[Federal Register Volume 79, Number 209 (Wednesday, October 29, 2014)]
[Proposed Rules]
[Pages 64336-64346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24739]
[[Page 64336]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Parts 1024 and 1026
[Docket No. CFPB-2014-0028]
RIN 3170-AA48
Amendments to the 2013 Integrated Mortgage Disclosures Rule Under
the Real Estate Settlement Procedures Act (Regulation X) and Truth In
Lending Act (Regulation Z) and the 2013 Loan Originator Rule Under the
Truth in Lending Act (Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Proposed rule with request for public comment.
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SUMMARY: The Bureau is proposing two modifications to the Truth in
Lending Act and Real Estate Settlement Procedures Act Final Rule (TILA-
RESPA Final Rule): An adjustment to the timing requirement for revised
disclosures when the consumer locks a rate or extends a rate lock after
the initial disclosures are provided; and an amendment to permit
language related to new construction loans to be included on the Loan
Estimate form. The Bureau also is proposing to amend the 2013 Loan
Originator Final Rule to provide for placement of the Nationwide
Mortgage Licensing System and Registry ID (NMLSR ID) on the integrated
disclosures. Additionally, the Bureau is proposing technical
corrections, including citation and cross-reference updates, and
wording changes for clarification purposes to various provisions of
Regulations X and Z as amended or adopted by the TILA-RESPA Final Rule.
DATES: Comments must be received on or before November 10, 2014.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2014-
0028 or RIN 3170-AA48, by any of the following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Consumer Financial Protection Bureau, 1700 G Street
NW., Washington, DC 20552.
Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1275 First
Street NE., Washington, DC 20002.
Instructions: All submissions should include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. Because paper mail in the Washington, DC area and at the
Bureau is subject to delay, commenters are encouraged to submit
comments electronically. In general, all comments received will be
posted without change to http://www.regulations.gov. In addition,
comments will be available for public inspection and copying at 1275
First Street NE., Washington, DC 20002, on official business days
between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an
appointment to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments generally will not
be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Jaydee DiGiovanni, Policy and
Procedure Analyst; Richard Arculin and David Friend, Counsels; Office
of Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
In November 2013, pursuant to sections 1098 and 1100A of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),
the Bureau issued the Integrated Mortgage Disclosures under the Real
Estate Settlement Procedures Act (Regulation X) and Truth in Lending
Act (Regulation Z) (TILA-RESPA Final Rule),\1\ combining certain
disclosures that consumers receive in connection with applying for and
closing on a mortgage loan.
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\1\ 78 FR 79730 (Dec. 31, 2013).
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This rule proposes two amendments to Regulation Z provisions
adopted by the 2013 TILA-RESPA Final Rule. First, the Bureau is
proposing to amend Sec. 1026.19(e)(3)(iv)(D), which states that, in
order to revise the estimated amounts used to determine good faith
pursuant to Sec. 1026.19(e)(1), creditors must redisclose interest
rate dependent charges and loan terms on the date that the rate is
locked. The Bureau is proposing to relax the timing requirement to
state that creditors must provide a revised disclosure no later than
the next business day after the date the rate is locked, instead of the
same date. Second, the Bureau is proposing to amend Sec. 1026.37(m) to
provide for the placement of language relating to certain new
construction loans on the Loan Estimate form that is required in order
for creditors to redisclose estimated charges.
The Bureau also is proposing several corrections, updates, and
wording changes for clarification purposes that are non-substantive in
nature, such as (1) technical corrections and corrected or updated
citations and cross-references in the regulatory text and commentary
adopted by the TILA-RESPA Final Rule; (2) minor wording changes
throughout regulatory provisions and commentary adopted by the TILA-
RESPA Final Rule for additional clarity; and (3) an amendment to Sec.
1026.36(g)(2)(ii), adopted by the 2013 Loan Originator Final Rule, to
provide for placement of the NMLSR ID on the integrated disclosures.
The Bureau is seeking comment on these amendments, with a 30-day
comment period from the date of issuance of this proposed rule. The
Bureau intends to finalize these proposed amendments quickly in order
to provide industry adequate time to implement any changes that result
from this proposal by the August 1, 2015 effective date.
II. Background
A. The Integrated Disclosures Rulemaking
In July 2010, the Dodd-Frank Act was enacted by Congress, which
transferred rulemaking authority under both TILA and RESPA to the
Bureau and, 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). 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 ``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 which ``includes the
disclosure requirements of this title in conjunction with the
[[Page 64337]]
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).\2\
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\2\ The amendments to RESPA and TILA mandating a ``single,
integrated disclosure'' are among numerous conforming amendments to
existing Federal laws found in subtitle H of the Consumer Financial
Protection Act of 2010. 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.
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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).\3\ On December 31, 2013, more than 17 years after Congress
first directed the Board and HUD to integrate the disclosures under
TILA and RESPA, the Bureau published the TILA-RESPA Final Rule.
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\3\ 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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B. Implementation Support
In early 2014, the Bureau initiated efforts to support industry
implementation of the TILA-RESPA Integrated Disclosure Final Rule.
These efforts include: (1) The publication of a plain-language
compliance guide and guide to forms to help industry understand the new
rules, including updates to the guides, as needed; (2) an ongoing
series of webinars to address common interpretive questions; (3)
roundtables with industry, including creditors, settlement service
providers, and vendors, to discuss implementation; (4) participation in
conferences and forums; and (5) close collaboration with other
regulators, including state regulators, on implementation of the Final
Rule, including coordination on consistent examination procedures. More
information regarding the Bureau's TILA-RESPA implementation initiative
can be found on the Bureau's regulatory implementation Web site at
www.consumerfinance.gov/regulatory-implementation.
As part of the initiative to support ongoing implementation
efforts, the Bureau has conducted extensive outreach to multiple
stakeholders since publication of the Final Rule. Based on that
extensive outreach, the Bureau believes these proposed amendments to be
relatively straightforward and mostly technical in nature. Accordingly,
the Bureau expects to be able to finalize this proposal in sufficient
time for creditors and other stakeholders to be able to implement the
final changes prior to the August 1, 2015 effective date.
III. Legal Authority
The Bureau is issuing this proposed rule pursuant to its authority
under TILA, RESPA, and the Dodd-Frank Act. Section 1061 of the Dodd-
Frank Act transferred to the Bureau the ``consumer financial protection
functions'' previously vested in certain other Federal agencies,
including the Board's consumer protection functions relating to TILA
mortgage disclosures and the HUD Secretary's consumer protection
functions relating to RESPA.\4\ 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.'' \5\ 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.\6\
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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\4\ Public Law 111-203, 124 Stat. 1376, section 1061(b)(7); 12
U.S.C. 5581(b)(7).
