[Federal Register Volume 82, Number 154 (Friday, August 11, 2017)]
[Rules and Regulations]
[Pages 37656-37793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15764]



[[Page 37655]]

Vol. 82

Friday,

No. 154

August 11, 2017

Part II





Bureau of Consumer Financial Protection





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12 CFR Part 1206





Amendments to Federal Mortgage Disclosure Requirements Under the Truth 
in Lending Act (Regulation Z); Final Rule and Proposed Rule

Federal Register / Vol. 82 , No. 154 / Friday, August 11, 2017 / 
Rules and Regulations

[[Page 37656]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2016-0038]
RIN 3170-AA61


Amendments to Federal Mortgage Disclosure Requirements Under the 
Truth in Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretation.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
modifying the Federal mortgage disclosure requirements under the Real 
Estate Settlement Procedures Act and the Truth in Lending Act that are 
implemented in Regulation Z. This rule memorializes the Bureau's 
informal guidance on various issues and makes additional clarifications 
and technical amendments. This rule also creates tolerances for the 
total of payments, adjusts a partial exemption mainly affecting housing 
finance agencies and nonprofits, extends coverage of the TILA-RESPA 
integrated disclosure (integrated disclosure) requirements to all 
cooperative units, and provides guidance on sharing the integrated 
disclosures with various parties involved in the mortgage origination 
process.

DATES: The final rule is effective October 10, 2017. However, the 
mandatory compliance date is October 1, 2018. For additional discussion 
of these dates, see part VI of the SUPPLEMENTARY INFORMATION section 
below.

FOR FURTHER INFORMATION CONTACT: Jeffrey Haywood, Paralegal Specialist, 
Dania Ayoubi, Pedro De Oliveira, Angela Fox, Jaclyn Maier, Alexandra 
Reimelt, and Shelley Thompson, Counsels, and Krista Ayoub, David 
Friend, Nicholas Hluchyj, and Priscilla Walton-Fein, Senior Counsels, 
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

    For more than 30 years, Federal law required lenders to issue two 
overlapping sets of disclosures to consumers applying for a mortgage. 
In October 2015, integrated disclosures issued by the Consumer 
Financial Protection Bureau, pursuant to the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, took effect.\1\ The Bureau has 
worked actively to support implementation both before and after the 
effective date by providing compliance guides, webinars, and other 
implementation aids. To further these ongoing efforts, on July 28, 
2016, the Bureau proposed amendments to the integrated disclosure 
requirements in Regulation Z (the proposal).\2\
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376, 2007, 2103-04, 2107-09 (2010); 
Integrated Mortgage Disclosures Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z), 78 FR 79730 (Dec. 31, 2013).
    \2\ The proposal was published in the Federal Register on August 
15, 2016. See 81 FR 54317 (Aug. 15, 2016).
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    The Bureau is now issuing this final rule to memorialize certain 
past informal guidance, whether provided through webinar, compliance 
guide, or otherwise, and make additional clarifications and technical 
amendments. This final rule also makes a limited number of additional 
substantive changes where the Bureau has identified discrete solutions 
to specific implementation challenges. Specifically, among other 
changes, the final rule:
     Creates tolerances for the total of payments. The Truth in 
Lending Act (TILA) establishes certain tolerances for accuracy in 
calculating the finance charge and disclosures affected by the finance 
charge. In light of prior changes to certain underlying regulatory 
definitions, the final rule establishes express tolerances for the 
total of payments to parallel the existing provisions regarding the 
finance charge.
     Adjusts a partial exemption that mainly affects housing 
finance agencies and nonprofits. The existing rule provides a partial 
exemption from the integrated disclosure requirements for certain non-
interest bearing subordinate lien transactions that provide down 
payment and other homeowner assistance (housing assistance loans). The 
Bureau has learned that the exemption may not be operating as intended. 
The final rule includes two amendments to expand the scope of the 
partial exemption and provide additional flexibility when loans satisfy 
the partial exemption.
     Provides a uniform rule regarding application of the 
integrated disclosure requirements to cooperative units. Under the 
existing rule, coverage of cooperative units depends on whether 
cooperatives are classified as real property under State law. Because 
State law sometimes treats cooperatives differently for different 
purposes, there may be uncertainty and potential inconsistency among 
market actors regarding coverage of the integrated disclosure 
requirements. The final rule requires provision of the integrated 
disclosures in transactions involving cooperative units, whether or not 
cooperatives are classified under State law as real property.
     Provides guidance on sharing disclosures with various 
parties involved in the mortgage origination process. The Bureau has 
received a number of requests for guidance concerning the sharing of 
the integrated disclosures with sellers and various other parties 
involved in the origination process, including real estate agents, in 
light of privacy concerns. The final rule incorporates and expands upon 
previous webinar guidance in the Official Interpretations (commentary) 
to the regulation to provide greater clarity.
    The clarifications and technical corrections in this final rule 
address a variety of topics, including: Affiliate charges; the 
calculating cash to close table; construction loans; decimal places and 
rounding; escrow account disclosures; escrow cancellation notices; 
expiration dates for the closing costs disclosed on the Loan Estimate; 
gift funds; the ``In 5 Years'' calculation; lender and seller credits; 
lenders' and settlement agents' respective responsibilities; the list 
of service providers; non-obligor consumers; partial payment policy 
disclosures; payment ranges on the projected payments table; the 
payoffs and payments table; payoffs with a purchase loan; post-
consummation fees; principal reduction (principal curtailment); 
disclosure and good-faith determination of property taxes and property 
value; rate locks; recording fees; simultaneous second lien loans; the 
summaries of transactions table; the total interest percentage 
calculation; trusts; and informational updates to the Loan Estimate. 
This final rule will generally benefit consumers and industry alike by 
providing greater clarity for implementation going forward. As stated 
in the proposal, the Bureau did not reopen any major policy decisions 
with this rulemaking.
    For the reasons discussed in the section-by-section analysis of 
Sec.  1026.19(e)(4)(ii) below, the Bureau is not finalizing proposed 
comment 19(e)(4)(ii)-2, which related to comparing charges paid by or 
imposed on the consumer to charges disclosed on a corrected Closing 
Disclosure to determine if an estimated charge was disclosed in good 
faith. The Bureau is issuing a new proposal, concurrent with

[[Page 37657]]

this final rule, that would address this issue.

II. Background

A. The TILA-RESPA Integrated Disclosures Rulemaking

    For more than 30 years, TILA required creditors to give consumers 
who applied for consumer credit, including mortgage loans, one set of 
disclosures, while the Real Estate Settlement Procedures Act (RESPA) 
required settlement agents to give borrowers who obtained federally 
related mortgage loans a different, overlapping, set of disclosures. 
This duplication was long recognized as inefficient and unduly complex 
for both consumers and industry and fueled more than one effort over 
the years to develop combined disclosure forms. In 1998, the Board of 
Governors of the Federal Reserve System (the Board) and the Department 
of Housing and Urban Development (HUD) prepared a joint report as to 
how the two sets of disclosures could be streamlined and simplified.\3\
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    \3\ Bd. of Governors of the Fed. Reserve Sys. & U.S. Dep't. of 
Housing 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 https://www.federalreserve.gov/boarddocs/rptcongress/tila.pdf. The report was prepared at 
Congress's direction in the Economic Growth and Regulatory Paperwork 
Reduction Act of 1996. Public Law 104-208, 2101, 110 Stat. 3009.
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    In Dodd-Frank Act sections 1032(f), 1098, and 1100A, Congress 
directed the Bureau to integrate the mortgage loan disclosures under 
TILA and RESPA.\4\ The Bureau issued proposed integrated disclosure 
forms and rules for comment on July 9, 2012 (the 2012 TILA-RESPA 
Proposal),\5\ and on November 20, 2013, the Bureau issued a final rule 
titled ``Integrated Mortgage Disclosures Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z)'' (TILA-RESPA Final Rule).\6\ The rule included a number 
of model forms, 13 samples illustrating the use of those forms for 
different types of loans, and extensive Official Interpretations, which 
provided authoritative guidance explaining the new disclosures. The 
Bureau used its discretion to establish an initial effective date of 
August 1, 2015, slightly more than 20 months after the rule itself was 
issued.\7\ The Bureau ultimately extended that effective date another 
two months, to October 3, 2015, in a subsequent rulemaking.\8\ The 
Bureau has reaffirmed continuously its commitment to support a smooth 
transition for the mortgage market, including its commitment to be 
sensitive to the good faith efforts made by institutions to come into 
compliance.\9\
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    \4\ Public Law 111-203, 124 Stat. 1376, 2007, 2103-04, 2107-09 
(2010).
    \5\ 77 FR 51116 (Aug. 23, 2012).
    \6\ 78 FR 79730 (Dec. 31, 2013).
    \7\ Most commenters supported an implementation period between 
18 and 24 months. 78 FR 79730, 80071 (Dec. 31, 2013).
    \8\ 80 FR 43911 (July 24, 2015). An administrative error on the 
Bureau's part required the Bureau to extend the effective date to 
August 15, 2015, at the earliest. The Bureau extended the effective 
date an additional six weeks to minimize costs from the delay to 
both consumers and industry.
    \9\ See, e.g., Letter from Director Richard Cordray, CFPB, to 
Industry Trades (April 28, 2015); Letter from Director Richard 
Cordray, CFPB, to Representatives Andy Barr and Carolyn B. Maloney, 
U.S. House of Representatives (June 3, 2015). Both Fannie Mae and 
Freddie Mac have issued statements indicating that they are not 
conducting routine post-purchase reviews during the transitional 
period after the effective date. See, e.g., Fannie Mae, Lender 
Letter LL-2015-06 (Oct. 6, 2015), available at https://www.fanniemae.com/content/announcement/ll1506.pdf; Freddie Mac, 
Industry Letter (Oct. 6, 2015), available at http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/iltr100615.pdf.
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    The Bureau has made technical corrections to the TILA-RESPA Final 
Rule. On January 20, 2015, the Bureau issued the ``Amendments to the 
2013 Integrated Mortgage Disclosures Rule Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z) and the 2013 Loan Originator Rule Under the Truth in 
Lending Act (Regulation Z)'' final rule (January 2015 Amendments).\10\ 
On July 21, 2015, the Bureau issued the ``2013 Integrated Mortgage 
Disclosures Rule Under the Real Estate Settlement Procedures Act 
(Regulation X) and the Truth in Lending Act (Regulation Z) and 
Amendments; Delay of Effective Date'' final rule (July 2015 
Amendments), which made certain technical amendments as well as 
extending the effective date.\11\ The TILA-RESPA Final Rule, January 
2015 Amendments, and July 2015 Amendments are collectively referred to 
as the TILA-RESPA Rule in this final rule.
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    \10\ 80 FR 8767 (Feb. 19, 2015). The January 2015 Amendments 
finalized a proposal the Bureau had issued on October 10, 2014, 79 
FR 64336 (Oct. 29, 2014).
    \11\ 80 FR 43911 (July 24, 2015). The July 2015 Amendments 
finalized a proposal the Bureau had issued on June 24, 2015, 80 FR 
36727 (June 26, 2015).
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B. Implementation Support

