the date on which the disclosure was sent. The 
commenter also asked, if a signature is required for confirmation of 
receipt, whether the signature must be the signature of the person 
named as a party to the loan.
    A software company commenter requested clarification on whether the 
day the disclosures are mailed or delivered counts as the first day for 
purposes of the delivery requirements in 19(f)(1)(iii). Commenters also 
requested clarification regarding how to deliver the Closing Disclosure 
when there are multiple consumers involved. Several trade associations 
representing banks and financial companies requested clarification that 
the three-day period begins when the Closing Disclosure is delivered to 
the ``primary'' consumer when there are multiple consumers. One trade 
association representing settlement agents asked whether a particular 
consumer could elect a different method of delivery than a co-borrower. 
Another commenter asked that if multiple consumers are to be obligated 
on the loan, whether all of them must sign a delivery receipt to 
confirm they have received the Closing Disclosure.
Final Rule
    The Bureau has considered the comments on this aspect of the 
proposal and is modifying the proposed provision creating a presumption 
of receipt three business days after delivery. The final rule adheres 
to the statutory provision under MDIA. The final rule provides that, if 
the Closing Disclosure is mailed to the consumer or delivered to the 
consumer by means other than delivery in person, the consumer is 
considered to have received the disclosure three business days after it 
is mailed or delivered. The final rule makes this change to reflect the 
standard for determining receipt set forth in TILA section 
128(b)(2)(E), as amended by MDIA, in response to comments that 
indicated a presumption of receipt could delay closings and increase 
costs for consumers. This is the standard that currently applies to the 
final TILA disclosures under Sec.  1026.19(a)(2).
    When it issued the proposal, the Bureau reasoned that the 
presumption of receipt rule at proposed Sec.  1026.19(f)(1)(iii) would 
provide additional encouragement for lenders to ensure that disclosures 
are received in a timely manner. Commenters provided feedback 
explaining that, to manage compliance risk associated with a 
presumption of receipt, creditors and settlement agents may incur 
additional costs and delay closings to ensure they have evidence of 
receipt. Accordingly, commenters requested clarification on the types 
of evidence that would be sufficient under the proposal, including an 
ex parte comment requesting clarification of whether a recorded verbal 
acknowledgment or a signed statement from the consumer would be 
sufficient to demonstrate compliance or withstand a challenge to the 
presumption of receipt.
    In light of the variety of delivery methods and options offered by 
service providers, it is not feasible to define with sufficient clarity 
what evidence will demonstrate compliance or withstand a challenge to 
the presumption of receipt; such a determination would involve a 
factual inquiry. Without a bright-line standard or extensive regulatory 
guidance, the Bureau believes industry would likely seek to document 
evidence of receipt, such as through recorded verbal or written 
acknowledgements or affidavits, which may unnecessarily delay many 
transactions. The Bureau also is concerned that demonstrating 
compliance under the proposal could be especially difficult and costly 
in rural areas. Creditors and settlement agents in rural areas 
explained that long distances separate parties to a transaction, and 
that it is often difficult for creditors to obtain evidence that a 
consumer has, in fact, received a disclosure. By adhering to the 
statutory provision under MDIA, the final rule should facilitate 
compliance for creditors and settlement agents in these areas. 
Accordingly, the final rule modifies proposed Sec.  1026.19(f)(1)(iii) 
so that the provision adheres to the statutory mailbox rule under TILA 
section 128(b)(2)(E) and the standard currently in Regulation Z Sec.  
1026.19(a)(2).
    The final rule does not prevent creditors from arranging earlier 
delivery of the Closing Disclosure provided they ensure the consumer 
receives the disclosures no later than three business days before 
consummation, consistent with Sec.  1026.19(f)(1)(ii) and (iii). 
Moreover, to accommodate changes that may occur between the time the 
Closing Disclosure is provided and consummation, the final rule has 
narrowed the triggers for new three-business-day waiting periods under 
the rule's redisclosure requirements, as discussed in the section-by-
section analysis of Sec.  1026.19(f)(2) below. The Bureau believes this 
change will further reduce the impact on industry and consumers in 
rural areas.