\5\ 12 U.S.C. 5581(a)(1).
\6\ 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 by
sections 4 and 5 of RESPA.\7\ 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.
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\7\ 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.\8\ 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
[[Page 64338]]
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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\8\ 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).
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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 was required to 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.
B. Other Rulemaking and Exception Authorities
This proposed rule also relies on the rulemaking and exception
authorities specifically granted to the Bureau by TILA, RESPA, and the
Dodd-Frank Act, including the authorities discussed below.
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 further 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.
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 \9\ that apply to the high-cost mortgages referred to
in TILA section 103(bb), 15 U.S.C. 1602(bb).
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\9\ 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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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 this section and
section 129C [of TILA], necessary or proper to effectuate the purposes
of this section and section 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.
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.
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
[[Page 64339]]
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
rulemaking, 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
proposing this 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 V 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. 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 TILA-RESPA Final Rule under Dodd-Frank
Act section 1032(a), the Bureau 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. 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 of
the TILA-RESPA Final Rule for a discussion of the Bureau's consumer
testing.
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.
IV. Section-by-Section Analysis
A. Regulation X
Section 1024.5--Coverage of RESPA
5(d) Partial Exemptions for Certain Mortgage Loans
The Bureau is proposing to amend Sec. 1024.5(d) to remove the
cross-references to Sec. 1024.21(b) and (c) and replace them with the
appropriate cross-reference to Sec. 1024.33(a).
B. Regulation Z
General--Technical Corrections
In addition to the amendments to Regulation Z discussed below, the
Bureau is proposing non-substantive technical corrections, including
citation and cross-reference updates as well as wording changes for
clarification purposes, to various provisions of Regulation Z as
amended or adopted by the TILA-RESPA Final Rule. The proposed technical
corrections are to Sec. Sec. 1026.37(o) and 1026.38(e) and (k); to
commentary to Sec. Sec. 1026.37(b), (c), and (h) and 1026.38(a) and
(e); and to Appendix H. Where appropriate, some of these technical
corrections and wording changes are discussed in the applicable
sections below.
Section 1026.19--Certain Mortgage and Variable-Rate Transactions
19(e)(3)(iv)(D) Interest Rate Dependent Charges
As the Bureau acknowledged in the TILA-RESPA Final Rule,\10\ if a
loan's interest rate has not been locked at the time the initial
disclosures are made, or a locked interest rate has expired, loan terms
and costs related to the interest rate may change, including the charge
or credit for the interest rate chosen, the adjusted origination
charges, and per diem interest. Regulation X, Sec. 1024.7(f)(5),
currently provides for redisclosure of these estimated charges in the
event that a rate is locked after the initial Good Faith Estimate (GFE)
has been provided: A revised GFE must be provided within three business
days of the interest rate being locked or re-locked, showing the
revised interest rate dependent charges and terms.
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\10\ 78 FR 79730, 79833 (December 31, 2013).
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In the TILA-RESPA Proposal, proposed Sec. 1026.19(e)(3)(iv)(D)
retained the same basic approach, but the Bureau expressed concern that
allowing creditors three business days to provide revised disclosures
after a rate is locked could harm consumers through creditors engaging
in rent-seeking behavior or attempting to circumvent RESPA and
Regulation X. The Bureau
[[Page 64340]]
thus proposed Sec. 1026.19(e)(3)(iv)(D) to permit a revised disclosure
in the event of a subsequent lock of the interest rate but required
redisclosure on the same date that the rate is locked.
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. The Bureau received few comments
specific to proposed Sec. 1026.19(e)(3)(iv)(D) and finalized Sec.
1026.19(e)(3)(iv)(D) as proposed with some additional clarifications.
The Bureau stated that, if the interest rate is set without a rate lock
agreement, Sec. 1026.19(e)(3)(iv)(D) does not apply. The Bureau
further explained that it intended Sec. 1026.19(e)(3)(iv)(D) only to
apply in situations where a rate lock agreement has been entered into
between the creditor and borrower or where such agreement has expired.
The Bureau also stated that, in its view, creditors should not need any
additional time beyond the date the rate is locked to provide revised
disclosures because the creditor controls when it executes the rate
lock agreement.\11\ The Bureau added comments 19(e)(3)(iv)(D)-1 and
19(e)(4)(i)-2 to provide examples and additional explanations.
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\11\ 78 FR 79833 (December 31, 2013).
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As adopted by the Final Rule, Sec. 1026.19(e)(3)(iv)(D) provides
for revised disclosures when there are changes in interest rate
dependent charges due to a rate lock, extension, or re-lock. Section
1026.19(e)(3)(iv)(D) states that, in order to revise the estimated
amounts used to determine good faith pursuant to Sec. 1026.19(e)(1),
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),
lender credits, and any other interest rate dependent charges and
terms, on the date the rate is locked.
As part of its regulatory implementation outreach, the Bureau has
received significant feedback on this provision since the Final Rule
was published. Numerous industry stakeholders have presented
information that suggests that creditors may not control when a rate is
locked to the same extent the Bureau believed when finalizing the rule,
and have identified operational challenges due to the same-day
redisclosure requirement in Sec. 1026.19(e)(3)(iv)(D).
In light of this information and for reasons more fully discussed
below, the Bureau believes the same-day redisclosure requirement could
potentially create a consumer disadvantage. Accordingly, the Bureau
believes that the same-day redisclosure requirement warrants
reconsideration, and is proposing to amend Sec. 1026.19(e)(3)(iv)(D)
and its commentary to adjust this timing requirement. First, the Bureau
is reassessing the extent to which the creditor controls when a rate
lock agreement arises in some circumstances. The Final Rule states that
creditors generally should be able to control when a rate lock
agreement is executed, even if a consumer requests a rate lock the
business day before. However, the Bureau believes that creditors may
not always control when the agreement is formed in all situations.
Moreover, flexibilities that exist under existing practices may be
advantageous to consumers. For example, some creditors permit the
consumer, or loan originator working on behalf of the consumer, to lock
the interest rate unilaterally at any point during a business day or
even after business hours. Under these practices, the consumer has the
flexibility to lock the rate and form that agreement late in a business
day or after business hours.
The Bureau believes this flexibility may be beneficial to
consumers, because it allows them to lock interest rates on a date and
time of their choosing without time restrictions being imposed by the
creditor. The same-day redisclosure requirement could restrict this
flexibility and reduce consumers' ability to determine when their rates
may be locked. If creditors are required to provide revised disclosures
to consumers the same date that the rate is locked, and a consumer asks
to lock a rate late in the business day or after hours, creditors may
be unable to provide a revised Loan Estimate that same date. Given the
potential consequences of losing the ability to reset the applicable
tolerances for interest rate-dependent charges pursuant to Sec.