    The Bureau has engaged in extensive efforts to support industry 
implementation of the TILA-RESPA Rule. Information regarding the 
Bureau's implementation support initiative and available implementation 
resources can be found on the Bureau's regulatory implementation Web 
site at www.consumerfinance.gov/regulatory-implementation/tila-respa. 
The Bureau's ongoing efforts in this area include: (1) The publication 
of a small entity compliance guide and a guide to forms to help 
industry understand the new rules, including updates to the guides, as 
needed; (2) the publication of a readiness guide for institutions to 
evaluate their readiness and facilitate compliance with the new rules; 
(3) the publication of a disclosure timeline that illustrates the 
process and timing requirements of the new disclosure rules; (4) the 
publication of the Bureau's own examination procedures, incorporating 
the Federal Financial Institutions Examination Council's exam 
procedures; (5) the publication of Loan Estimate and Closing Disclosure 
forms with fields annotated to show certain TILA disclosure citations; 
(6) a series of webinars to address common interpretive questions, 
including an index of questions answered during those webinars; (7) the 
issuance of the January 2015 and July 2015 Amendments, as well as a 
February 2016 Federal Register erratum notice; (8) the creation of Web 
pages targeted to real estate professionals and settlements service 
providers and their questions; (9) roundtable meetings with industry, 
including creditors, settlement service providers, technology vendors, 
and secondary market participants, to discuss their challenges and 
support their implementation efforts; (10) participation in numerous 
conferences and forums throughout the entire implementation period; 
(11) close collaboration with State and Federal regulators on 
implementation of the TILA-RESPA Final Rule, including coordination on 
consistent examination procedures; and (12) extensive informal guidance 
to support implementation of the TILA-RESPA Rule.

C. Purpose and Scope of Final Rule

    This final rule memorializes some of the Bureau's existing informal 
guidance, whether provided through webinar, compliance guide, or 
otherwise, and makes additional clarifications and technical 
amendments. This final rule also makes a limited number of additional 
substantive changes where the Bureau has identified discrete solutions 
to specific implementation challenges.
    The Bureau's focus in this rulemaking is providing additional 
clarity to facilitate compliance. The Bureau did not reopen any major 
policy decisions with this rulemaking. As stated in the proposal, the 
Bureau was reluctant to entertain major changes that could involve 
substantial reprogramming of

[[Page 37658]]

systems so soon after the TILA-RESPA Final Rule's October 2015 
effective date or to otherwise distract from industry's efforts to 
resolve outstanding implementation issues.
    Accordingly, the final rule does not and cannot address every 
concern that has been raised to the Bureau. The Bureau believes that 
industry has made substantial implementation progress. The Bureau is 
prioritizing its resources to further facilitate industry's 
implementation progress. This final rule does not contain any revisions 
that implicate fundamental policy choices, such as the disclosure of 
simultaneous issuance title insurance premiums, made in the TILA-RESPA 
Final Rule. This final rule also does not include additional cure 
provisions.
    As stated in the proposal, the Bureau has spent substantial time 
considering industry requests to define further procedures for curing 
errors made in Loan Estimates or Closing Disclosures. The Bureau has 
worked steadily with industry to explain the cure provisions adopted in 
the TILA-RESPA Final Rule as well as TILA's existing provisions for 
cure. The Bureau is concerned that further definition of cure 
provisions would not be practicable without substantially undermining 
incentives for compliance with the rule. The Bureau believes that 
further defining cure provisions would be extraordinarily complex. 
Accordingly, the Bureau focused this rulemaking process on facilitating 
compliance with the TILA-RESPA Rule so that industry is able to provide 
all consumers with disclosures that conform to the requirements of the 
rule.

III. Comments

    The Bureau issued the proposal on July 28, 2016, and it was 
published in the Federal Register on August 15, 2016.\12\ The comment 
period closed on October 18, 2016. In response to the proposal, the 
Bureau received more than 1,600 comments from trade associations, 
creditors, technology vendors, and other industry representatives, as 
well as consumer groups, government sponsored enterprises (GSEs), and 
others. As discussed in more detail below, the Bureau has considered 
comments in adopting this final rule.
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    \12\ 81 FR 54317 (Aug. 15, 2016).
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IV. Legal Authority

    The Bureau is issuing this final rule pursuant to its authority 
under TILA, RESPA, and the Dodd-Frank Act, including the authorities 
discussed below. In general, the provisions this final rule amends were 
previously adopted by the Bureau in the TILA-RESPA Rule. In doing so, 
the Bureau relied on one or more of the authorities discussed below, as 
well as other authority. Except as otherwise noted in the section-by-
section analysis in part V below, the Bureau is issuing this final rule 
in reliance on the same authority and for the same reasons relied on in 
adopting the relevant provisions of the TILA-RESPA Rule, as discussed 
in detail in the Legal Authority and Section-by-Section Analysis parts 
of the TILA-RESPA Final Rule and January 2015 Amendments, 
respectively.\13\
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    \13\ 78 FR 79730, 79753-56 (Dec. 31, 2013); 80 FR 8767, 8768-70 
(Feb. 19, 2015).
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A. The Integrated Disclosure Mandate

    Section 1032(f) of the Dodd-Frank Act required the Bureau to 
propose, for public comment, rules and model disclosures combining 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 determined that any proposal issued by 
the Board and HUD carried out the same purpose.\14\ 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.\15\ The purpose of the 
integrated disclosure is to facilitate compliance with the disclosure 
requirements of TILA and RESPA and to improve borrower understanding of 
the transaction.
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    \14\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(f)).
    \15\ 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.'' Public Law 111-203, 124 Stat. 
1376, 2108 (2010) (codified at 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.'' 
Public Law 111-203, 124 Stat. 1376, 2103 (2010) (codified at 12 
U.S.C. 2603(a)).
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    Although Congress imposed the requirement to integrate the 
disclosures, it did not harmonize the underlying statutes. 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 section 128(b)(2)(A) 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.\16\ If the annual percentage 
rate that was initially disclosed becomes inaccurate, TILA section 
128(b)(2)(D) requires creditors to redisclose the information at least 
three business days before consummation.\17\ Pursuant to TILA section 
128(b)(2)(B)(ii), the disclosures must be provided in final form at 
consummation.\18\ RESPA section 5(c) also requires that the lender or 
broker provide borrowers with a good faith estimate of settlement 
charges no later than three business days after receiving their 
applications.\19\ However, unlike TILA, RESPA section 4(b) requires 
that, at or before settlement, the person conducting the settlement 
(which may or may not be the creditor) provide the borrower with a 
statement that records all charges imposed upon the borrower in 
connection with the settlement.\20\
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    \16\ 15 U.S.C. 1638(b)(2)(A). This requirement applies to 
extensions of credit that are both secured by a dwelling and subject 
to RESPA. Id.
    \17\ 15 U.S.C. 1638(b)(2)(D).
    \18\ 15 U.S.C. 1638(b)(2)(B)(ii).
    \19\ 12 U.S.C. 2604(c).
    \20\ 12 U.S.C. 2603(b).
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B. Other Rulemaking and Exception Authorities

Truth in Lending Act
    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a),\21\ 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 available credit terms and avoid the uninformed use of 
credit.\22\ In enacting TILA, Congress found that economic 
stabilization would be enhanced and the competition among the various 
financial institutions and other firms engaged in

[[Page 37659]]

the extension of consumer credit would be strengthened by the informed 
use of credit.\23\ Strengthened competition among financial 
institutions is a goal of TILA, achieved through the meaningful 
disclosure of credit terms.
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    \21\ 15 U.S.C. 1604(a).
    \22\ 15 U.S.C. 1601(a).
    \23\ Id.
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    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 amended TILA section 105(a) to provide the 
Bureau 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 under TILA section 105(a) to prescribe requirements 
beyond those specifically listed in the statute. 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, 
including the high-cost mortgages referred to in TILA section 103(bb), 
except with respect to the provisions of TILA section 129 that apply 
uniquely to such high-cost mortgages.\24\
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    \24\ 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).\25\ 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, 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. 
The Bureau is issuing portions of this final rule pursuant to its 
authority under TILA section 129B(e).
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    \25\ Public Law 111-203, 124 Stat. 1376, 2141 (2010) (codified 
at 15 U.S.C. 1639B(e)).
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Real Estate Settlement Procedures Act
    RESPA section 19(a). Section 19(a) of RESPA 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.\26\ 
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.\27\ 
In addition, in enacting RESPA, Congress found that consumers are 
entitled to 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.\28\ 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.
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    \26\ 12 U.S.C. 2617(a).
    \27\ 12 U.S.C. 2601(b).
    \28\ 12 U.S.C. 2601(a).
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    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. The Bureau is issuing portions of this 
final rule pursuant to its authority under RESPA section 19(a).
Dodd-Frank Act
    Dodd-Frank Act section 1022(b). Under Dodd-Frank Act section 
1022(b)(1), the Bureau has general authority 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.\29\ TILA and RESPA are Federal 
consumer financial laws.\30\ Accordingly, in issuing this rule, the 
Bureau is exercising its authority under Dodd-Frank Act section 1022(b) 
to prescribe rules under TILA, RESPA, and title X of the Dodd-Frank Act 
that carry out the purposes and objectives and prevent evasion of those 
laws. 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).\31\
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    \29\ Public Law 111-203, 124 Stat. 1376, 1980 (2010) (codified 
at 15 U.S.C. 5512(b)(1)).
    \30\ 12 U.S.C. 5481(12) and (14).
    \31\ Public Law 111-203, 124 Stat. 1376, 1980 (2010) (codified 
at 12 U.S.C. 5512(b)(2)).
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    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.\32\ 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.
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    \32\ Public Law 111-203, 124 Stat. 1376, 2006-07 (2010) 
(codified at 12 U.S.C. 5532(a)).
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    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.\33\ Accordingly, in developing 
the TILA-RESPA 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.\34\ The 
Bureau is issuing portions of this final rule pursuant to its authority 
under Dodd-Frank Act section 1032(a).
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    \33\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(c)).
    \34\ 78 FR 79730, 79743-50 (Dec. 31, 2013).
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    Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank 
Act provides that, notwithstanding any other provision of title XIV 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 exempt from or modify 
disclosure requirements, in whole or in part, for any class of

[[Page 37660]]

residential mortgage loans if the Bureau determines that such exemption 
or modification is in the interest of consumers and in the public 
interest.\35\ Section 1401 of the Dodd-Frank Act, which amends TILA 
section 103(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.\36\ 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.
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    \35\ Public Law 111-203, 124 Stat. 1376, 2142 (2010) (codified 
at 15 U.S.C. 1601 note).
    \36\ Public Law 111-203, 124 Stat. 1376, 2138 (2010) (codified 
at 15 U.S.C. 1602(cc)(5)).
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    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. The Bureau is issuing 
portions of this final rule pursuant to its authority under Dodd-Frank 
Act section 1405(b).