    The final rule does not adopt separate rules or presumptions 
regarding the delivery of disclosures by overnight courier, electronic 
transmission, or other means. Although these methods may be faster than 
delivery by regular mail, the Bureau does not believe it is feasible to 
adequately identify satisfactory compliance in all cases. Nor does the 
Bureau believe it has sufficient information to identify a separate 
presumption of receipt for particular delivery methods, such as 
electronic delivery methods. However, a creditor or settlement agent is 
not required to use the three-business-day delivery standard to 
determine when the waiting period required by Sec.  1026.19(f)(1)(iii) 
begins. Thus, if a creditor or settlement agent delivers the Closing 
Disclosure electronically consistent with

[[Page 79856]]

Sec.  1026.38(t)(3)(iii) or delivers the Closing Disclosure by 
overnight courier, the creditor or settlement agent may rely on 
evidence of actual delivery (such as documentation that the Closing 
Disclosure was received by certified mail or overnight delivery that 
uses a signature to accept delivery or email, if similar documentation 
is available) to determine when the three-business-day waiting period 
begins.
    Some commenters requested clarification on when a Closing 
Disclosure is considered delivered for purposes of counting the three-
business-day rule. For clarity and consistency with other provisions of 
Sec.  1026.19(e) and (f), final Sec.  1026.19(f)(1)(iii) provides 
generally that if the Closing Disclosure is not provided in person, the 
consumer is considered to have received the disclosures three business 
days after they are delivered or placed in the mail. Comment 
19(f)(1)(iii)-1 also explains that the days are counted from the date 
on which the disclosures are placed in the mail. See also comment 
19(f)(1)(ii)-2. Some commenters requested clarification regarding 
transactions involving multiple consumers. Final Sec.  1026.17 sets 
forth the applicable requirements for such transactions and clarifies 
that the Closing Disclosure need only be given to one of the primary 
obligors, unless the transaction is subject to the right of rescission, 
in which case all consumers with the right to rescind must receive the 
closing disclosures. See section-by-section analysis of Sec.  
1026.17(d).
    Final provisions. Accordingly, final Sec.  1026.19(f)(1)(iii) 
provides that, if any disclosures required under Sec.  1026.19(f)(1)(i) 
are not provided to the consumer in person, the consumer is considered 
to have received the disclosures three business days after they are 
delivered or placed in the mail. The heading of final Sec.  
1026.19(f)(1)(iii) has been modified to refer to ``Receipt of 
disclosures,'' which the Bureau believes is clearer than the proposed 
heading that would have referred to ``Delivery.'' As discussed in the 
section-by-section analysis of Sec.  1026.19(f)(1)(ii)(A), the final 
rule adopts the specific definition of business day applicable to Sec.  
1026.19(f)(1)(iii) for purposes of the delivery requirements of the 
Closing Disclosure.
    Comment 19(f)(1)(iii)-1 restates the requirement of Sec.  
1026.19(f)(1)(iii) and contains language similar to language in current 
comment 19(a)(2)(ii)-3, clarifying that, if the creditor delivers the 
disclosures under Sec.  1026.19(f)(1)(iii) to the consumer in person, 
consummation may occur any time on the third business day following 
delivery. Comment 19(f)(1)(iii)-1 also clarifies that, if the creditor 
provides the disclosures by mail, the consumer is considered to have 
received them three business days after they are placed in the mail, 
for purposes of determining when the three-business-day waiting period 
required under Sec.  1026.19(f)(1)(ii)(A) begins. For consistency with 
comment 19(e)(1)(iv)-1, comment 19(f)(1)(iii)-1 also explains that the 
creditor may, alternatively, rely on evidence that the consumer 
received the Closing Disclosure earlier than three business days after 
mailing. The comment also includes a cross-reference to comment 
19(e)(1)(iv)-1 for an example in which the creditor sends disclosures 
by overnight mail.
    Comment 19(f)(1)(iii)-2 also has been modified to conform to final 
Sec.  1026.19(f)(1)(iii) and contains a sentence substantially similar 
to the last sentence in current comment 19(a)(2)(ii)-3, clarifying that 
creditors that use electronic mail or a courier other than the United 
States Postal Service also may follow the approach for disclosures 
provided by mail described in comment 19(f)(1)(iii)-1. This language 
replaces proposed language that would have explained that the three-
business-day presumption applies to methods of electronic delivery and 
that would have provided an illustrative example and an explanation 
that the creditor could demonstrate compliance by providing evidence 
that the consumer received an emailed disclosure earlier. Thus, if a 
creditor sends a disclosure required under Sec.  1026.19(f) via email 
on Monday, pursuant to Sec.  1026.19(f)(1)(iii) the consumer is 
considered to have received the disclosure on Thursday, three business 
days later. For consistency with comment 19(e)(1)(iv)-2, the comment 
also explains that the creditor may, alternatively, rely on evidence 
that the consumer received the emailed disclosures earlier than three 
business days. Comment 19(f)(1)(iii)-2 includes a cross-reference to 
comment 19(e)(1)(iv)-2 for an example in which the creditor emails 
disclosures and receives an acknowledgment from the consumer on the 
same day. Comment 19(f)(1)(iii)-2 adopts substantially all of the 
language in proposed comment 19(f)(1)(iii)-2 regarding a creditor's use 
of electronic delivery methods, with a revised reference to Sec.  