1026.19(e)(3), the Bureau believes creditors may respond to the Final
Rule by limiting consumers' ability to lock rates at the time of their
choice. Creditors may do this either by imposing cut-off times after
which consumers are unable to lock their interest rates until the next
day or by refusing to lock the rate contractually until the business
day after the consumer requests a rate lock. The Bureau believes that
both reactions to the Final Rule could be disadvantageous to consumers.
If creditors impose cut-off times, consumers would be limited in
the times of day that they or their representatives could lock interest
rates. This could be problematic or inconvenient to consumers,
particularly those who are in different time zones than their
creditors, and could result in consumers missing the applicable windows
to lock on a day of their choice and having to wait until the next
business day to do so. Alternatively, the Bureau believes some
creditors may be able to provide revised disclosures on the same date
that a rate lock agreement is formed if those creditors only allow
consumers to request the rate at a time of their choosing, and then
later execute or form a binding agreement with the consumer. However,
the Bureau believes this result could present other challenges to
consumers. For example, consumers may be confused if they believe they
are locking an interest rate at a certain time, but in fact are merely
requesting rates that are not contractually binding until the creditor
accepts the request, which may not be until the next business day.
Accordingly, the Bureau believes that the same-day redisclosure
requirement could create implementation challenges to industry that may
result in unintended reduced consumer flexibility in locking or
resetting floating interest rates.
For these reasons, the Bureau believes the same-day redisclosure
requirement warrants reconsideration. The Bureau maintains that there
is a benefit to consumers in receiving the revised Loan Estimate as
early as possible to enable the consumer to evaluate the information.
The Bureau also believes that a creditor should be able to provide a
revised Loan Estimate based on interest rate dependent charges more
quickly in comparison to other types of disclosures, because the
creditor may not need to obtain information from other parties, such as
third party vendors. However, the Bureau believes that providing for
redisclosure on the next business day after the rate is locked would
still further these purposes but without the operational challenges
presented by a same-day redisclosure requirement. Accordingly, the
Bureau is proposing to revise Sec. 1026.19(e)(3)(iv)(D) to provide
that creditors shall redisclose the interest rate and interest rate
dependent charges no later than the next business day after the date
the interest rate is locked. The proposal also would make conforming
changes to comments 19(e)(3)(iv)(D)-1 and 19(e)(4)(i)-2, which provide
illustrations of the provision's application.
The Bureau seeks comment on whether there is potential for consumer
[[Page 64341]]
harm if creditors are allowed a business day to provide revised Loan
Estimates or benefit to consumers in retaining the same-day
redisclosure requirement. The Bureau also seeks comment as to whether a
single business day is sufficient for creditors to deliver or place in
the mail a revised Loan Estimate modifying interest rate dependent
charges and terms without the unintended consequences described in this
proposal and, conversely, whether there is consumer harm that would
result from allowing redisclosure more than one business day after the
interest rate is locked.
Section 1026.36--Prohibited Acts or Practices and Certain Requirements
for Credit Secured by a Dwelling
36(g) Name and NMLSR ID on Loan Documents
36(g)(2)(ii)
The Bureau is proposing to amend Sec. 1026.36(g)(2)(ii) to conform
to the requirements adopted by the 2013 Loan Originator Compensation
Final Rule. Section 1026.36(g)(2) lists the specific loan documents
that must contain the loan originator's name and NMLSR ID. The Bureau
explained in the 2013 Loan Originator Compensation Final Rule that it
was reserving Sec. 1026.36(g)(2)(ii) for references to the integrated
disclosures the Bureau was expecting to adopt in the final rule
implementing the 2012 TILA-RESPA Integration Proposal. The disclosures
referenced are those required by Sec. 1026.19(e) and (f) in the TILA-
RESPA Final Rule. Accordingly, the Bureau is proposing to amend Sec.
1026.36(g)(2)(ii) to include in the list of loan documents the
disclosures described Sec. 1026.19(e) and (f), as adopted by the TILA-
RESPA Final Rule.
Section 1026.37 Content of Disclosure for Certain Mortgage Transactions
(Loan Estimate)
37(b) Loan Terms
37(b)(6) Adjustments After Consummation
Section 1026.37(b)(6) requires creditors to disclose that
adjustments to principal, interest, and periodic payment may occur
after consummation, including the date when the adjustment may first
occur. As stated in comment 37(b)(8)-1, for adjustments that occur less
than 24 months after consummation, the Bureau intended that date to be
disclosed as a month, whereas for adjustments that occur after 24
months, as a whole year. Thus, an adjustment that first occurs 20
months after consummation would be disclosed as occurring in ``month
20,'' whereas an adjustment that occurs 37 months after consummation
would disclosed as occurring in ``year 3,'' not in ``year 3.1.''
Comment 37(b)(6)-1, which provides for this timing mechanism, implies
that comment 37(a)(10)-3 should be used to determine all adjustments
that occur in periods not in whole years. While the Bureau intended
that comment 37(a)(10)-3.ii be used to guide creditors regarding how to
disclose terms of less than 24 months, comment 37(a)(10)-3.i provides
that decimals should be used for periods greater than 24 months. The
Bureau did not intend this guidance to be applicable to Sec.
1026.37(b)(6); rather, any such period should be disclosed in whole
years as stated in comment 37(b)(8)-1. Accordingly, the Bureau is
proposing to revise comment 37(b)(6)-1 to align it with the commentary
37(b)(8) and ensure consistency in the reporting of time periods.
Specifically, the Bureau proposes that guidance provided in 37(a)(10)-3
only should be referenced when reporting increases that occur less than
24 months after consummation but does not equate to a number of whole
years or a number of days less than a week. For all other increases,
whole years should be used in accordance with comment 37(b)(8)-1.
37(c) Projected Payments
37(c)(2) Itemization
37(c)(2)(ii) and 37(c)(2)(iii)
The Bureau is proposing to move the reference to the disclosure of
mortgage insurance premiums as ``0'' where no escrow account is
established to pay charges, such as property taxes or homeowners
association fees, from comment 37(c)(ii)-2 and move it to comment
37(c)(2)(iii)-1. The Bureau believes that this reference is better
suited in comment 37(c)(2)(iii), which provides for escrow disclosure.
The Bureau also is proposing to amend comment 37(c)(2)(iii)-1 to state
that the escrow payment should be disclosed as ``--'' if an escrow
account is established for the payment of amounts identified in Sec.