V. Section-by-Section Analysis

Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement, 
and Liability

1(d) Organization
1(d)(5)
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to Sec.  
1026.1(d)(5) and comment 1(d)(5)-1 to reflect a change to the coverage 
of Sec.  1026.19(e) and (f) to include closed-end credit transactions 
that are secured by a cooperative unit, regardless of whether a 
cooperative unit is treated as real property under State or other 
applicable law.
    Current comment 1(d)(5)-1 provides in relevant part that the 
Bureau's revisions to Regulation X and Regulation Z in the TILA-RESPA 
Final Rule apply to covered loans for which the creditor or mortgage 
broker receives an application on or after October 3, 2015 (the 
``effective date''), except that Sec.  1026.19(e)(2), Sec.  
1026.28(a)(1), and the commentary to Sec.  1026.29 became effective on 
October 3, 2015, without respect to whether an application was 
received. In addition to the proposed revision noted above, the Bureau 
proposed to restructure comment 1(d)(5)-1 and make other technical 
revisions to enhance clarity. The Bureau also proposed revisions to 
require a creditor, servicer, or covered person to provide the 
applicable disclosures required under Sec.  1026.20(e) or Sec.  
1026.39(d)(5) as of October 1, 2017, regardless of when the application 
for a covered mortgage transaction was received. The proposed 
amendments to the comment also would set forth an illustrative example.
    Section 1026.20(e) requires the creditor or servicer to issue an 
``Escrow Closing Notice'' when an escrow account subject to Sec.  
1026.20(e) will be canceled. Section 1026.39(d)(5) requires a covered 
person \37\ to disclose the lender's partial payment policy. The 
obligation to provide these disclosures may occur after consummation. 
In the proposal, the Bureau acknowledged that there is uncertainty 
within industry as to whether the disclosures under Sec. Sec.  
1026.20(e) and 1026.39(d)(5) (together, the post-consummation 
disclosures under Sec. Sec.  1026.20(e) and 1026.39(d)(5)) apply to all 
covered transactions as of the effective date of October 3, 2015, or 
only to covered transactions for which the creditor or mortgage broker 
received an application on or after October 3, 2015, and explained that 
it considers either approach compliant under existing comment 1(d)(5)-
1. The Bureau proposed to clarify that the post-consummation disclosure 
requirements under Sec. Sec.  1026.20(e) and 1026.39(d)(5) apply to all 
covered transactions regardless of the date an application was 
received. In light of current uncertainty that may exist regarding 
compliance under existing comment 1(d)(5)-1, however, the Bureau 
proposed to provide that the requirement to issue the post-consummation 
disclosures under Sec. Sec.  1026.20(e) and 1026.39(d)(5) applies to 
all covered transactions, regardless of the date an application was 
received, as of the proposed effective date of October 1, 2017.
---------------------------------------------------------------------------

    \37\ ``A `covered person' means any person, as defined in Sec.  
1026.2(a)(22), that becomes the owner of an existing mortgage loan 
by acquiring legal title to the debt obligation, whether through a 
purchase, assignment or other transfer, and who acquires more than 
one mortgage loan in any twelve-month period.'' Sec.  1026.39(a)(1).
---------------------------------------------------------------------------

    The October 1, 2017, effective date in proposed comment 1(d)(5)-1 
was based on the Bureau's working assumption that a final rule would be 
promulgated on or before April 1, 2017. The Bureau proposed this 
tentative date in accordance with TILA section 105(d), which provides 
that any regulation of the Bureau that requires a disclosure that 
differs from the previously required disclosure generally shall take 
effect on that October 1 which follows, by at least six months, the 
date of promulgation. Accordingly, the Bureau noted that the effective 
date recited for the post-consummation disclosures under Sec. Sec.  
1026.20(e) and 1026.39(d)(5) in the proposal may differ in the final 
rule, depending on when the final rule is promulgated. As noted in the 
effective date discussion in part VI, below, the effective date of this 
final rule is 60 days from publication in the Federal Register but the 
amendments will not yet be mandatory. In general, compliance with the 
amendments in the final rule will only be mandatory with respect to 
transactions for which a creditor or mortgage broker received an 
application on or after October 1, 2018. Nonetheless, on and after 
October 1, 2018, the requirement to provide the post-consummation 
disclosures Sec. Sec.  1026.20(e) and 1026.39(d)(5) will be mandatory 
for all transactions regardless of the date a corresponding loan 
application was received.
    As stated in the proposal, the Bureau believes that consumers with 
covered mortgage loans would benefit from the receipt of the post-
consummation disclosures under Sec. Sec.  1026.20(e) and 1026.39(d)(5) 
without regard to when a corresponding application was received. 
Information about an escrow account closure or the partial payment 
policy contained in the post-consummation disclosures under Sec. Sec.  
1026.20(e) and 1026.39(d)(5) is beneficial to consumers regardless of 
when the consumer applied for the loan. Moreover, there is no necessary 
relationship between the disclosures made under Sec.  1026.19(e) and 
(f) and the post-consummation disclosures under Sec. Sec.  1026.20(e) 
and 1026.39(d)(5); consumers should be able to understand the latter 
even if they have not received the former.
    The Bureau also noted in its proposal that requiring the post-
consummation disclosures under Sec. Sec.  1026.20(e) and 1026.39(d)(5) 
for covered accounts without regard to the application date would 
simplify compliance. For example, under the final rule, creditors or 
servicers would not have to track the application date for certain 
covered transactions under Sec. Sec.  1026.20(e) and 1026.39(d)(5) and, 
thus, requiring the disclosures under these provisions for all covered 
accounts regardless of application date may simplify servicers' 
compliance. Similarly, the post-consummation partial payment

[[Page 37661]]

disclosure required by Sec.  1026.39(d)(5) is incorporated into the 
mortgage transfer disclosures that are provided upon transfer of 
ownership of any covered loan, without regard to application date. If 
Sec.  1026.39(d)(5) is effective without regard to application date, 
covered persons under Sec.  1026.39 can provide a standard disclosure 
for all mortgage loans rather than two distinct disclosures, depending 
on the loan's application date.
    The Bureau sought comment on whether applying the post-consummation 
disclosures under Sec. Sec.  1026.20(e) and 1026.39(d)(5) to all 
covered transactions regardless of when an application was received is 
appropriate. The Bureau also sought any information about current 
industry practice and whether these notices are provided on all 
transactions that met the conditions set forth in Sec. Sec.  1026.20(e) 
and 1026.39(d), respectively, or only on transactions for which the 
application was received on or after October 3, 2015. The Bureau 
further sought comment on how often escrow accounts are canceled post-
consummation, whether the rate of escrow cancelations is expected to 
remain static or change, and on the burden of tracking the application 
date for the post-consummation disclosures under Sec. Sec.  1026.20(e) 
and 1026.39(d)(5).
    The Bureau received three comments regarding the proposed revision 
to comment 1(d)(5)-1 to clarify that the post-consummation disclosure 
requirements under Sec. Sec.  1026.20(e) and 1026.39(d)(5) apply to all 
covered accounts regardless of the date an application was received. 
All the commenters supported this proposed revision. The Bureau did not 
receive comments regarding the restructuring of comment 1(d)(5)-1 or 
the conforming amendments to Sec.  1026.1(d)(5) and comment 1(d)(5)-1 
to reflect a change to the coverage of Sec.  1026.19(e) and (f) to 
include closed-end credit transactions that are secured by a 
cooperative unit, regardless of whether a cooperative unit is treated 
as real property under State or other applicable law. For the reasons 
discussed above the Bureau is finalizing comment 1(d)(5)-1 
substantially as proposed, but with revisions to reflect the date of 
October 1, 2018, instead of October 1, 2017, and to make other 
clarifying edits.
    In addition, as discussed above and in more detail in the effective 
date discussion in part VI, below, the Bureau is establishing an 
effective date, optional compliance period, and mandatory compliance 
date for this final rule. The Bureau is adding new comment 1(d)(5)-2 in 
order to memorialize the effective date, the optional compliance 
period, and the mandatory compliance date.

Section 1026.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(11) Consumer
    Comments 2(a)(11)-3 and 3(a)-10 discuss when the extension of 
credit to trusts is covered by TILA. The Bureau proposed to amend 
comment 2(a)(11)-3 to clarify that, in addition to credit extended to 
land trusts, credit extended to trusts established for taxation or 
estate planning purposes would also be considered to be extended to a 
natural person for purposes of the definition of consumer in Sec.  
1026.2(a)(11), consistent with comment 3(a)-10.
    Several industry commenters supported the clarification in proposed 
comment 2(a)(11)-3. Industry commenters also requested clarification as 
to who should receive disclosures and how consumers' names should be 
disclosed, including on the optional signature lines under Sec. Sec.  
1026.37(n) and 1026.38(s), where credit is extended to trusts 
established for tax or estate planning purposes. A title insurance 
underwriter recommended that proposed comment 2(a)(11)-3 become 
effective as soon as possible or even retroactively, while a vendor 
group stated that reprogramming for some vendors could take up to six 
months.
    The Bureau is adopting comment 2(a)(11)-3 substantially as proposed 
but with a minor change. Specifically, comment 2(a)(11)-3, as 
finalized, uses the phrase ``tax or estate planning purposes'' (rather 
than the phrase ``taxation or estate planning purposes'') for 
consistency with comment 3(a)-10.
    Guidance as to who should receive disclosures where credit is 
extended to trusts established for tax or estate planning purposes can 
be found in current Sec. Sec.  1026.2(a)(22) and 1026.17(d) and their 
associated commentary. Comment 2(a)(22)-3 provides that a trust and its 
trustee are considered to be the same person for purposes of Regulation 
Z, and comment 17(d)-2 provides that disclosures must be given to the 
principal debtor and, if two consumers are joint obligors with primary 
liability on an obligation, the disclosures may be given to either one 
of them. Thus, where credit is extended to trusts established for tax 
or estate planning purposes, the disclosures may simply be provided to 
the trustee on behalf of the trust. In rescindable transactions, 
however, comment 17(d)-2 provides that 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.
    Current comment 37(a)(5)-1 provides guidance on how consumers' 
names should be disclosed on the Loan Estimate. If there is more than 
one consumer applying for the credit, Sec.  1026.37(a)(5) requires 
disclosure of the name and the mailing address of each consumer to whom 
the Loan Estimate will be delivered. Pursuant to current comment 17(d)-
2, as noted above, where credit is extended to trusts established for 
tax or estate planning purposes, the disclosures may simply be provided 
to the trustee on behalf of the trust. Therefore, to comply with Sec.  
1026.37(a)(5), a creditor may opt to disclose the name and mailing 
address of the trust only, although nothing prohibits the creditor from 
additionally disclosing, pursuant to Sec.  1026.37(a)(5), the names of 
the trustee or of other consumers applying for the credit. Regarding 
the Closing Disclosure, current Sec.  1026.38(a)(4) and its associated 
commentary provide that creditors must disclose the name and address of 
each consumer and seller in the transaction. The section-by-section 
analysis of Sec.  1026.38(a)(4) below includes a discussion of the 
definition of consumer for purposes of such disclosure.
    Current Sec. Sec.  1026.37(n) and 1026.38(s) and their associated 
commentary permit a creditor to determine in its sole discretion 
whether or not to include a signature line or insert the consumer's 
name under the signature line rather than the designation ``Applicant'' 
or ``Co-Applicant.'' When credit is extended to trusts established for 
tax or estate planning purposes and the creditor opts to insert a 
signature line, nothing in the TILA-RESPA Rule prohibits the creditor 
from inserting the trustee's name under the signature line along with a 
designation that the trustee is serving in its capacity as trustee.
    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.