1026.38(t)(3)(iii) instead of Sec.  1026.17(a)(1) to reflect the 
requirements applicable to the Closing Disclosure.
    The final delivery provision under Sec.  1026.19(f)(1)(iii) and 
comments 19(f)(1)(iii)-1 and -2 are consistent with section 105(a) of 
TILA. Specifically, the rule and commentary will 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. The final rule and 
commentary are also authorized under section 19(a) of RESPA because 
they will ensure more effective advance disclosure of settlement costs 
by requiring creditors to make sure that the disclosures are delivered 
to the consumer three business days before consummation. In addition, 
Sec.  1026.19(f)(1)(iii) and comments 19(f)(1)(iii)-1 and -2 are 
consistent with section 1405(b) of the Dodd-Frank Act because the rule 
will 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 
consumer three business days in advance of consummation.
19(f)(1)(iv) Consumer's Waiver of Waiting Period Before Consummation
    TILA and RESPA set forth different waiver provisions applicable to 
the final disclosures. 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. 15 U.S.C. 1638(b)(2)(F). 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 current Sec.  1026.19(a)(3) of Regulation Z.
    Neither RESPA nor Regulation X contains a similar provision for 
emergencies. Instead, RESPA section 4 provides the Bureau authority to 
issue regulations under which consumers may waive their rights to 
receive the RESPA settlement statement at or before settlement. 
Regulation X provides that the settlement agent shall deliver the 
completed RESPA settlement statement

[[Page 79857]]

at or before the settlement, unless the borrower waives the right to 
delivery of the completed RESPA settlement statement. If the borrower 
exercises the waiver, the completed RESPA settlement statement must be 
mailed or delivered as soon as practicable after settlement. See 12 CFR 
1024.10(b)(c).
    The Bureau explained in the proposal that, although waivers based 
on a bona fide personal financial emergency are rare, the waiver 
provision serves an important purpose. Specifically, 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 proposed Sec.  1026.19(f)(1)(iv), 
which would have allowed a consumer to waive the three-business-day 
waiting period in the event of a bona fide personal financial 
emergency. The provision would have required that the consumer have a 
bona fide personal financial emergency that necessitates consummating 
the credit transaction before the end of the waiting period, and that 
whether these conditions are met is determined by the facts surrounding 
individual situations. Further, each consumer who is primarily liable 
on the legal obligation would have been required to sign the written 
statement for the waiver to be effective.
    Proposed comment 19(f)(1)(iv)-1 would have stated 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 was 
modeled after comment 19(a)(3)-1, which was based on the text in TILA, 
and is consistent with commentary on waiving the rescission period and 
the pre-consummation waiting period required for certain high-cost 
mortgage transactions. The comment would have set forth one example: 
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. The Bureau sought comment on the 
nature of waivers based on bona fide personal financial emergencies and 
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).
Comments
    Consumer advocates and industry commenters differed in their views 
on the waiver proposal. Two consumer advocacy groups submitting a joint 
comment noted that the bona fide personal financial emergency waiver 
would protect consumers sufficiently from serious harm caused by a 
delayed closing. While they noted that consumers may be inconvenienced 
by closing delays, they stated that a waiver should not be available 
for mere inconveniences, and that a narrow waiver provision would 
provide industry an incentive to avoid such inconveniences without 
risking the potential that a flexible waiver provision could be abused.
    By contrast, many industry comments expressed the view that the 
proposed waiver provision was inadequate. These commenters believed the 
bona fide personal financial emergency waiver was too restrictive to 
account for the variety of reasons a consumer may wish to waive the 
timing provisions of the Closing Disclosure. Creditors noted that they 
are already reluctant to accept bona fide personal financial emergency 
waivers under the current rescission rules because the lack of examples 
could subject them to possible TILA liability. A trade association 
representing banks explained that, due to TILA liability, creditors are 
often reluctant to honor a waiver where a borrower's attested 
circumstances do not rise to the level of a clear emergency but instead 
appear to be inconveniences.