1026.37(c)(4)(ii), but no escrow payment is required with a particular
periodic payment or range of payments, consistent with the disclosure
of mortgage insurance premiums in comment 37(c)(2)(ii)-1.
37(c)(4) Taxes, Insurance, and Assessments
37(c)(4)(iv)
The Bureau is proposing to revise comment 37(c)(4)(iv)-2 to remove
the reference to property taxes and homeowner's insurance to clarify
that the amounts disclosed pursuant to Sec. 1026.37(c)(4)(ii) may be
paid by the creditor using some funds from the escrow account.
37(h) Calculating Cash To Close
37(h)(1) For all Transactions
37(h)(1)(ii) Closing Costs Financed
The Bureau is proposing to revise comment 37(h)(1)(ii)-1 to reflect
the intended meaning of the regulatory text in Sec. 1026.37(h)(1)(ii),
which requires disclosure, in the Loan Estimate, of the amount,
expressed as a negative number, of any closing costs that are to be
paid from the loan proceeds. The Bureau explained in the preamble to
the Final Rule that the amount disclosed under Sec. 1026.37(h)(1)(ii)
is determined by subtracting the estimated total amount of payments to
third parties not otherwise disclosed pursuant to Sec. 1026.37(f) and
(g) from the total loan amount so long as the amount is a positive
number and does not exceed the total closing costs disclosed under
Sec. 1026.37(g)(6), but comment 37(h)(1)(ii)-1 referenced ``lender
credits'' instead of ``closing costs.'' Accordingly, the Bureau is
proposing to remove the words ``lender credits'' and replace them with
the words ``closing costs'' to harmonize with the preamble, which
correctly reflected the Bureau's intent.
37(m) Other Considerations
Section 1026.19(e)(3)(iv)(F) governs redisclosures on new
construction loans when the creditor reasonably expects settlement to
occur more than 60 days after providing the initial Loan Estimate.
Section 1026.19(e)(3)(iv)(F) provides that a creditor may issue a
revised disclosure if the original disclosure clearly and conspicuously
states the creditor may issue revised disclosures at any time prior to
60 days before consummation. If no such statement is provided, the
creditor may not issue revised disclosures, except as otherwise
provided in Sec. 1026.19(f).
The Bureau intended to permit creditors that make new construction
loans and reasonably expect settlement to occur more than 60 calendar
days after the initial Loan Estimate is provided to state on the Loan
Estimate that the creditor may issue revised disclosures. However,
Sec. 1026.37, which prescribes the content for the disclosures
provided on the Loan Estimate pursuant to Sec. 1026.19(e)(1)(i), does
not permit the creditor to state that it may issue revised disclosures.
The proposal would add a new provision allowing the creditor to make
the statement on the Loan Estimate form. Creditors would thus be able
to preserve
[[Page 64342]]
the ability to provide the borrower with a revised loan estimate if
settlement is not expected to occur for more than 60 days after the
disclosures required by Sec. 1026.19(e) are provided.
The Bureau is proposing to add new Sec. 1026.37(m)(8), under the
master heading ``Additional Information About This Loan'' and under the
heading ``Other Considerations,'' and believes the Sec.
1026.19(e)(3)(iv)(F) language is appropriately placed in this section
of Sec. 1026.37. The Bureau also is proposing to add new comment
37(m)(8)-1 to state that placement of the language here satisfies the
``clear and conspicuous'' standard set forth in Sec.
1026.19(e)(3)(iv)(F). The Bureau invites comments on whether this is
the most appropriate placement or if there are other areas on the Loan
Estimate form that are more appropriate.
Section 1026.38--Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure)
38(a) General Information
38(a)(3) Closing Information
38(a)(3)(vi)
The Bureau is proposing to add new commentary to Sec.
1026.38(a)(3)(vi) to clarify that, in the case of multiple properties
securing the transaction, the property address for all properties must
be disclosed on the Closing Disclosure. Comment 37(a)(6)-3 provides
that, where more than one property secures the credit transaction, all
property addresses securing the transaction must be disclosed on the
Loan Estimate pursuant to Sec. 1026.37(a)(6). The Bureau believes that
the requirement to disclose all real property securing the transaction
must also be applied to the Closing Disclosure to ensure consistency
between the two forms.
Accordingly, the Bureau is proposing to add new comment
38(a)(3)(vi)-2 to clarify that the addresses of all properties securing
the transaction must be disclosed on the Closing Disclosure.
Furthermore, proposed comment 38(a)(3)(vi)-2 would clarify that
additional pages may be appended to the end of the form with the real
property information if there is not enough space on the Closing
Disclosure.
38(e) Alternative Calculating Cash To Close Table for Transactions
Without a Seller
38(e)(1) Loan Amount
38(e)(1)(iii)(A)
The Bureau is proposing to amend comment 38(e)(1)(iii)(A)-1 to
clarify the statement identifying a difference between the loan amount
in the Loan Estimate and Closing Disclosure, pursuant to Sec.
1026.38(e)(1)(iii)(A). The Bureau is proposing to amend comment
38(e)(1)(iii)(A)-1 to replace ``You increased this amount'' with ``This
amount increased.''
38(e)(2) Total Closing Costs
38(e)(2)(iii)(A)
The Bureau is proposing to add commentary to Sec. 1026.38(e)(2) to
harmonize the disclosure of increases or decreases in closing costs
between the ``Alternative Calculating Cash to Close'' table, which may
be used for transactions without a seller, and the general
``Calculating Cash to Close'' table. Section 1026.38(i) and comment
38(i)-4, which prescribe content for the general ``Calculating Cash to
Close'' table, require statements regarding any excess amount and any
credit to the consumer be disclosed on the table. However, a parallel
comment was not adopoted or incorporated by reference in Sec.
1026.38(e) for the alternative table. The Bureau intended that the same
requirement apply to the alternative table and is proposing to add
comment to section 38(e)(2)(iii)(A) to reflect the intended meaning of
Sec. 1026.38(e)(2)(iii)(A) and harmonize the commentary with section
38(i)(1)-3, which interprets Sec. 1026.38(i)(1).
38(e)(3) Closing Costs Paid Before Closing
38(e)(3)(iii)(A)
The Bureau is proposing to amend Sec. 1026.38(e)(3)(iii)(A), which
applies to the ``Alternative Calculating Cash to Close'' table, to
harmonize it with the parallel provision in Sec.