Section 1026.3 Exempt Transactions

3(h) Partial Exemption for Certain Mortgage Loans
The Bureau's Proposal
    Section 1026.3(h) currently provides that the TILA-RESPA integrated 
disclosure requirements do not apply to transactions that satisfy six 
criteria that are associated with certain housing assistance loans for 
low- and moderate-

[[Page 37662]]

income consumers. If the six criteria in Sec.  1026.3(h) are satisfied, 
a creditor is not required to provide the Loan Estimate, Closing 
Disclosure, or special information booklet in connection with the 
mortgage loan. The creditor must, however, provide the disclosures 
required by Sec.  1026.18, ensuring that the consumer receives TILA 
disclosures of the cost of credit. Thus, Sec.  1026.3(h) provides an 
exemption from certain Regulation Z disclosure requirements, though it 
does not provide a full exemption from Regulation Z. In addition, 
Regulation X Sec.  1024.5(d) provides a partial exemption from certain 
RESPA disclosure requirements for federally related mortgage loans.\38\ 
Regulation X Sec.  1024.5(d)(2) cross-references the exemption criteria 
set forth in Sec.  1026.3(h). The partial exemption in Sec.  1026.3(h) 
and the parallel partial exemption in Regulation X Sec.  1024.5(d)(2) 
replaced a disclosure exemption previously granted by HUD. The purpose 
of these partial exemptions is to facilitate access to certain low-
cost, non-interest bearing, subordinate-lien transactions by 
streamlining the disclosures required in connection with these loans.
---------------------------------------------------------------------------

    \38\ 12 CFR 1024.2(b) (defining federally related mortgage loan 
for purposes of Regulation X).
---------------------------------------------------------------------------

    As discussed in the proposal, the Bureau understands that loans 
that satisfy the criteria in Sec.  1026.3(h) generally provide a 
benefit to consumers and are predominantly made by housing finance 
agencies (HFAs) or by private creditors who partner with HFAs and 
extend credit pursuant to HFA guidelines (collectively, HFA program 
loans). The Bureau explained in the proposal that it understood that 
many of the low-cost housing assistance loans that satisfy the criteria 
in Sec.  1026.3(h) are not covered transactions subject to the TILA-
RESPA integrated disclosure requirements because they are neither 
subject to a finance charge nor payable in more than four installments, 
as required by the coverage test in Sec.  1026.1(c)(1).\39\ These loans 
generally are, however, federally related mortgage loans. Thus, unless 
they meet the criteria in Sec.  1026.3(h) and qualify for the partial 
exemption in Regulation X Sec.  1024.5(d)(2), lenders \40\ making these 
housing assistance loans must comply with the RESPA disclosure 
requirements. In the proposal, the Bureau stated that it had received 
information that many HFAs were having difficulty finding lenders to 
partner with in making these loans because, following the introduction 
of the TILA-RESPA integrated disclosures, some vendors and loan 
originator systems no longer support the RESPA disclosures. The Bureau 
expressed concern that the limited support for the RESPA disclosures 
might make it difficult for HFAs, other nonprofits, and private lenders 
to make housing assistance loans available to low- and moderate-income 
borrowers if they are not able to take advantage of the partial 
exemption.
---------------------------------------------------------------------------

    \39\ Section 1026.1(c)(1) provides that, in general, Regulation 
Z applies to each individual or business that offers or extends 
credit, other than a person excluded from coverage by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public 
Law 111-203, 124 Stat. 1376, when four conditions are met: (i) The 
credit is offered or extended to consumers; (ii) The offering or 
extension of credit is done regularly; (iii) The credit is subject 
to a finance charge or is payable by a written agreement in more 
than four installments; and (iv) The credit is primarily for 
personal, family, or household purposes.
    \40\ Note that RESPA and TILA differ in their terminology. 
Whereas Regulation X generally refers to ``lenders'' and 
``borrowers,'' Regulation Z generally refers to ``creditors'' and 
``consumers.'' This Supplementary Information uses ``lenders'' and 
``borrowers'' in its discussion of Regulation X and the RESPA 
disclosures and ``creditors'' and ``consumers'' in its discussion of 
Regulation Z, the TILA-RESPA integrated disclosures, and the partial 
exemptions generally.
---------------------------------------------------------------------------

    Among the criteria for the partial exemption is Sec.  1026.3(h)(5), 
which provides that the total of costs payable by the consumer at 
consummation must be less than 1 percent of the amount of credit 
extended and include no charges other than fees for recordation, 
application, and housing counseling. The Bureau proposed to revise 
Sec.  1026.3(h)(5) to clarify the costs that may be payable by the 
consumer at consummation without loss of eligibility for the partial 
exemption. Specifically, it proposed to clarify that transfer taxes, in 
addition to fees for recordation, application, and housing counseling, 
may be payable by the consumer at consummation without losing 
eligibility for the partial exemption. It also proposed to exclude 
recording fees and transfer taxes from the 1-percent threshold on total 
costs payable by the consumer at consummation. The Bureau proposed 
these changes to enable more loans to satisfy the criteria in Sec.  
1026.3(h), which the Bureau believed would support the extension of 
beneficial, low-cost credit to consumers. In addition, the Bureau 
proposed to amend comment 3(h)-2 and to add comments 3(h)-3 and -4. For 
the reasons discussed below, the Bureau is adopting Sec.  1026.3(h)(5) 
as proposed, and is adopting comments 3(h)-3 and -4 as proposed but 
renumbered as comments 3(h)-4 and -5.
    Additional criteria for the partial exemption are found in Sec.  
1026.3(h)(6), which requires the creditor to comply with all other 
applicable requirements of Regulation Z in connection with the 
transaction, including without limitation the disclosures required by 
Sec.  1026.18. For the reasons discussed below, the Bureau is revising 
Sec.  1026.3(h)(6) to permit the provision of the Loan Estimate and 
Closing Disclosure to satisfy this criteria for the partial exemption. 
The Bureau is revising the introductory text of Sec.  1026.3(h) and 
comments 3(h)-1 and -2 to reflect the revisions to Sec.  1026.3(h)(6). 
The Bureau is adding new comment 3(h)-3 to clarify further the 
relationship between the partial exemption in Sec.  1026.3(h) and the 
parallel partial exemption for certain federally related mortgage loans 
in Regulation X Sec.  1024.5(d)(2).
Comments Received
    The Bureau received many comments supporting the proposal to 
clarify that transfer taxes may be charged in connection with the 
transaction without loss of eligibility for the partial exemption and 
to exclude recording fees and transfer taxes from the 1-percent 
threshold. Several commenters stated that the proposal would allow more 
housing assistance loans to satisfy the criteria for the partial 
exemption and would thus increase the availability of such loans. Some 
commenters specified that recording fees and transfer taxes on their 
own often preclude housing assistance loans from qualifying for the 
partial exemption and limit creditors' ability to offer such loans. One 
HFA commented that it offers a housing assistance program with loans 
ranging from $1,000 to $10,000, and that, in one county in the State in 
which it operates, it costs $222 to record four pages of a mortgage. As 
a result, the HFA stated that recording fees alone often prevent even 
the maximum $10,000 loan from being eligible for the partial exemption. 
A consumer group commenter stated that the proposal to exclude 
recording fees and transfer taxes from the 1-percent threshold was 
reasonable, if such fees and taxes are the reason that HFAs and 
nonprofits are having difficulty making otherwise exempt loans within 
the current 1-percent threshold. Another HFA recommended that the 
Bureau limit costs payable by the consumer in connection with the 
transaction to recording fees, transfer taxes, a reasonable application 
fee, and a reasonable housing counseling fee, and, along with an 
industry commenter, stated that 1 percent would be the appropriate 
threshold on permissible application and housing counseling fees.

[[Page 37663]]