    Some industry commenters, including a title insurance company and a 
professional association representing attorneys, opposed a rule that 
relied on a waiver because of the potential for consumer abuse inherent 
in a waiver and the reputational and legal risk incurred by settlement 
agents who may need to consider whether to accept a waiver. Commenters 
explained that consumers likely would feel forced into signing a waiver 
on most closings that would undermine the purpose of the three-
business-day period. Some settlement agent commenters noted the 
potential for consumer abuse inherent in waiver mechanisms, but they 
believed the Bureau nonetheless could craft a waiver provision to deal 
with this risk.
    Commenters critical of the proposed waiver provision generally 
recommended several approaches to broaden the waiver provision, 
including expanding the bona fide personal financial emergency 
provision to cover additional ``emergencies,'' permitting a waiver for 
``non-emergency'' circumstances, and permitting the consumer and the 
seller to jointly sign a waiver in the event of a closing being 
necessary to facilitate a coinciding settlement. One large bank stated 
that a flexible waiver would be necessary even if the Bureau expanded 
exemptions in the final rule because situations necessitating a waiver 
would arise that fall outside of the exemptions. The commenter stressed 
the consumers should be free to make their own decisions about whether 
to waive the timing requirements in the rule.
    Commenters, including a GSE, asked that the Bureau consider a 
variety of examples that would either constitute a bona fide personal 
financial emergency or justify some other more flexible waiver, 
including the following: the consumer may miss a mandatory military 
service deadline; timely receipt of the Closing Disclosure would be 
impracticable because the consumer is traveling; the consumer expends 
financial resources to secure emergency housing or make other 
logistical arrangements; the consumer needs timely access to funds to 
satisfy a legal judgment or other legal arrangement, for an emergency 
medical procedure, or to repair a heating system in the winter; the 
consumer loses the opportunity to purchase a home because a sale 
contract expires; the consumer faces financial costs or economic 
hardship, such as the expiration of an interest rate lock, additional 
interest rate lock extension fees, additional prorated taxes, or higher 
interest payments on an existing loan in the case of refinancing; or a 
delay will affect the seller, such as by delaying a separate coinciding 
closing.
    Some commenters suggested that a more flexible waiver should be 
available in particular circumstances. A large bank, a title insurance 
company, and settlement agent commenters recommended that a flexible 
waiver be available to consumers where the rule would trigger 
additional redisclosure waiting periods so the consumer could avoid the 
costs associated with a closing delay, such as the loss of a rate lock 
or penalties associated with a breach of a purchase agreement. A trade 
association representing banks and financial companies believed that a 
more flexible waiver should be permitted when a consumer is receiving a 
mortgage loan that meets the criteria of a ``qualified mortgage'' under 
the Bureau's rules. Several commenters requested that a flexible waiver 
be available for transactions subject to the three-business-day right 
to rescind under Sec.  1026.23. A trade association representing credit 
unions and a large bank suggested non-cash-out and term-reduction 
refinancings presented less consumer risk and that consumers should be 
able to waive the rule's timing

[[Page 79858]]

requirements for such transactions. A credit union commenter stated 
that the waiver provision applicable to the Closing Disclosure should 
be consistent with the waiver provision applicable to the Loan 
Estimate.
    A large bank believed creditors should be permitted to establish 
processes and controls around the issuance of waivers, while a 
settlement agent and a credit union commenter recommended that the 
Bureau develop disclaimer language for a waiver to mitigate the risk of 
abuse, and a mortgage broker commenter believed consumers should be 
able to acknowledge at closing that they have waived the rule's timing 
requirements. A trade association representing various mortgage 
professionals believed the risk of abuse should be addressed through 
enforcement rather than restrictive regulations.
    Several commenters requested that the Bureau provide clarification 
on the mechanics for issuing a waiver. A law firm commenter requested 
that the final rule clarify how a waiver is obtained and what is 
required for approval. Various settlement agent commenters and a title 
insurance company commenter indicated that the seller should be able to 
exercise a waiver, while a trade association representing settlement 
agents and a community bank recommended that consumers and sellers 
should be required to execute a waiver to ensure that all parties can 
consider the effects of and necessity for a waiver.
Final Rule
    The final rule adopts final Sec.  1026.19(f)(1)(iv) substantially 
as proposed, with technical revisions discussed further below. The 
Bureau believes the bona fide personal financial emergency provision is 
the appropriate waiver mechanism for the Closing Disclosure, rather 
than the broader waiver currently provided for under Regulation X Sec.  