1026.38(i)(2)(iii)(A), which applies to the general ``Calculating Cash
to Close'' table. The Bureau intended that that these two provisions
require, among other things, a statement that the consumer ``paid such
amounts prior to consummation of the transaction,'' as reflected in
Sec. 1026.38(i)(2)(iii)(A). However, Sec. 1026.38(e)(3)(iii)(A), as
adopted by the TILA-RESPA Final Rule contains different language.
Accordingly, the Bureau is proposing to amend Sec.
1026.38(e)(3)(iii)(A) to harmonize these two provisions.
V. Dodd-Frank Act Section 1022(b)(2)
A. Overview
In developing the proposed rule, the Bureau has considered
potential benefits, costs, and impacts.\12\ The Bureau requests comment
on the preliminary analysis presented below as well as submissions of
additional data that could inform the Bureau's analysis of the
benefits, costs, and impacts. The Bureau has consulted, or offered to
consult with, the prudential regulators, the Securities and Exchange
Commission, the Department of Housing and Urban Development, the
Federal Housing Finance Agency, the Federal Trade Commission, the U.S.
Department of Veterans Affairs, the U.S. Department of Agriculture, and
the Department of the Treasury, including regarding consistency with
any prudential, market, or systemic objectives administered by such
agencies.
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\12\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
calls for the Bureau to consider the potential benefits and costs of
a regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products or services; the impact on depository institutions and
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act; and the impact on consumers
in rural areas.
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This rule proposes two main amendments to provisions adopted by the
TILA-RESPA Final Rule. First, the Bureau is proposing to amend Sec.
1026.19(e)(3)(iv)(D) and related commentary to relax a timing
requirement that currently requires creditors to redisclose the
interest rate and interest rate dependent charges to the consumer on
the date that the rate is locked. The proposed amendment would require
creditors to redisclose the interest rate and interest rate dependent
charges no later than the next business day after the rate is locked.
The Bureau believes that, absent the proposed change, this
requirement is likely to result in at least some creditors limiting
consumers' ability to lock their interest rates only to times early in
a business day due to the implementation costs of getting the
disclosure to the consumer the same date if the consumer requested a
rate lock sufficiently late during the business day or after hours. The
Bureau believes that consumers are unlikely to choose creditors based
on the creditors' policies regarding interest rate locks. Moreover,
consumers would be unlikely to know whether their creditors will in
fact allow interest rate locks at all times until the consumer actually
attempts to lock the interest rate. Consequently, consumers could
experience inconvenience because creditors limit when they may lock
their interest rates. Furthermore, because consumers are unlikely to
know of this practice until they attempt to lock a floating interest
rate, it is unlikely that this practice would be corrected or
influenced by market competition.
The second proposed amendment would permit creditors to state on
the Loan Estimate that the creditor may
[[Page 64343]]
issue revised disclosures if settlement is reasonably expected to occur
more than 60 calendar days after the initial Loan Estimate is provided.
The proposal would add a new provision allowing the creditor to make
the statement on the Loan Estimate form, and thus enable creditors to
preserve their ability to provide borrowers with revised loan estimates
in these circumstances. Without the proposed amendment, creditors may
have lower incentives to originate construction loans, especially if
they believe that the estimates provided in the Loan Estimate might
need to be revised. As a result, consumers either would be unable to
get construction loans until most of the uncertainty about estimated
costs is resolved or consumers will be offered construction loans with
a priced-in premium that reflects the possibility that the creditor is
not able to redisclose estimates after the initial 60 days.
The Bureau believes that both proposed amendments would provide
options that a creditor is free to undertake or not to undertake, and
thus present no cost to creditors. The Bureau believes that both
proposed amendments would present some benefits to creditors. The
Bureau believes that the first proposed amendment could present both
benefits and costs to consumers, while the second proposed amendment
presents benefits to consumers.
B. Potential Benefits and Costs to Consumers and Covered Persons
Relaxing the Same-Day Redisclosure Requirement for Interest Rate Locks
The proposed amendment would provide an option to creditors:
Creditors may avail themselves of an extra business day to redisclose
interest rate and interest rate dependent charges, but do not have to.
They also may continue to provide revised disclosures on the same date
that the rate is locked if they choose. Therefore, some creditors will
benefit if the proposed amendment is adopted by not having to
redisclose on the same date the rate is locked, while other creditors
could continue to redisclose on the date the rate is locked if they
choose and are as well off as they would have been without this
proposed amendment. Overall, if the proposed amendment is adopted, some
creditors will benefit, others may not, all creditors will enjoy
increased flexibility, but no creditors will face increased costs.
Under the current rule, the Bureau believes that some creditors
could continue offering flexible time periods for interest rate locks,
but others, for example, might choose to limit when consumers may lock
interest rates in order to ease the compliance cost. Other creditors
might continue to allow consumers to request a lock at any time but
only lock the rate contractually the business day after the consumer
requests a rate lock, instead of on the date the consumer requests the
rate lock. Consumers of these creditors could benefit from the proposed
amendment through the increased convenience of being able to lock in
the interest rate at any time during the day.
Consumers of creditors that continue to allow flexibility in
locking interest rates might experience a cost: Their revised
disclosures might not be available until the next business day if the
proposed amendment is adopted. However, some of these creditors might
still provide revised disclosures on the same date that the interest
rate is locked. If they do not provide the revised disclosure until the
next business day, then the potential consumer harm is the time
difference between when the consumers would receive revised
disclosures.
The Bureau does not possess any data, and is not aware of a source
to obtain data, that would enable it to report the quantitative effects
of this provision, for example, the number of creditors that would not
let their consumers lock the interest rate in the afternoon or in the
evening if the provision is not adopted. The Bureau seeks comment on
this issue.
Specific Language on Loan Estimates for New Construction Loans
The Bureau believes that, without the proposed amendment, creditors
that ordinarily originate construction loans could be forced either to
originate only those construction loans for which the creditor is
certain that no redisclosure prior to settlement will be necessary or
to price in the risk of having to cure any amounts charged over the
estimates initially provided more than 60 days before settlement.
Creditors that price in the risk, including the estimated cost of cure
in their pricing, risk miscalibrating the pricing and losing consumers
to less risk-averse competitors or facing unanticipated costs related
to cure for the failure to redisclose more accurate costs. In all
events, creditors risk losing consumers to other options. In all
events, the proposed amendment presents benefits to the creditors that
decide to originate construction loans and presents no costs.