    Several commenters stated that the proposal to exclude recording 
fees and transfer taxes from the 1-percent threshold would not create 
or increase the risk of abuse or other consumer harm. Some commenters 
stated that the proposal would not increase such risks because 
recording fees and transfer taxes are determined by State and local 
officials, rather than by HFAs or other parties to the transaction. One 
industry commenter also stated that the provision of the disclosures 
required by Sec.  1026.18 for transactions that satisfy the partial 
exemption would limit any potential abuse by creditors. A consumer 
group commenter stated that the risk that creditors would inflate the 
application and housing counseling fees that would remain subject to 
the 1-percent threshold if the proposal were finalized is mitigated by 
the requirement that these fees be bona fide and reasonable. The 
commenter recommended that the Bureau require creditors to maintain 
adequate documentation of these fees so borrowers and regulators can 
verify that the fees are truly bona fide and reasonable.
    Many commenters that generally supported the proposal encouraged 
the Bureau to adopt further amendments to the partial exemption. For 
example, two industry commenters urged the Bureau to treat settlement 
or closing fees as allowable fees for purposes of the partial exemption 
and to exclude them from the 1-percent threshold. These commenters 
stated that the settlement or closing fees charged by a third-party 
settlement provider, and not by the creditor, can affect the creditor's 
ability to meet the 1-percent threshold.
    Many commenters recommended expanding access to the partial 
exemption or providing broader exemptions from Regulation X or Z for 
HFA program loans or HFAs that originate loans. One trade association 
representing HFAs recommended that the partial exemption be expanded to 
include all HFA second-lien loan programs to ensure that the RESPA 
disclosures would never be required for any HFA program subordinate 
lien. This commenter stated that the RESPA disclosures are required for 
many HFA program loans that do not meet the partial exemption. It 
stated further that, because many HFA lending partners have updated 
their systems to comply with the TILA-RESPA integrated disclosure 
requirements, such lending partners have difficulty generating the 
RESPA disclosures and have thus decreased or suspended their 
participation in HFA program lending. This commenter expressed concern 
that other reasonable fees may still prevent some loans from meeting 
the criteria in proposed Sec.  1026.3(h), and that certain other 
beneficial HFA program loans, such as those that help consumers avoid 
foreclosure, obtain home repairs, or make energy efficiency 
improvements, would not qualify for the partial exemption due to the 
inability to meet criteria aside from the 1-percent threshold.
    One industry commenter stated that, although it believes consumers 
should still receive meaningful disclosures of the cost of credit, the 
Bureau could exempt HFA program loans from Regulation Z disclosure 
requirements when the creditor itself imposes no charges in connection 
with the loan. A trade association recommended a full exemption from 
Regulation Z for HFA down payment assistance loans that have no finance 
charge and are payable in four or fewer installments. A trade 
association representing HFAs stated that, if the Bureau chose not to 
adopt further amendments to the partial exemption itself, an exemption 
from the disclosure requirements in Regulations X and Z for HFA second-
lien loans would be an appropriate method to ensure HFAs can continue 
to serve constituents without being limited by the disclosure rules. A 
few HFA commenters requested full exemptions from Regulations X and Z 
for HFA program loans or for HFAs that originate loans without regard 
to the criteria in Sec.  1026.3(h) and stated that such exemptions 
would better enable HFAs to work with lenders.
    A trade association representing HFAs and a few HFA commenters 
stated that exemptions from Regulations X and Z, either in full or in 
part, for HFA program loans or HFAs themselves would not increase risk 
to consumers because HFAs are mission-driven entities that would 
continue to require consumer disclosures. These commenters also noted 
that the Bureau has previously extended exemptions to HFA program loans 
or HFAs themselves in the Ability-to-Repay, HOEPA, and Mortgage 
Servicing Final Rules. A few of these commenters suggested that the 
Bureau adopt the same definition of HFA as set forth in Sec.  
1026.41(e)(4)(ii)(B), which cross-references the definition in 24 CFR 
266.5, while one commenter stated that HFAs are defined as special 
purpose credit programs under Regulation B.
    In response to the Bureau's request for comment, one nonprofit 
commenter expressed strong opposition to explicitly limiting the Sec.  
1026.3(h) partial exemption to HFAs and private creditors who partner 
with HFAs and extend credit pursuant to HFA guidelines. It stated that 
many entities, such as community banks and credit unions, use the 
partial exemption and do not partner with HFAs. An individual commenter 
stated that the partial exemption affects entities other than HFAs, 
including hundreds of county and municipal programs as well as 
nonprofit organizations that administer block grants and other programs 
designed for low- and moderate-income individuals.
    Many commenters discussed the disclosures required for loans that 
satisfy the criteria for the partial exemption, HFA program loans, or 
housing assistance loans generally. A few commenters expressed concern 
that the unique characteristics of the loans that satisfy the criteria 
for the partial exemption may make it difficult to comply with the 
Sec.  1026.18 disclosure requirements. For example, one trade 
association stated that some loan origination systems cannot create the 
disclosures required by Sec.  1026.18 where the interest rate or 
finance charge is zero, with the result that lenders must complete 
these disclosures manually. This commenter stated further that some 
lenders and loan origination systems no longer maintain the ability to 
create RESPA disclosures as such disclosures are no longer required for 
most of their loans and expressed a belief that the same was true for 
the disclosures required by Sec.  1026.18.
    Many commenters advocated permitting creditors to use TILA-RESPA 
integrated disclosures more broadly, either in connection with all 
loans that satisfy the criteria for the partial exemption, all HFA 
program loans, or all housing assistance loans. Two trade associations 
recommended that, for loans subject to TILA and RESPA as well as for 
loans only subject to RESPA, creditors be permitted to provide TILA-
RESPA integrated disclosures for loans that satisfy the partial 
exemption in place of the Sec.  1026.18 disclosures. One trade 
association stated that TILA-RESPA integrated disclosures are generally 
understood by consumers and, due to systems updates, easier to produce 
than the disclosures required by Sec.  1026.18. One HFA recommended 
that, to reduce burden and facilitate lender partnerships with HFAs, 
the Bureau should clarify that lenders are allowed to provide TILA-
RESPA integrated disclosures for loans that qualify for the partial 
exemption or any broader exemption that the Bureau might adopt.
    One trade association representing HFAs and one HFA commenter urged 
the Bureau to allow HFAs to use TILA-

[[Page 37664]]

RESPA integrated disclosures in connection with all HFA program second-
lien loans, regardless of whether such loans qualify for the partial 
exemption. They stated that this option would improve efficiency and 
reduce the compliance burden because many operating systems are set up 
to provide TILA-RESPA integrated disclosures. The trade association 
stated that many HFAs and their lending partners currently provide 
TILA-RESPA integrated disclosures with limited difficulty when loans 
subject to Regulation Z do not meet the partial exemption and that such 
disclosures effectively convey critical loan information to consumers. 
A different HFA recommended that the Bureau eliminate the partial 
exemption and instead subject all HFA program second-lien loans to the 
TILA-RESPA integrated disclosure requirements.
    A few industry and vendor commenters recommended that the Bureau 
require or permit TILA-RESPA integrated disclosures to be provided in 
connection with all housing assistance loans. These commenters 
expressed concern with the process of determining whether the partial 
exemption applies to a transaction and stated that a streamlined 
disclosure requirement for these loans would reduce compliance burden 
and costs to creditors while improving consumer understanding. Two 
commenters recommended that the Bureau adopt an alternative disclosure 
specific to HFAs.
    One industry commenter recommended an immediate effective date or 
an effective date six months after the issuance of the final rule for 
the proposed amendments to the partial exemption. The commenter 
recommended that TILA-RESPA integrated disclosures be required for all 
housing assistance loans, and stated that such a requirement would 
involve minimal systems changes for creditors. One trade association 
representing HFAs requested that any amendments to expand the partial 
exemption for HFA second-lien loan programs be effective immediately. 
It stated that most HFA lending partners are already able to produce 
TILA-RESPA integrated disclosures and expressed concern that an 
implementation period could prevent some consumers from benefiting from 
HFA program lending.
    Finally, a few commenters raised other issues regarding the partial 
exemption. Some industry commenters stated that there is uncertainty 
regarding the disclosure requirements where a loan satisfies the 
criteria for the partial exemption at the time of application, but, due 
to changed circumstances or an increase in closing costs charged by 
third parties, no longer satisfies the criteria after the initial 
disclosure is provided. One industry commenter stated that uncertainty 
also exists regarding the disclosure requirements when a loan initially 
does not satisfy the criteria for the partial exemption but subsequent 
borrower-requested changes during loan origination result in the loan 
qualifying for the partial exemption. A few commenters requested 
further clarification around the partial exemption generally and the 
preparation of the required disclosures. One HFA requested that the 
Bureau consider revisions to the seven-business-day review period 
between the initial disclosures and consummation in Sec.  
1026.19(e)(1)(iii) and 1026.19(a)(2) for HFA down payment and closing 
cost assistance loans, stating that determinations regarding consumers' 
income that occur during these review periods could affect their 
eligibility for such loans.
The Final Rule
    The Bureau is adopting Sec.  1026.3(h)(5) as proposed to clarify 
the costs that may be payable by the consumer at consummation without 
loss of eligibility for the partial exemption. Further, and for the 
reasons discussed below, the Bureau is revising the criteria in Sec.  
1026.3(h)(6) to permit the provision of a Loan Estimate and Closing 
Disclosure that comply with Regulation Z. The Bureau is revising the 
introductory text of Sec.  1026.3(h) and comments 3(h)-1 and -2 to 
reflect revised Sec.  1026.3(h)(6). The Bureau is adopting new comment 
3(h)-3 to clarify further the relationship between the partial 
exemption in Sec.  1026.3(h) and the parallel partial exemption for 
certain federally related mortgage loans in Regulation X Sec.  
1024.5(d)(2). The Bureau is adopting comments 3(h)-3 and -4 as 
proposed, but renumbered as comments 3(h)-4 and -5 to reflect the 
addition of new comment 3(h)-3.
    The Bureau is revising the introductory text of Sec.  1026.3(h) to 
reflect revised Sec.  1026.3(h)(6). Currently, the introductory text 
explains that the special disclosure requirements in Sec.  1026.19(e), 
(f), and (g) do not apply to a transaction that satisfies all of the 
criteria in Sec.  1026.3(h). Section 1026.19(g) sets forth requirements 
regarding the special information booklet, while Sec.  1026.19(e) and 
(f) set forth requirements regarding the Loan Estimate and Closing 
Disclosure, respectively. As discussed in more detail below, the Bureau 
is revising Sec.  1026.3(h)(6) to require the provision of either 
disclosures described in Sec.  1026.18 that comply with Regulation Z or 
disclosures described in Sec.  1026.19(e) and (f) that comply with 
Regulation Z as a condition for satisfying the partial exemption. 
Consequently, if a creditor chooses to provide the TILA disclosures 
described in Sec.  1026.18 in connection with a transaction that meets 
the criteria in Sec.  1026.3(h), that transaction is exempt from the 
requirements in Sec.  1026.19(e), (f), and (g). If a creditor instead 
chooses to provide the Loan Estimate and Closing Disclosure in 
connection with a transaction that meets the criteria in Sec.  
1026.3(h), that transaction is exempt from the requirements in Sec.  
1026.19(g), but not from the requirements in Sec.  1026.19(e) and (f). 
Thus, Sec.  1026.3(h) provides an exemption from Sec.  1026.19(g), and, 
depending on which of the available disclosure options a creditor 
chooses under Sec.  1026.3(h)(6), may also provide an exemption from 
Sec.  1026.19(e) and (f). Accordingly, the Bureau is revising the 
introductory text of Sec.  1026.3(h) to explain that the special 
disclosure requirements in Sec.  1026.19(g) and, unless the creditor 
chooses to provide the disclosures described in Sec.  1026.19(e) and 
(f), in Sec.  1026.19(e) and (f) do not apply to a transaction that 
satisfies all of the criteria in Sec.  1026.3(h).
    As adopted, Sec.  1026.3(h)(5)(i) provides that the costs payable 
by the consumer in connection with the transaction at consummation are 
limited to: (A) Recording fees; (B) transfer taxes; (C) a bona fide and 
reasonable application fee; and (D) a bona fide and reasonable fee for 
housing counseling services. Section 1026.3(h)(5)(ii) requires that the 
total of costs payable by the consumer under Sec.  1026.3(h)(5)(i)(C) 
and (D) be less than 1 percent of the amount of credit extended. By 
clarifying that transfer taxes may be charged in connection with the 
transaction and excluding recording fees and transfer taxes from the 1-
percent threshold, the Bureau believes that final Sec.  1026.3(h)(5) 
will enable more transactions to satisfy the criteria for the partial 
exemption in Sec.  1026.3(h). This will also facilitate access to the 
partial exemption from the RESPA disclosures in Regulation X Sec.  
1024.5(d)(2), which the Bureau believes will further support the 
extension of low-cost, non-interest bearing, subordinate-lien loans to 
low- and moderate-income borrowers.
    As discussed in the proposal, the Bureau believes that, because 
recording fees and transfer taxes are established by State and local 
jurisdictions, there is limited risk that excluding such fees and taxes 
from the 1-percent threshold in Sec.  1026.3(h)(5)(ii) will result in 
consumer harm. Additionally, in light of