1024.10(c) with respect to the RESPA settlement statement. There is 
significant consumer interest in ensuring consumers receive the Closing 
Disclosure at least three business days before consummation, given the 
complexity and significance of mortgage transactions. Final TILA 
disclosures provided three business days prior to consummation under 
the amendments made to TILA by MDIA are already subject to the bona 
fide personal financial emergency waiver. This waiver provision will 
ensure that consumers only forego their ability to review the Closing 
Disclosures when they are presented with a financial emergency. In 
addition, the Bureau believes that implementing TILA's waiver provision 
is necessary to implement the delivery requirements for the integrated 
disclosures under MDIA and the Dodd-Frank Act.
    The Bureau believes the bona fide personal financial emergency 
waiver should apply to all transactions subject to Sec.  1026.19(f), 
and not just those loans subject to MDIA's three-business-day timing 
requirement (i.e., loans for which the previously disclosed APR becomes 
inaccurate). While a more flexible waiver is available under Regulation 
X currently with respect to the RESPA settlement statement, the Closing 
Disclosure is different in nature because it integrates information 
derived from both RESPA and TILA. The final rule requires that the 
Closing Disclosure be provided three business days before consummation 
in all cases, as discussed in the section-by-section analysis of Sec.  
1026.19(f)(1)(ii)(A). As noted in the section-by-section analysis of 
Sec.  1026.19(f)(1)(ii)(A), advance receipt of the Closing Disclosure 
provides important consumer protections, fulfills the goals of the 
integration mandate, and is in line with the goal of improving consumer 
awareness through disclosures for residential mortgage loans under 
sections 129B(e) of TILA and 1405(b) of the Dodd-Frank Act. The Bureau 
is concerned that a broader waiver for transactions not covered by 
MDIA's timing requirements could be abused and undermine these 
benefits. This risk of abuse was noted by consumer advocates and 
several industry commenters, as described above.
    The Bureau recognizes that the limited guidance on what constitutes 
a bona fide personal financial emergency may limit the use of the 
waiver, but the Bureau believes the waiver should be reserved for 
limited use: when a consumer faces a true financial emergency, as 
distinct from an inconvenience. One commenter questioned whether the 
risk of abuse should be addressed through restrictive regulatory 
provisions instead of through enforcement activities. The Bureau 
believes a limited waiver provision in the final rule is an appropriate 
tool for addressing the risk of abuse. Because determining the 
circumstances surrounding the issuance of waivers would involve a fact-
intensive inquiry, it may be difficult to identify whether consumer 
abuse occurred on any particular occasion. The Bureau is concerned that 
a more flexible waiver provision would make it more difficult to detect 
abuse.
    The final rule does not include standardized disclaimer language, 
as suggested by some commenters. The Bureau believes it would be 
impracticable to provide standardized language in light of the unique 
characteristics of each mortgage loan transaction. In addition, the 
Bureau does not believe the risk of abuse would be mitigated by a 
statement provided at closing acknowledging a waiver. To be meaningful, 
the Bureau believes that waivers should be provided with the delivery 
of the Closing Disclosure and should be based on a justification 
contained in a written statement provided by the consumer and signed by 
all consumers primarily liable on the legal obligation. Thus, final 
Sec.  1026.19(f)(1)(iv) prohibits the use of printed forms for this 
purpose.
    A more flexible waiver standard might offer some consumer benefits. 
On balance, however, the Bureau does not believe it is needed to 
protect consumers from unnecessary delays. For example, additional 
delays and inconveniences for some consumers that would have been 
required by the proposed redisclosure requirements could be avoided by 
a more flexible waiver if such a redisclosure requirement were in 
place, as one commenter suggested. However, the Bureau believes the 
final rule's modification to the proposal's requirement for additional 
waiting periods and other disclosure requirements under Sec.  
1026.19(f) substantially reduce the likelihood of costly closing 
delays, thereby reducing the need for a broader waiver.\229\ With 
respect to the circumstances that would trigger redisclosure waiting 
periods under the final rule, the Bureau believes a waiver should be 
available only in the event of a bona fide personal financial 
emergency. The Bureau believes the events triggering a new waiting 
period in Sec.  1026.19(f)(2) have the potential to pose serious, long-
term risk to consumers, and thus waivers in these cases should be 
limited.
---------------------------------------------------------------------------

    \229\ See, e.g., section-by-section analysis of Sec.  