As noted above, under the current rule, a consumer who needs a new
construction loan may only be able to obtain a construction loan where
the creditor has priced in the risk of having to cure any amounts
charged over the estimates initially provided over 60 days before
settlement, and that is a cost to consumers. On the other hand, if the
proposed amendment is not adopted, yet the consumer manages to receive
a construction loan, then the Loan Estimate provides consumers more
certainty, given that creditors would be limited in their ability to
redisclose estimated costs and reset the applicable tolerances. In
situations where creditors misgauged estimates provided in the initial
Loan Estimate, consumers might be entitled to receive a cure of any
differences between the initial disclosure and the final costs at
closing, to the extent such differences exceed applicable tolerances.
However, the Bureau believes that these benefits to consumers are
marginal, given that costs associated with construction loans are
inherently volatile beyond the creditor's control. As a result, the
Bureau believes that creditors unable to redisclose estimates given
more than 60 days prior to consummation would be less likely to
originate such loans.
The Bureau does not possess any data, and is not aware of a source
to obtain data, that would enable it to report the number of
transactions affected or to quantify the extent of creditor and
consumer benefits. The Bureau seeks comment on this issue.
C. Impact on Covered Persons With No More Than $10 Billion in Assets
The Bureau believes that covered persons with no more than $10
billion in assets will not be differentially affected by the proposed
amendment regarding construction loans.
The proposed amendment regarding interest rate locks might have two
particular effects on covered persons with no more than $10 billion in
assets. First, covered persons with no more than $10 billion in assets
are more likely to benefit from this proposed provision to the extent
that redisclosure on the same business day of an interest rate lock
that occurred close to the end of the business day might require
software and business processes upgrade costs. Larger covered persons
are more likely to originate a sufficient number of transactions to
make it worth implementing these changes, as opposed to choosing to
offer interest rate locks only at set times during business hours.
Secondly, creditors located in more than one time zone might have
to offer a shorter preset adjustment time to some customers (for
example, if the location of the rate lock operation is in the Eastern
Time zone), but covered persons with no more than $10 billion in assets
[[Page 64344]]
are more likely to be located in a single time zone. From this
perspective, covered persons with no more than $10 billion in assets
are less likely to benefit from this proposed amendment. The Bureau
does not possess data to quantify either of the two possible
aforementioned effects of the proposed amendment on covered persons
with no more than $10 billion in assets.
D. Impact on Access to Credit
The Bureau does not believe that there will be an adverse impact on
access to credit resulting from any of the two provisions. Moreover, it
is possible that there will be an expansion of access to credit, if the
proposed amendment regarding construction loans facilitates the making
of new construction loans, as the Bureau anticipates.
E. Impact on Rural Areas
The Bureau believes that rural areas might benefit from these two
proposed provisions more than urban areas. Competition might drive
creditors to originate construction loans despite the possible
redisclosure issues and to provide interest rate locks throughout the
day despite the same business day redisclosure requirement. To the
extent that there are fewer creditors operating in rural areas than in
urban areas with correspondingly reduced competition, and to the extent
that competition would actually matter for these two issues, rural
areas are most likely to suffer the potential harms the proposed
amendments seek to address. Therefore, rural areas may conversely see
the largest benefit from the proposed amendments.
VI. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (the RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small nonprofit organizations. The RFA defines a ``small business'' as
a business that meets the size standard developed by the Small Business
Administration pursuant to the Small Business Act.
The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities. The Bureau also is subject to certain additional procedures
under the RFA involving the convening of a panel to consult with small
business representatives prior to proposing a rule for which an IRFA is
required.
An IRFA is not required for this proposal because the proposal, if
adopted, would not have a significant economic impact on any small
entities. The Bureau does not expect the proposal to impose costs on
covered persons. All methods of compliance under current law will
remain available to small entities if the proposal is adopted. Thus, a
small entity that is in compliance with current law need not take any
additional action if the proposal is adopted.
Accordingly, the undersigned certifies that this proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities.
VII. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), Federal agencies are generally required to seek the Office of
Management and Budget (OMB) approval for information collection
requirements prior to implementation. The collections of information
related to Regulations Z and X have been previously reviewed and
approved by OMB in accordance with the PRA and assigned OMB Control
Number 3170-0015 (Regulation Z) and 3170-0016 (Regulation X). Under the
PRA, the Bureau may not conduct or sponsor and, notwithstanding any
other provision of law, a person is not required to respond to an
information collection unless the information collection displays a
valid control number assigned by OMB.
The Bureau has determined that this Proposed Rule would not impose
any new or revised information collection requirements (recordkeeping,
reporting, or disclosure requirements) on covered entities or members
of the public that would constitute collections of information
requiring OMB approval under the PRA. The Bureau welcomes comments on
this determination or any other aspect of this proposal for purposes of
the PRA. Comments should be submitted as outlined in the ADDRESSES
section above. All comments will become a matter of public record.
List of Subjects
12 CFR Part 1024
Condominiums, Consumer protection, Housing, Mortgage servicing,
Mortgages, Reporting and recordkeeping requirements.
12 CFR Part 1026
Advertising, Consumer protection, Credit, Credit unions, Mortgages,
National banks, Recordkeeping and recordkeeping requirements,
Reporting, Savings associations, Truth in lending.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau proposes to
amend Regulation X, 12 CFR part 1024, and Regulation Z, 12 CFR part
1026, as set forth below:
PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)
0
1. The authority citation for part 1024 continues to read as follows:
Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532,
5581.
Subpart A--General Provisions
0
2. Section 1024.5 is amended by revising paragraph (d) introductory
text to read as follows:
Sec. 1024.5 Coverage of RESPA.
* * * * *
(d) Partial exemptions for certain mortgage loans. Sections 1024.6,
1024.7, 1024.8, 1024.10, and 1024.33(a) do not apply to a federally
related mortgage loan:
* * * * *
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
3. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511,
5512, 5532, 5581; 15 U.S.C. 1601 et seq.
* * * * *
Subpart C--Closed-End Credit
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4. Section 1026.19 is amended by revising paragraph (e)(3)(iv)(D) to
read as follows:
Sec. 1026.19 Certain mortgage and variable-rate transactions.
* * * * *
(e) * * *
(3) * * *
(iv) * * *
(D) Interest rate dependent charges. The points or lender credits
change because the interest rate was not locked when the disclosures
required under paragraph (e)(1)(i) of this section were provided. No
later than the next business day after the date the interest rate is
locked, the creditor shall provide a revised version of the disclosures
required under paragraph (e)(1)(i) of this section to the consumer with
the revised interest rate, the points disclosed pursuant to Sec.
1026.37(f)(1), lender
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credits, and any other interest rate dependent charges and terms.
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
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5. Section 1026.36 is amended by adding paragraph (g)(2)(ii) to read as
follows:
Sec. 1026.36 Prohibited acts or practices and certain requirements
for credit secured by a dwelling.