[[Page 37665]]

comments received, the Bureau has determined that 1 percent is the 
appropriate threshold for the bona fide and reasonable application and 
housing counseling fees that may be payable by the consumer at 
consummation. As one consumer group commenter noted, there is limited 
risk that the application and housing counseling fees that remain 
subject to the 1-percent threshold will be inflated because such fees 
must be bona fide and reasonable.
    The Bureau declines to revise Sec.  1026.3(h)(5) to permit 
additional third-party settlement or closing fees to be charged in 
connection with the transaction and to exclude such fees from the 1-
percent threshold, as requested by some commenters. The Bureau intends 
that transactions eligible for the partial exemption in Sec.  1026.3(h) 
remain low-cost, include only a certain limited set of fees that may be 
charged to the consumer, and pose little risk of consumer harm. It does 
not believe it would be appropriate to permit a creditor to provide 
only the disclosures required by Sec.  1026.18, rather than the more 
detailed TILA-RESPA integrated disclosures or RESPA disclosures, as 
applicable, in connection with transactions that include additional 
third-party fees not established by State or local jurisdictions and 
not subject to the 1-percent threshold.
    Regarding one commenter's recommendation that the Bureau require 
creditors to maintain adequate documentation demonstrating that the 
application and housing counseling fees permitted under Sec.  
1026.3(h)(5)(i) are bona fide and reasonable, the Bureau notes that 
Sec.  1026.25(a) sets forth the general requirement that creditors 
retain evidence of compliance with Regulation Z for two years after the 
date disclosures are required to be made or action is required to be 
taken, and that Sec.  1026.25(c)(1) sets forth the specific record 
retention requirements for evidence of compliance with the requirements 
of Sec.  1026.19(e) and (f). Additionally, as discussed in more detail 
below, revised comment 3(h)-2 clarifies that, although not all 
requirements of Sec.  1026.3(h) must be reflected in the loan contract, 
the creditor must retain evidence of compliance with those provisions, 
as required by Sec.  1026.25(a) or (c), as applicable.
    Additionally, in order to address concerns about access to the 
partial exemption that were discussed in the Bureau's proposal and 
further discussed by several commenters, the Bureau is revising Sec.  
1026.3(h)(6) to provide creditors with greater optionality in 
satisfying the criteria for the partial exemption. Specifically, 
revised Sec.  1026.3(h)(6) provides that the following disclosures must 
be provided: (i) Disclosures described in Sec.  1026.18 that comply 
with Regulation Z; or (ii) alternatively, disclosures described in 
Sec.  1026.19(e) and (f) that comply with Regulation Z. Thus, under 
revised Sec.  1026.3(h)(6), the creditor must provide either the TILA 
disclosures of the cost of credit or the Loan Estimate and Closing 
Disclosure and must comply with all Regulation Z requirements 
pertaining to the disclosures provided. Revised Sec.  1026.3(h)(6) 
omits language in current Sec.  1026.3(h)(6) that made compliance with 
all other applicable requirements of Regulation Z a condition for 
satisfying the criteria for the partial exemption. Because the Bureau 
is revising the commentary to Sec.  1026.3(h) to provide more precise 
guidance regarding how transactions must comply with Regulation Z in 
order to satisfy the criteria for the partial exemption, the Bureau 
does not believe that the omitted language is necessary. As discussed 
in more detail below, the Bureau believes the flexibility provided by 
revised Sec.  1026.3(h)(6) will further expand access to the partial 
exemption.
    The Bureau finds persuasive comments recommending permissible use 
of TILA-RESPA integrated disclosures for all loans with characteristics 
that satisfy the non-procedural criteria for the partial exemption in 
Sec.  1026.3(h)(1) through (5), as a way to address the issues 
regarding access to the partial exemption for which the Bureau 
requested comment. It is revising Sec.  1026.3(h)(6) to further 
facilitate compliance for lenders making federally related mortgage 
loans that qualify for the partial exemption from the RESPA disclosures 
in Regulation X Sec.  1024.5(d)(2). Regulation X Sec.  1024.5(d) 
provides a partial exemption from certain RESPA disclosure requirements 
for federally related mortgage loans that meet the criteria set forth 
in Sec.  1026.3(h). Specifically, Regulation X Sec.  1024.5(d) provides 
that lenders are exempt from the RESPA settlement cost booklet, RESPA 
Good Faith Estimate, RESPA settlement statement (HUD-1), and 
application servicing disclosure statement requirements of Sec. Sec.  
1024.6 through 1024.8, 1024.10, and 1024.33(a) (the RESPA disclosures) 
for a federally related mortgage loan: (1) That is subject to the 
special disclosure requirements for certain consumer credit 
transactions secured by real property set forth in Regulation Z Sec.  
1026.19(e), (f), and (g); or (2) that satisfies the criteria in 
Regulation Z Sec.  1026.3(h). Thus, a lender for a federally related 
mortgage loan must provide the RESPA disclosures unless: (1) The loan 
is a covered transaction for purposes of the TILA-RESPA integrated 
disclosure requirements; or (2) the transaction meets the partial 
exemption in Sec.  1026.3(h). Where a federally related mortgage loan 
is not a covered transaction subject to the disclosure requirements in 
Sec.  1026.19(e), (f), and (g) because, for example, it imposes no 
finance charge and is payable in four or fewer installments, and also 
does not satisfy the criteria in Sec.  1026.3(h), the lender must 
provide the RESPA disclosures. Under the current rule, to meet the 
conditions of the partial exemption in Sec.  1026.3(h), lenders making 
such loans must provide the disclosures required by Sec.  1026.18; 
voluntary provision of TILA-RESPA integrated disclosures does not 
satisfy the criteria in Sec.  1026.3(h), and thus does not make the 
loan eligible for the partial exemption from the RESPA disclosures in 
Regulation X Sec.  1024.5(d)(2).
    Revised Sec.  1026.3(h)(6) provides lenders additional flexibility 
regarding the required disclosures for those federally related mortgage 
loans that are not otherwise subject to the disclosure requirements in 
Sec.  1026.19(e), (f), and (g) and that satisfy the criteria in Sec.  
1026.3(h). Under revised Sec.  1026.3(h)(6), to satisfy the criteria in 
Sec.  1026.3(h), lenders making such loans may choose to provide either 
TILA disclosures or Loan Estimates and Closing Disclosures that comply 
with Regulation Z. Such lenders may also continue to instead provide 
the RESPA disclosures in connection with a transaction that would 
otherwise meet the criteria in Sec.  1026.3(h) and qualify for the 
partial exemption in Regulation X Sec.  1024.5(d)(2).
    In addition, revised Sec.  1026.3(h)(6) further clarifies and 
reduces burden regarding the disclosure requirements for loans that are 
covered transactions subject to the requirements in Sec.  1026.19(e), 
(f), and (g) and that satisfy the criteria in Sec.  1026.3(h). Under 
the current rule, creditors making a loan subject to the disclosure 
requirements in Sec.  1026.19(e), (f), and (g) may continue to provide 
compliant TILA-RESPA integrated disclosures even if the loan satisfies 
the non-procedural criteria for the partial exemption in Sec.  
1026.3(h)(1) through (5). There is no requirement to utilize the 
partial exemption. The final rule clarifies further this optionality 
for loans subject to the disclosure requirements in Sec.  1026.19(e), 
(f), and (g). Under revised Sec.  1026.3(h)(6), when such loans satisfy 
the criteria in Sec.  1026.3(h) creditors may elect to take advantage 
of the partial exemption and provide

[[Page 37666]]

compliant TILA disclosures described in Sec.  1026.18, or they may, at 
their option, continue to provide compliant Loan Estimates and Closing 
Disclosures. The Bureau does not believe it is necessary that the 
special information booklet described in Sec.  1026.19(g) be provided 
to a consumer in connection with both a first lien and a subordinate 
lien that meets the criteria in Sec.  1026.3(h), and the Bureau 
believes that not requiring the special information booklet would help 
address the issues regarding access to the partial exemption that were 
raised in the proposal and by commenters. The Bureau is therefore 
clarifying in revised Sec.  1026.3(h)(6) that, if a creditor elects to 
provide TILA-RESPA integrated disclosures in connection with a 
transaction that satisfies the partial exemption, it need only provide 
the disclosures described in Sec.  1026.19(e) and (f).
    The Bureau expects that, for federally related mortgage loans that 
are not covered transactions subject to the disclosure requirements in 
Sec.  1026.19(e), (f), and (g), revised Sec.  1026.3(h)(6) should 
reduce further the procedural burden associated with the required 
disclosures when such loans meet the criteria for the partial 
exemption. As discussed in the proposal, the Bureau understands that 
many loan origination systems have been updated to produce TILA-RESPA 
integrated disclosures and that some vendors and loan origination 
systems no longer support the RESPA disclosures. The Bureau understands 
from comments received that some loan origination systems similarly 
have limited capabilities with regard to the disclosures required by 
Sec.  1026.18 and that it should, at least in some instances, be 
operationally easier to provide compliant Loan Estimates and Closing 
Disclosures for loans that satisfy the criteria for the partial 
exemption. The Bureau continues to believe that, for the low-cost, non-
interest bearing, subordinate loans with characteristics that satisfy 
the criteria in Sec.  1026.3(h), compliant TILA disclosures under Sec.  
1026.18 would be relatively straightforward to calculate. However, the 
Bureau recognizes that, in light of increased systems support for the 
Loan Estimate and Closing Disclosure, it would facilitate compliance if 
creditors are permitted the option to provide either disclosures 
described in Sec.  1026.18 or Sec.  1026.19(e) and (f) that comply with 
Regulation Z for loans that satisfy the criteria for the partial 
exemption.
    At the same time, the Bureau believes that the additional 
flexibility finalized in Sec.  1026.3(h)(6) will not result in consumer 
harm when loans satisfy the criteria for the partial exemption. Revised 
Sec.  1026.3(h)(6) provides that the disclosures described in Sec.  
1026.18 and the disclosures described in Sec.  1026.19(e) and (f) must 
comply with Regulation Z. This means that regardless of which 
disclosures a creditor or lender chooses to provide, the creditor or 
lender must comply with all requirements of Regulation Z pertaining to 
those disclosures. Further, the Bureau again notes that Sec.  1026.3(h) 
exempts transactions only from the requirements of Sec.  1026.19(g) 
and, unless the creditor chooses to provide the Loan Estimate and 
Closing Disclosure, Sec.  1026.19(e) and (f); it does not exempt 
transactions from any other applicable requirements of Regulation Z. In 
recommending broader use of TILA-RESPA integrated disclosures for 
certain housing assistance loans, commenters noted that such 
disclosures effectively present loan information and are generally 
understood by consumers. The Bureau believes that under revised Sec.  
1026.3(h)(6) consumers will receive disclosures that effectively convey 
the cost of credit in connection with a transaction that satisfies the 
criteria for the partial exemption.
    In the TILA-RESPA Final Rule, the Bureau declined to provide 
creditors the option of either complying with the TILA-RESPA integrated 
disclosure requirements or Sec.  1026.18, based in part on the Bureau's 
belief that permitting the disclosures required by Sec.  1026.18 would 
decrease the disclosure burden for creditors making the covered 
transactions and thus render the option of using TILA-RESPA integrated 
disclosures unnecessary. However, commenters have indicated that HFAs 
that are currently required to provide TILA-RESPA integrated 
disclosures do so with limited difficulty and that it may facilitate 
compliance for some creditors to provide TILA-RESPA integrated 
disclosures rather than the disclosures required by Sec.  1026.18 when 
the partial exemption is satisfied. Accordingly, the Bureau now 
believes that the optionality provided in revised Sec.  1026.3(h)(6) 
will more effectively carry out the intent of the partial exemption in 
facilitating access to certain beneficial low-cost, non-interest 
bearing, subordinate-lien transactions for low- and moderate-income 
consumers by reducing the disclosure burden associated with such 
transactions.
    The Bureau declines to permit or require broader use of TILA-RESPA 
integrated disclosures for all HFA program loans or all housing 
assistance loans without regard to the criteria in Sec.  1026.3(h), as 
requested by some commenters. Thus, lenders making federally related 
mortgage loans not subject to the disclosure requirements in Sec.  
1026.19(e), (f), and (g) must continue to provide the RESPA disclosures 
where the criteria in Sec.  1026.3(h) is not satisfied. The Bureau 
recognizes that, in some instances, different disclosures may be 
required in connection with a borrower's first lien and subordinate 
financing. However, as discussed above, the Bureau believes that final 
Sec.  1026.3(h)(5) should enable more transactions to satisfy the 
criteria in Sec.  1026.3(h), which will facilitate access to the 
partial exemption from the RESPA disclosures in Regulation X Sec.  
1024.5(d)(2). The Bureau also notes that, to the extent loans do not 
meet the criteria in Sec.  1026.3(h) because of additional fees beyond 
those permitted under Sec.  1026.3(h)(5), such loans may be subject to 
a finance charge and thus may be covered transactions subject to the 
disclosure requirements in Sec.  1026.19(e), (f), and (g). Further, the 
partial exemption is intended to apply where the specific 
characteristics of the transaction generally ensure that the consumer 
is obtaining beneficial, low-cost credit. Regulation Z does not 
provide, nor did commenters suggest, a definition of what constitutes a 
housing assistance loan. In the absence of supporting evidence 
indicating how many federally related mortgage loans are not covered 
transactions subject to the disclosure requirements in Sec.  
1026.19(e), (f), and (g) and would also not meet the criteria in final 
Sec.  1026.3(h), the Bureau does not believe it is appropriate to 
permit or require broader use of TILA-RESPA integrated disclosures for 
such loans at this time. The Bureau will continue to monitor the market 
with regard to the required provision of the RESPA disclosures.
    The Bureau also declines to apply the partial exemption to all HFA 
program second-lien loans, as suggested by one commenter. The Bureau 
believes that the criteria finalized in Sec.  1026.3(h)(5) should 
increase the ability of HFAs and lenders making such loans to take 
advantage of the partial exemption from the RESPA disclosures in 
Regulation X Sec.  1024.5(d)(2). Such broader access to the partial 
exemption will address concerns regarding the required provision of the 
RESPA disclosures for many loans that do not currently meet the 
criteria in Sec.  1026.3(h). Additionally, the Bureau notes that the 
purpose of the partial exemption in Sec.  1026.3(h), cross-referenced 
in Regulation X Sec.  1024.5(d)(2), is to reduce the procedural burden 
associated with the disclosures for certain low-cost, non-