1026.19(f)(1)(i) (best information reasonably available standard), 
(f)(1)(iii) (delivery), (f)(2)(i) and (ii) (revised triggers for the 
redisclosure waiting period), and (f)(2)(iii) (changes for post-
consummation events).
---------------------------------------------------------------------------

    In addition, the Bureau believes reliance on the bona fide personal 
financial emergency waiver provision will facilitate compliance better 
than a two-tiered waiver regime, in which transactions not subject to 
MDIA's timing requirements would be subject to a broader waiver. For 
example, a two-tiered waiver provision applicable to the Closing 
Disclosure would create a different standard for waivers than the 
standard for the Loan Estimate.

[[Page 79859]]

    Regarding comments requesting additional examples of a bona fide 
personal financial emergency, the example in comment 19(f)(1)(iv)-1 is 
illustrative and not exhaustive. For example, situations offered by 
commenters could constitute a bona fide personal financial emergency, 
such as a sudden, unforeseen mandatory military service deadline or an 
unforeseen medical emergency, depending on the facts and circumstances 
of an individual case.
    One commenter stated that a more flexible waiver should be 
permitted when a consumer is receiving a qualified mortgage under the 
Bureau's ability-to-repay rules. While a qualified mortgage may present 
less risk that a consumer lacks an ability to repay the loan, a home 
mortgage transaction is a complex, long-term financial commitment that 
most consumers enter into only infrequently. Thus, the Bureau believes 
consumers receiving qualified mortgages will benefit from time to 
review the Closing Disclosure, to ensure that the loan terms and 
settlement charges offered contain no significant surprises.
    The final rule does not provide for a broader waiver for 
transactions subject to the right of rescission, as requested by 
several commenters. A large bank and a trade association representing 
credit unions stated that non-cash-out and term-reduction refinancings 
presented less consumer risk and that consumers should be able to waive 
the rule's timing requirements for those transactions. The Bureau 
recognizes that a pre-consummation waiting period may, in some cases, 
lengthen the disbursement of funds for transactions subject to the 
right of rescission. However, as explained in the section-by-section 
analysis of Sec.  1026.19(f)(1)(i)(A), the Bureau believes the pre- and 
post-consummation periods serve distinct purposes, and that the risk of 
closing delays for such transactions is limited, particularly in light 
of the modifications made to proposed Sec.  1026.19(f).
    Several commenters requested that the Bureau provide clarification 
on the mechanics for issuing a waiver. A law firm commenter requested 
that the final rule clarify how a waiver is obtained and what is 
required for approval. The requirements for obtaining a waiver are set 
forth in Sec.  1026.19(f)(1)(iv) and are clarified in comment 
19(f)(1)(iv)-1. Pursuant to Sec.  1026.19(f)(1)(v), settlement agents 
providing consumers with the disclosures required under Sec.  
1026.19(f)(1)(i) also would need to comply with Sec.  
1026.19(f)(1)(iv), although creditors would remain responsible for 
compliance, pursuant to Sec.  1026.19(f)(1)(v).
    The final rule does not alter the mechanics for accepting waivers 
by permitting or requiring sellers to execute a waiver along with, or 
independent of, the consumer. Several settlement agents and a title 
insurance company indicated that the seller should be able to exercise 
a waiver; and a trade association representing settlement agents and a 
community bank recommended that consumers and sellers should be 
required to execute a waiver to ensure that all parties can consider 
the effects of and necessity for a waiver. The Bureau recognizes that 
sellers have interests that may be frustrated by the waiting period. 
However, the waiting period is a critical protection to ensure that 
consumers who are about to take on significant long term financial 
commitments have time to review the terms of the commitment and the 
settlement costs without being pressured. The Bureau is concerned that, 
if sellers could waive the waiting period or could jointly exercise the 
waiver, consumers would be rushed into accepting loan terms that they 
do not understand and settlement costs that they did not expect to 
incur.
    Final Sec.  1026.19(f)(1)(iv) and comment 19(f)(1)(iv)-1 are 
adopted substantially as proposed for the reasons stated in the 
proposal and above. The final rule and commentary include technical 
amendments to the first sentence of Sec.  1026.19(f)(1)(iv) to conform 
to revisions regarding the three-business-day redisclosure waiting 
period under Sec.  1026.19(f)(2)(ii). Specifically, proposed Sec.  