* * * * *
(g) * * *
(2) * * *
(ii) The disclosures required by Sec. 1026.19 (e) and (f);
* * * * *
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6. Section 1026.37 is amended by adding paragraph (m)(8) and revising
paragraph (o)(4)(i)(A) to read as follows:
Sec. 1026.37 Content of disclosures for certain mortgage transactions
(Loan Estimate).
* * * * *
(m) * * *
(8) New construction loans. In transactions involving new
construction, where the creditor reasonably expects that settlement
will occur more than 60 days after the provision of the loan estimate,
at the creditor's option, a clear and conspicuous statement that the
creditor may issue a revised disclosure any time prior to 60 days
before consummation, pursuant to Sec. 1026.19(e)(3)(iv)(F).
* * * * *
(o) * * *
(4) * * *
(i) * * *
(A) The dollar amounts required to be disclosed by paragraphs
(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f),
(g), (h), (i), and (l) of this section shall be rounded to the nearest
whole dollar, except that the per diem amount required to be disclosed
by paragraph (g)(2)(iii) of this section and the monthly amounts
required to be disclosed by paragraphs (g)(3)(i) through (iii) and
(g)(3)(v) of this section shall not be rounded.
* * * * *
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7. Section 1026.38 is amended by revising paragraphs (e)(3)(iii)(A),
(e)(4)(ii), and (k)(2)(v) and (vi) to read as follows:
Sec. 1026.38 Content of disclosures for certain mortgage transactions
(Closing Disclosure).
* * * * *
(e) * * *
(3) * * *
(iii) * * *
(A) If the amount disclosed under paragraph (e)(3)(ii) of this
section is different than the amount disclosed under paragraph
(e)(3)(i) of this section (unless the difference is due to rounding), a
statement of that fact, along with a statement that the consumer paid
such amounts prior to consummation of the transaction; or
* * * * *
(4) * * *
(ii) Under the subheading ``Final,'' the total amount of payoffs
and payments made to third parties disclosed pursuant to paragraph
(t)(5)(vii)(B) of this section, to the extent known, disclosed as a
negative number;
* * * * *
(k) * * *
(2) * * *
(v) The amount of any loan secured by a first lien on the property
that will be paid off as part of the real estate closing, labeled
``Payoff of First Mortgage Loan'';
(vi) The amount of any loan secured by a second lien on the
property that will be paid off as part of the real estate closing,
labeled ``Payoff of Second Mortgage Loan'';
* * * * *
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8. Appendix H to part 1026 is amended by revising the Description in H-
24(G) to read as follows:
Appendix H to Part 1026--Closed-End Forms and Clauses
* * * * *
H-24(G) Mortgage Loan Transaction Loan Estimate--Modification to Loan
Estimate for Transaction Not Involving Seller--Model Form
Description: This is a blank model Loan Estimate that
illustrates the application of the content requirements in Sec.
1026.37, with the optional alternative tables permitted by Sec.
1026.37(d)(2) and (h)(2) for transactions without a seller. This
form provides one variation of page one, four variations of page
two, and four variations of page three, reflecting the variable
content requirements in Sec. 1026.37.
* * * * *
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9. In Supplement I to part 1026:
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a. Under Section 1026.19--Certain Mortgage and Variable-Rate
Transactions:
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i. Under paragraph 19(e)(3)(iv)(D), paragraph 1 is revised.
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ii. Under paragraph 19(e)(4)(i), paragraph 2 is revised.
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b. Under Section 1026.37--Content of Disclosures for Certain Mortgage
Transactions (Loan Estimate):
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i. Under paragraph 37(b)(6), paragraph 1 is revised.
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ii. Under paragraph 37(c)(2)(ii), paragraph 2 is revised.
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ii. Under paragraph 37(c)(2)(iii), paragraph 1 is revised.
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iii. Under paragraph 37(c)(4)(iv), paragraph 2 is revised.
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iv. Under paragraph 37(h)(1)(ii), paragraph 1 is revised.
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v. Under paragraph 37(m), the subheading 37(m)(8) New construction
loans and paragraph 1 are added.
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vi. Under paragraph 37(n), paragraph 2 is revised.
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c. Under Section 1026.38--Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure):
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i. Under paragraph 38(a)(3)(vi), paragraph 2 is added.
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ii. Under paragraph 38(e)(1)(iii)(A), paragraph 1 is revised.
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iii. Under paragraph 38(e)(2)(iii)(A), paragraph 3 is added.
The revisions and additions read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Subpart C--Closed-End Credit
* * * * *
Section 1026.19--Certain Mortgage and Variable-Rate Transactions
* * * * *
19(e) Mortgage loans secured by real property--Early
disclosures.
* * * * *
19(e)(3) Good faith determination for estimates of closing
costs.
* * * * *
Paragraph 19(e)(3)(iv)(D) Interest rate dependent charges.
1. Requirements. If the interest rate is not locked when the
disclosures required by Sec. 1026.19(e)(1)(i) are provided, a valid
reason for revision exists when the interest rate is subsequently
locked. No later than the next business day after the date the
interest rate is locked, 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) reflecting the revised interest rate,
the points disclosed pursuant to Sec. 1026.37(f)(1), lender
credits, and any other interest rate dependent charges and terms.
The following examples illustrate this requirement:
i. Assume a creditor sets the interest rate by executing a rate
lock agreement with the consumer. If such an agreement exists when
the original disclosures required under Sec. 1026.19(e)(1)(i) are
provided, then the actual points and lender credits are compared to
the estimated points disclosed pursuant to Sec. 1026.37(f)(1) and
lender credits included in the original disclosures provided under
Sec. 1026.19(e)(1)(i) for the purpose of determining good faith
pursuant to Sec. 1026.19(e)(3)(i). If the consumer enters into a
rate lock agreement with the creditor after the disclosures required
under Sec. 1026.19(e)(1)(i) were provided, then Sec.
1026.19(e)(3)(iv)(D) requires the creditor to provide, no later than
the next business day after the date that the consumer and the
creditor enter into a rate lock agreement, a revised version of the
disclosures required under Sec. 1026.19(e)(1)(i) reflecting the
revised interest rate, the points disclosed pursuant to Sec.
1026.37(f)(1), lender credits, and any other
[[Page 64346]]
interest rate dependent charges and terms. Provided that the revised
version of the disclosures required under Sec. 1026.19(e)(1)(i)
reflect any revised points disclosed pursuant to Sec. 1026.37(f)(1)
and lender credits, the actual points and lender credits are
compared to the revised points and lender credits for the purpose of
determining good faith pursuant to Sec. 1026.19(e)(3)(i).