[[Page 37667]]

interest bearing, subordinate-lien transactions that represent a very 
limited risk for consumer harm. Although the Bureau understands that 
HFA lending is characterized by low-cost financing, it believes that, 
to the extent an HFA program loan does not satisfy the criteria for the 
partial exemption, it would not be appropriate to permit the creditor 
to provide only the streamlined disclosures described in Sec.  1026.18 
in connection with that loan. Further, a few commenters indicated that 
the partial exemption is utilized for many non-HFA program loans, and 
the Bureau has determined that it would not be appropriate to require 
these loans to meet all of the criteria in Sec.  1026.3(h) while 
applying automatically the partial exemption to all HFA program second-
lien loans without regard to their specific characteristics. As to the 
commenter's concern that other beneficial loans in addition to those 
that provide down payment assistance may not meet the criteria in Sec.  
1026.3(h), the partial exemption also applies to transactions that 
provide closing cost or other similar home buyer assistance, property 
rehabilitation and energy efficiency assistance, and foreclosure 
avoidance or prevention.
    For similar reasons, the Bureau is not adopting a broader exemption 
from Regulation X or Z, either in full or in part, for HFA program 
loans or HFAs that originate mortgage loans. As to suggestions by 
commenters that such broader exemptions could reduce burden and 
incentivize creditors to make housing assistance loans available to 
low- and-moderate income consumers, the Bureau again notes that the 
revised criteria in final Sec.  1026.3(h) should facilitate access to 
the partial exemption and alleviate the disclosure burden associated 
with such loans. Additionally, a full exemption from Regulation X or 
its disclosure requirements could result in borrowers not receiving 
advance disclosure of settlement costs, which would undermine one of 
the express purposes of RESPA and would not be authorized under RESPA's 
section 19(a) exemption authority. The Bureau has considered the 
factors for the exemption authority in TILA section 105(f) and has 
determined that further exemptions from Regulation Z could undermine 
the goal of consumer protection and deny important disclosure benefits 
to consumers. Comments indicating that HFAs would provide alternative 
disclosures if broader regulatory exemptions were granted did not 
provide specific examples demonstrating that such disclosures would 
adequately protect consumers from risk of abuse. Moreover, commenters 
did not provide a clear consensus as to how an HFA should be defined, 
whether an exemption from Regulation X or Z should apply in full or 
only to disclosure requirements, or whether any such exemption should 
apply to HFA program loans or HFAs directly.
    As to one commenter's recommendation that nothing in Regulation Z 
should apply to an HFA down payment assistance loan that is not a 
covered transaction under Regulation Z, the Bureau notes that such a 
loan would only be subject to the requirements of Regulation Z if it 
met the criteria in Sec.  1026.3(h) and the lender elected to take 
advantage of the partial exemption from the RESPA disclosures in 
Regulation X Sec.  1024.5(d)(2). A lender is not required to utilize 
the partial exemption from the RESPA disclosures in Regulation X Sec.  
1024.5(d)(2). However, where a lender chooses to utilize the partial 
exemption from the RESPA disclosures and provide either disclosures 
described in Sec.  1026.18 or Sec.  1026.19(e) and (f), respectively, 
the lender must comply with all Regulation Z requirements that pertain 
to such disclosures. For example, in this situation the lender must 
comply with the general disclosure requirements set forth in Sec.  
1026.17, even if the lender would not otherwise be subject to those 
requirements.
    The Bureau believes that Sec.  1026.3(h), and in particular, the 
requirement that disclosures in compliance with Regulation Z be 
provided when a loan meets the partial exemption, is distinguishable 
from other requirements of Regulation Z from which the Bureau has 
exempted HFA program loans or HFAs themselves. The Bureau believes that 
the requirement that creditors provide compliant disclosures of the 
cost of credit where a loan satisfies the criteria for the partial 
exemption provides consumers a benefit and, especially in light of the 
flexibility adopted in the final rule, is not unnecessarily burdensome.
    With respect to commenters' requests that the revisions to the 
criteria for the partial exemption become effective immediately, the 
Bureau refers to the discussion in part VI, below, regarding the final 
rule's effective date and optional compliance period. As a consequence 
of the optional compliance period, beginning on the effective date of 
this final rule, creditors and lenders have the option to take 
advantage of the partial exemptions in Sec.  1026.3(h) and Regulation X 
Sec.  1024.5(d)(2), respectively, by satisfying the criteria in Sec.  
1026.3(h) as revised by this final rule. Furthermore, if such creditors 
or lenders choose to satisfy revised Sec.  1026.3(h)(6) by providing 
compliant Loan Estimates and Closing Disclosures, they may use the 
optional compliance period to phase in the changes to the TILA-RESPA 
integrated disclosure requirements that are made elsewhere in this 
final rule, in the manner described in part VI.
    As to commenters that expressed uncertainty regarding situations 
where changed circumstances effect the applicability of the partial 
exemption, the Bureau refers such commenters to Sec.  1026.17(c), which 
sets forth requirements pertaining to the basis of the disclosures and 
the use of estimates, and to Sec.  1026.17(e), which addresses the 
effect of subsequent events that cause a disclosure to become 
inaccurate. As to commenters that requested further clarification 
around the partial exemption generally and the preparation of the 
required disclosures, the Bureau believes final Sec.  1026.3(h) 
provides clear and objective criteria for the partial exemption and 
that the requirements pertaining to the disclosures described in Sec.  
1026.18 or Sec.  1026.19(e) and (f), as applicable, are adequately set 
forth in Regulation Z. The Bureau declines one commenter's request to 
revise the seven-business-day review period between the provision of 
the initial disclosures and consummation for certain HFA loans. Section 
1026.19(a)(2)(i) implements the timing requirements in TILA section 
128(b)(2)(A), and, in adopting Sec.  1026.19(e)(1)(iii)(B), the Bureau 
explained that the seven-business-day review period would best carry 
out the purposes of TILA and RESPA by facilitating the informed use of 
credit and ensuring advance disclosure of settlement charges.\41\
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    \41\ 78 FR 79730, 79802 (Dec. 31, 2013).
---------------------------------------------------------------------------

    The Bureau is revising comment 3(h)-1 for further clarity and to 
reflect the revisions adopted in Sec.  1026.3(h)(6) regarding the 
disclosures required as a condition for meeting the partial exemption. 
The Bureau is revising the first sentence of comment 3(h)-1 to explain 
that Sec.  1026.3(h) exempts certain transactions from the disclosures 
described in Sec.  1026.19(g), and, under certain circumstances, Sec.  
1026.19(e) and (f). Revised comment 3(h)-1 includes an explanation that 
Sec.  1026.3(h) exempts transactions from Sec.  1026.19(e) and (f) if 
the creditor chooses to provide disclosures described in Sec.  1026.18 
that comply with Regulation Z pursuant to Sec.  1026.3(h)(6)(i), but 
does not exempt transactions from Sec.  1026.19(e) and (f) if the 
creditor chooses to provide

[[Page 37668]]