1026.19(f)(1)(iv) would have referred to the three-business-day waiting 
period ``for the disclosures required under paragraph (f)(1)(ii)'' of 
Sec.  1026.19. Because a three-business-day period is required under 
Sec.  1026.19(f)(1)(ii)(A) and (f)(2)(ii), the final rule refers to the 
three-business-day waiting periods under Sec.  1026.19(f)(1)(ii)(A) and 
(f)(2)(ii). Comment 19(f)(1)(iv)-1 includes a similar reference to 
Sec.  1026.19(f)(2)(ii). In addition, final Sec.  1026.19(f)(1)(iv) 
includes a technical revision for clarity and consistency with a 
similar provision in Sec.  1026.19(e) (i.e., that a consumer can modify 
or waive ``the'' waiting period, instead of ``a'' waiting period).
    Final Sec.  1026.19(f)(1)(iv) and comment 19(f)(1)(iv)-1 are 
consistent with TILA section 128(b)(2)(F), which 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. Final Sec.  1026.19(f)(1)(iv) and comment 
19(f)(1)(iv)-1 are adopted 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 final rule and 
commentary are appropriate. The final rule and commentary will 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, subject 
to a limited waiver. The final rule and commentary are 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, except where 
the borrower determines otherwise if necessary to meet a bona fide 
personal financial emergency.
    The Bureau also has considered the purposes for which it may 
exercise its authority under section 19(a) of RESPA and, based on that 
review, believes that the final rule and commentary are appropriate. 
The final rule and commentary will 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, subject to a limited waiver provision.
    The final rule and commentary are 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 a manner that permits consumers to understand 
the costs, benefits, and risks associated with the mortgage loan and 
settlement services if consumers receive the disclosures reflecting the 
terms and costs associated with their transactions three business days 
before consummation, unless they determine to waive or modify these 
timing requirements if necessary to meet a bona fide personal financial 
emergency.
    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 final rule and commentary 
are

[[Page 79860]]

appropriate. The final rule and commentary will improve consumer 
awareness and understanding of the mortgage loan transaction by 
ensuring that consumers receive the disclosures reflecting the terms 
and costs associated with their transactions three business days in 
advance of consummation, subject to a limited waiver. The final rule 
and commentary also will be in the interest of consumers and in the 
public interest because they 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, unless 
consumers determine to waive or modify these timing requirements if 
necessary to meet a bona fide personal financial emergency.
19(f)(1)(v) Settlement Agent
    TILA and RESPA impose requirements to provide disclosures on 
different parties. TILA and Regulation Z require that creditors provide 
the TILA disclosures, but neither TILA nor Regulation Z imposes 
disclosure requirements on settlement agents. In contrast, the RESPA 
settlement statement requirement generally applies to settlement 
agents, as implemented in Regulation X Sec.  1024.10. 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. Dodd-Frank Act sections 1098 and 1100A amended TILA and 
RESPA to mandate that the Bureau integrate the disclosure requirements 
under TILA and RESPA, but Congress did not reconcile the division of 
responsibilities between creditor and settlement agent in TILA and 
RESPA.
    As recognized in the proposal, persons who conduct settlements, 
such as settlement agents and closing attorneys, play a valuable role 
in the real estate settlement process. Settlement agents may be able to 
assist consumers with issues that arise during a real estate settlement 
perhaps even more effectively than creditors. However, the Bureau 
explained in the proposal that it was concerned that settlement agents 
may not be able to fulfill the obligations imposed by TILA. The Bureau 
also expressed concern that, if the responsibility to provide the 
disclosures were divided, consumers would receive duplicative, 
inaccurate, or unreliable disclosures. The Bureau explained that this 
result would be contrary to the TILA-RESPA integration mandate.
    Accordingly, the Bureau proposed two alternative approaches to the 
responsibility for providing the Closing Disclosure. Alternative 1 
would have made the creditor solely responsible for the provision of 
the disclosures required by Sec.  1026.19(f). Alternative 2 would have 
permitted a settlement agent to provide 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. 
Alternative 2 would have required the creditor and settlement agent to 
agree on a division of responsibilities regarding the delivery of the 
disclosures. To implement alternative 2, the Bureau proposed Sec.  
1026.19(f)(1)(v), which would have provided 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. The Bureau 
proposed alternative 2 pursuant to its authority under sections 105(a) 
of TILA, 19(a) of RESPA, and 1405(b) of the Dodd-Frank Act.
    Proposed Sec.  1026.19(f)(1)(v) would have required the creditor to 
ensure that the disclosures are provided in accordance with the 
requirements of Sec.  1026.19(f). Accordingly, alternative 2 would not 
have relieved the creditor of its responsibility under Sec.  