* * * * *
19(e)(4) Provision and receipt of revised disclosures.
Paragraph 19(e)(4)(i) General rule.
* * * * *
2. Relationship to Sec. 1026.19(e)(3)(iv)(D). 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) no later than the next business day after the date
the interest rate is locked. See comment 19(e)(3)(iv)(D)-1.
* * * * *
Subpart E--Special Rules for Certain Home Mortgage Transactions
* * * * *
Section 1026.37--Content of Disclosures for Certain Mortgage
Transactions (Loan Estimate)
* * * * *
37(b) Loan terms.
* * * * *
37(b)(6) Adjustments after consummation.
1. Periods not in whole years. For guidance on how to disclose
increases after consummation that occur after a number of months
less than 24 but that do not equate to a number of whole years or
within a number of days less than a week, see the guidance provided
in comment 37(a)(10)-3. For all other increases that occur after
more than 24 months, see the guidance provided in comment 37(b)(8)-
1.
* * * * *
37(c) Projected payments.
* * * * *
37(c)(2) Itemization.
* * * * *
Paragraph 37(c)(2)(ii).
* * * * *
2. Relationship to principal and interest disclosure. The
creditor discloses mortgage insurance premiums pursuant to Sec.
1026.37(c)(2)(ii) on the same periodic basis that payments for
principal and interest are disclosed pursuant to Sec.
1026.37(c)(2)(i), even if mortgage insurance premiums are actually
paid on some other periodic basis.
Paragraph 37(c)(2)(iii).
1. Escrow disclosure. The disclosure described in Sec.
1026.37(c)(2)(iii) is required only if the creditor will establish
an escrow account for the payment of some or all of the charges
described in Sec. 1026.37(c)(4)(ii). If no escrow account for the
payment of some or all such charges will be established, the
creditor discloses the escrow amount as ``0.'' If an escrow account
is established for the payment of amounts described in Sec.
1026.37(c)(4)(ii), but no escrow payment is required with a
particular periodic payment (such as with a final balloon payment)
or range of payments, the escrow payment should be disclosed as ``--
''.
* * * * *
37(c)(4) Taxes, insurance, and assessments.
* * * * *
Paragraph 37(c)(4)(iv).
* * * * *
2. Amounts paid by the creditor using escrow account funds.
Section 1026.37(c)(4)(iv) requires the creditor to disclose an
indication of whether the amounts disclosed pursuant to Sec.
1026.37(c)(4)(ii) will be paid by the creditor using escrow account
funds. If the amount disclosed pursuant to Sec. 1026.37(c)(4)(ii)
requires the creditor to disclose a description of more than one
amount and only some of those amounts will be paid by the creditor
using escrow account funds, the creditor may indicate that only some
of those amounts will be paid using escrow account funds, such as by
using the word ``some.''
* * * * *
37(h) Calculating cash to close.
* * * * *
37(h)(1)(ii) Closing costs financed.
1. Calculating amount. The amount of closing costs financed
disclosed under Sec. 1026.37(h)(1)(ii) is determined by subtracting
the estimated total amount of payments to third parties not
otherwise disclosed pursuant to Sec. 1026.37(f) and Sec.
1026.37(g) from the total loan amount disclosed pursuant to Sec.
1026.37(b)(1). If the result of the calculation is a positive
number, that amount is disclosed as a negative number under Sec.
1026.37(h)(1)(ii), but only to the extent that it does not exceed
the total amount of closing costs disclosed under Sec.
1026.37(g)(6). If the result of the calculation is zero or negative,
the amount of $0 is disclosed under Sec. 1026.37(h)(1)(ii).
* * * * *
37(m) Other considerations.
* * * * *
37(m)(8) New construction loans.
1. Clear and conspicuous statement regarding redisclosure for
new construction loans. For new construction loans where the
creditor reasonably expects the settlement date to be 60 days or
more after the provision of the disclosures required under Sec.
1026.19(e)(1)(i), providing the statement, ``You may receive a
revised Loan Estimate at least 60 days prior to consummation'' under
the master heading ``Additional Information About This Loan'' and
under the heading ``Other Considerations'' pursuant to Sec.
1026.37(m) satisfies the requirements set forth in Sec.
1026.19(e)(3)(iv)(F) that the statement be made clearly and
conspicuously on the disclosure.
37(n) Signature statement.
* * * * *
2. Multiple consumers. If there is more than one consumer who
will be obligated in the transaction, the first consumer signs as
the applicant and each additional consumer signs as a co-applicant.
If there is not enough space under the heading ``Confirm Receipt''
to provide signature lines for every consumer in the transaction,
the creditor may add additional signature pages, as needed, at the
end of the form for the remaining consumers' signatures. However,
the creditor is required to disclose the heading and statement
required by Sec. 1026.37(n)(1) on such additional pages.
* * * * *
Section 1026.38--Content of Disclosures for Certain Mortgage
Transactions (Closing Disclosure)
* * * * *
38(a) General information.
38(a)(3) Closing information.
* * * * *
38(a)(3)(vi) Property.
* * * * *
2. Multiple properties. Where more than one property secures the
credit transaction, Sec. 1026.38(a)(3)(vi) requires disclosure of
all property addresses. If the addresses of all properties securing
the transaction do not fit in the space allocated on the Closing
Disclosure, an additional page with the addresses of all real
properties may be appended to the end of the form.
* * * * *
38(e) Alternative calculating cash to close table for
transactions without a seller.
* * * * *
38(e)(1) Loan amount.
Paragraph 38(e)(1)(iii)(A).
1. Statements of increases or decreases. Section
1026.38(e)(1)(iii)(A) requires a statement of whether the amount
increased or decreased from the estimated amount. For Sec.
1026.38(e)(1)(iii)(A), the statement, ``This amount increased,'' in
which the word ``increased'' is in boldface font and is replaced
with the word ``decreased'' as applicable, complies with this
provision.
38(e)(2) Total closing costs.
* * * * *
Paragraph 38(e)(2)(iii)(A).
* * * * *
3. Statements regarding excess amount and any credit to the
consumer. Section 1026.38(e)(2)(iii)(A) requires statements that an
increase in closing costs exceeds legal limits by the dollar amount
of the excess and a statement directing the consumer to the
disclosure of lender credits under Sec. 1026.38(h)(3) if a credit
is provided under Sec. 1026.19(f)(2)(v). See form H-25(F) of
appendix H to this part for examples of such statements.
* * * * *
Dated: October 9, 2014.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2014-24739 Filed 10-28-14; 8:45 am]
BILLING CODE 4810-AM-P