1026.19(f). Thus, the creditor would have remained responsible for the 
disclosures provided under Sec.  1026.19(f). See proposed comment 
19(f)(1)(v)-3. Disclosures provided by a settlement agent in accordance 
with the requirements of Sec.  1026.19(f) would have satisfied the 
creditor's obligation under Sec.  1026.19(f)(1)(i).
    Proposed comment 19(f)(1)(v)-1 would have clarified 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 would become 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 commentary would have 
clarified that the creditor and settlement agent must effectively 
communicate to ensure timely and accurate compliance with the 
requirements of Sec.  1026.19(f)(1)(v).
    Proposed comment 19(f)(1)(v)-2 would have clarified 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 would have clarified that the 
settlement agent may assume the responsibility to provide some or all 
of the disclosures required by Sec.  1026.19(f), provided 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 would have included illustrative examples.
    Proposed comment 19(f)(1)(v)-3 would have explained 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. The comment would have provided an example illustrating 
that 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 would have clarified that the creditor 
does not satisfy the requirements of Sec.  1026.19(f) if it provides 
duplicative disclosures, and clarified that 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 
comment would have further clarified that the creditor is expected to 
maintain communication with the settlement agent to ensure that the 
settlement agent is acting in place of the creditor, and that 
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 comment 19(f)(1)(v)-4 would have clarified that the 
settlement agent may assume the responsibility to provide some or all 
of the disclosures required by Sec.  1026.19(f). The comment would have 
further clarified that 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 comment also would have included 
illustrative examples.
    The proposed rule was designed to carry out TILA's goal of 
promoting the informed use of credit. The Bureau explained that the 
involvement of a settlement agent could result in increased consumer 
awareness and more meaningful disclosure of credit

[[Page 79861]]

terms, consistent with section 105(a) of TILA. The proposed regulation 
also was structured to achieve RESPA's purposes by resulting in more 
effective advance disclosure of settlement costs, consistent with 
section 19(a) of RESPA. The Bureau further stated that the proposed 
regulation also could improve consumer understanding and awareness of 
the transaction by permitting the Closing Disclosure 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). The 
Bureau invited 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.
Comments
    Overview. The Bureau received extensive public comment and ex parte 
submissions from across various sectors of the real estate and mortgage 
lending industries regarding responsibility for providing the Closing 
Disclosure. Commenters provided general feedback on the relative merits 
of creditor and settlement agent involvement in preparing the Closing 
Disclosure and more specific feedback on alternatives 1 and 2, and 
other alternatives for dividing responsibility. In addition, commenters 
provided feedback on the creditor's responsibility for ensuring 
compliance with Sec.  1026.19(f) (which would have been required under 
both alternatives 1 and 2) and State law issues. Commenters also 
requested clarification on certain issues.
    In general, commenters supporting creditor preparation of the 
Closing Disclosure observed that creditors would be better able to make 
loan-related disclosures and ensure compliance. A professional 
association representing attorneys, a large bank, and escrow agent 
commenters explained that creditors are in a better position to provide 
and explain loan-related disclosures. A large bank commenter also 
explained that creditors would be better positioned to facilitate 
consumer contact and ensure timely delivery of the disclosures three 
business days before consummation. A large bank commenter explained 
that settlement agents likely would be unable to complete the Closing 
Disclosure if the forms were in ``dynamic'' rather than ``static'' 
form. A community bank commenter explained that allowing a party other 
than the creditor to generate the Closing Disclosure would increase 
costs and delay the closing process, and thereby inconvenience and 
increase costs to consumers. In addition, a commenter from a company 
that provides escrow and title software argued that the Closing 
Disclosure should be provided by the creditor because the complexity of 
disclosures would make coordination difficult.
    On the other hand, many settlement agent commenters questioned 
whether the creditor would act in the best interests of the consumer or 
other parties, such as sellers. A trade association representing 
settlement agents and the title insurance industry and various law firm 
commenters suggested that, without the role of an independent review or 
preparation of the Closing Disclosure by the settlement agent, 
creditors could misstate the charges of third parties, and that third 
parties are unable to correct such mistakes. The trade association 
commenter further explained that creditors and affiliated service 
providers would share the costs of creditor compliance risk, which 
would increase overall risk to creditor-affiliated businesses. Some 
settlement agent commenters pointed out that settlement agent 
preparation of the Closing Disclosure would not pose significant 
consumer risk because revisions to settlement costs are typically 
minor, whereas revisions to loan costs can impose significant costs to 
consumers.
    Commenters also were concerned that creditor preparation of