disclosures described in Sec.  1026.19(e) and (f) that comply with 
Regulation Z pursuant to Sec.  1026.3(h)(6)(ii). Revised comment 3(h)-1 
clarifies that creditors may provide, at their option, either the 
disclosures described in Sec.  1026.18 or the disclosures described in 
Sec.  1026.19(e) and (f). The revised comment explains further that, in 
providing these disclosures, creditors must comply with all provisions 
of Regulation Z relating to those disclosures. Finally, revised comment 
3(h)-1 explains that Sec.  1026.3(h) does not exempt transactions from 
any of the other requirements of Regulation Z to the extent they are 
applicable, and that, for transactions that would otherwise be subject 
to Sec.  1026.19(e), (f), and (g), creditors must comply with all other 
applicable requirements of Regulation Z, including the consumer's right 
to rescind the transaction under Sec.  1026.23, to the extent that 
provision is applicable. Thus, final comment 3(h)-1 clarifies that, 
where a transaction satisfies the criteria for the partial exemption in 
Sec.  1026.3(h), and therefore satisfies the parallel partial exemption 
in Regulation X Sec.  1024.5(d)(2), the creditor may provide either 
disclosures described in Sec.  1026.18 or TILA-RESPA integrated 
disclosures in connection with the transaction. The creditor must, 
however, provide compliant disclosures that satisfy all Regulation Z 
requirements pertaining to those disclosures, even where the loan would 
not otherwise be subject to those requirements.
    The Bureau is also adopting comment 3(h)-2 with additional 
clarifications and revisions to reflect revised Sec.  1026.3(h)(6). 
Revised comment 3(h)-2 explains that the conditions that the 
transaction not require the payment of interest under Sec.  
1026.3(h)(3) and that repayment of the amount of credit extended be 
forgiven or deferred in accordance with Sec.  1026.3(h)(4) must be 
reflected in the loan contract. It explains that the other requirements 
of Sec.  1026.3(h) need not be reflected in the loan contract, but the 
creditor must retain evidence of compliance with those provisions, as 
required by Sec.  1026.25(a) or (c), as applicable. As revised, comment 
3(h)-2 provides further that, in particular, because the exemption in 
Sec.  1026.3(h) means the creditor is not required to provide the 
disclosures of closing costs under Sec.  1026.37 or Sec.  1026.38 
(unless the creditor chooses to provide disclosures described in Sec.  
1026.19(e) and (f) that comply with Regulation Z), the creditor must 
retain evidence reflecting that the costs payable by the consumer in 
connection with the transaction at consummation are limited to 
recording fees, transfer taxes, a bona fide and reasonable application 
fee, and a bona fide and reasonable housing counseling fee, and that 
the total of application and housing counseling fees is less than 1 
percent of the amount of credit extended, in accordance with Sec.  
1026.3(h)(5). Finally, the revised comment provides that, unless the 
itemization of the amount financed provided to the consumer 
sufficiently details this requirement, the creditor must establish 
compliance with Sec.  1026.3(h)(5) by some other written document and 
retain it in accordance with Sec.  1026.25(a) or (c), as applicable.
    Because a creditor may provide the Loan Estimate and Closing 
Disclosure to meet the conditions of the partial exemption under 
revised Sec.  1026.3(h)(6), the Bureau is finalizing comment 3(h)-2 to 
include a reference to Sec.  1026.25(c), which, as discussed above, 
sets forth the record retention requirements regarding Sec.  1026.19(e) 
and (f). Additionally, because creditors have the option of providing 
the Loan Estimate and Closing Disclosure under revised Sec.  
1026.3(h)(6), the Bureau is revising comment 3(h)-2 to explain that the 
exemption in Sec.  1026.3(h) means the creditor is not required to 
provide, rather than the consumer will not receive, the disclosures of 
closing costs under Sec.  1026.37 or Sec.  1026.38. The revised comment 
clarifies, however, that creditors are required to provide the 
disclosures of closing costs under Sec.  1026.37 and Sec.  1026.38 if 
they choose to provide disclosures described in Sec.  1026.19(e) and 
(f) that comply with Regulation Z. For further clarity and consistency 
with the requirements in final Sec.  1026.3(h)(5)(i), revised comment 
3(h)-2 refers to a bona fide and reasonable application fee and a bona 
fide and reasonable housing counseling fee, instead of application fees 
and housing counseling fees.
    The Bureau is adding new comment 3(h)-3 to clarify further the 
relationship between the partial exemption in Sec.  1026.3(h) and the 
parallel partial exemption for certain federally related mortgage loans 
in Regulation X Sec.  1024.5(d)(2). New comment 3(h)-3 explains that 
Regulation X provides a partial exemption from certain Regulation X 
disclosure requirements in Regulation X Sec.  1024.5(d). It explains 
further that the partial exemption in Regulation X Sec.  1024.5(d)(2) 
provides that certain Regulation X disclosure requirements do not apply 
to a federally related mortgage loan, as defined in Regulation X Sec.  
1024.2(b), that satisfies the criteria in Sec.  1026.3(h). Finally, new 
comment 3(h)-3 clarifies that for a federally related mortgage loan 
that is not otherwise covered by Regulation Z, lenders may satisfy the 
criteria in Sec.  1026.3(h)(6) by providing the disclosures described 
in Sec.  1026.18 that comply with Regulation Z or the disclosures 
described in Sec.  1026.19(e) and (f) that comply with Regulation Z. 
Thus, under this final rule, to meet the criteria in Sec.  1026.3(h) 
and qualify for the partial exemption in Regulation X Sec.  
1024.5(d)(2), lenders making such loans may choose to provide either 
compliant TILA disclosures or compliant Loan Estimates and Closing 
Disclosures, even though such loans are not otherwise subject to 
Regulation Z.
    The Bureau is adopting new comments 3(h)-3 and -4 as proposed, but 
renumbered as comments 3(h)-4 and -5 to reflect the addition of new 
comment 3(h)-3. New comment 3(h)-4 refers to comment 37(g)(1)-1 for a 
discussion of what constitutes a recording fee for purposes of 
Regulation Z, and new comment 3(h)-5 refers to comment 37(g)(1)-3 for a 
discussion of what constitutes a transfer tax for purposes of 
Regulation Z.
    For the reasons set forth above, the Bureau is revising the 
introductory text of Sec.  1026.3(h), adopting Sec.  1026.3(h)(5) as 
proposed, and revising Sec.  1026.3(h)(6). The Bureau is revising 
comments 3(h)-1 and -2, adopting new comment 3(h)-3, and adopting 
comments 3(h)-3 and -4 as proposed but renumbered as comments 3(h)-4 
and -5.
Legal Authority
    TILA section 105(a) authorizes the Bureau to adjust or except from 
the disclosure requirements of TILA all or any class of transactions to 
facilitate compliance with TILA. As set forth above, revising the 
criteria for the Sec.  1026.3(h) partial exemption will facilitate 
compliance by enabling more housing assistance loans to qualify for the 
partial exemption at Sec.  1026.3(h) and reducing regulatory burden for 
a class of transactions that the Bureau believes generally benefit 
consumers and pose little risk of consumer harm. RESPA section 19(a) 
authorizes the Bureau to grant reasonable exemptions for classes of 
transactions, as may be necessary to achieve the purposes of RESPA. By 
broadening the Sec.  1026.3(h) partial exemption, this amendment will 
enable more federally related mortgage loans to qualify for the partial 
exemption at Regulation X Sec.  1024.5(d)(2) and permit lenders to 
provide the streamlined disclosures described in Sec.  1026.18 that 
comply with Regulation Z or the disclosures described in Sec.  
1026.19(e) and (f) that comply with Regulation Z

[[Page 37669]]

for these low-cost, non-interest bearing, subordinate-lien 
transactions.
    In addition, the Bureau believes that the disclosure requirements 
that covered persons must meet to qualify for the Sec.  1026.3(h) 
partial exemption will help ensure that the features of these mortgage 
transactions are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with these mortgage transactions, 
consistent with Dodd-Frank Act section 1032(a).

Section 1026.17 General Disclosure Requirements

17(c) Basis of Disclosures and Use of Estimates
17(c)(6)
Allocation of Costs
The Bureau's Proposal
    Comment 17(c)(6)-5 explains that a creditor, when using the special 
rule under Sec.  1026.17(c)(6), may disclose certain construction-
permanent transactions as multiple transactions, and may allocate 
buyers points or similar amounts imposed on the consumer between the 
construction and permanent phases of the transaction in any manner the 
creditor chooses. However, comment 17(c)(6)-5 does not provide guidance 
on how to allocate amounts so as to avoid violating TILA section 
129(r), which prohibits structuring a loan transaction or dividing any 
loan transaction into separate parts for the purpose of evading the 
high-cost mortgage provisions.
    To help ensure consumer protections are not evaded and to assist 
creditors in properly disclosing costs associated with construction-
permanent loans, the Bureau proposed to amend comment 17(c)(6)-5 to 
provide greater clarity by adding a ``but for'' test to allocate 
amounts to the construction phase of a construction-permanent 
transaction if a creditor chooses to disclose the credit extended as 
more than one transaction.
    Specifically, the Bureau proposed to amend comment 17(c)(6)-5 to 
explain that in a construction-permanent transaction disclosed as more 
than one transaction, the creditor must allocate to the construction 
phase all amounts that would not be imposed but for the construction 
financing. All other amounts would be allocated to the permanent 
financing. The proposed comment illustrated how the allocation would be 
made, using inspection and handling fees for the staged disbursement of 
construction loan proceeds as an example, and provided examples of how 
to allocate origination and application fees between the construction 
phase and the permanent phase.
    The Bureau solicited comment on the proposed revision of comment 
17(c)(6)-5, including whether the proposal presented a clear and 
understandable method of allocating costs between the construction 
phase and the permanent phase, whether there are fees that may not be 
clearly allocated to one phase or the other, and whether the proposed 
revision would improve or obscure consumer understanding and promote or 
discourage comparison shopping.
Comments Received
    Comments received on the proposed amendment to comment 17(c)(6)-5 
were generally favorable. A trade association, a group of vendors, and 
a compliance specialist stated the proposed clarification would help 
provide clarity and be useful for allocating fees specific to the 
construction phase when separate disclosures are used. The compliance 
specialist commenter additionally noted the clarification would assist 
creditors in avoiding potential regulatory criticisms or other 
liability if challenged for evading the high-cost mortgage provisions. 
However, commenters also expressed uncertainty as to what amounts the 
proposed comment covered and how to allocate fees for services that 
might be used for both the construction and permanent phases. One trade 
association noted that there are services that are required for both 
phases of the financing that would not be charged ``if not but for'' 
one phase alone. This commenter provided the example of updated 
abstracts and final title opinions obtained in connection with the 
construction loan and then reused for the permanent loan. The commenter 
also stated that fees should be lower on the permanent financing loan 
if the consumer stays with the same creditor that financed the 
construction, as many of the paid-for services can also be used for the 
permanent financing. The commenter requested that the final rule 
continue to permit the creditor to allocate points and similar charges 
in any way the creditor chooses when the construction and permanent 
phases are disclosed separately.
    A trade association noted that the appraisal is used to establish 
the combined maximum loan amount for both the construction and 
permanent phases. The commenter expressed uncertainty as to how the fee 
for such an appraisal would be allocated. A vendor group and a 
compliance specialist both commented that, ``but for'' the construction 
financing, the land would not have been purchased and, consequently, 
under the proposed comment, all the costs of the loan would be 
reflected on the Loan Estimate and Closing Disclosure provided in 
connection with the construction financing.
The Final Rule
    The Bureau is adopting the proposed amendments to comment 17(c)(6)-
5, but with modifications. In response to comments that sought 
clarification of the scope of costs covered by the ``but for'' 
approach, the Bureau is revising comment 17(c)(6)-5 to identify more 
precisely the costs to which the ``but for'' allocation applies. As 
revised, comment 17(c)(6)-5 specifies that the ``but for'' test only 
applies to the finance charges under Sec.  1026.4 and the points and 
fees under Sec.  1026.32(b)(1), the amounts that are most relevant in 
determining whether the loan is a high-cost mortgage under Sec.  
1026.32 or a higher-priced mortgage loan under Sec.  1026.35 or a 
qualified mortgage under Sec.  1026.43(e). When a creditor uses the 
special rule in Sec.  1026.17(c)(6) to disclose credit extensions as 
multiple transactions, fees and charges must be allocated for purposes 
of calculating disclosures. In the case of a construction-permanent 
loan that a creditor chooses to disclose as multiple transactions, the 
creditor must allocate to the construction transaction finance charges 
under Sec.  1026.4 and points and fees under Sec.  1026.32(b)(1) that 
would not be imposed but for the construction financing. If a creditor 
charges separate finance charges under Sec.  1026.4 and points and fees 
under Sec.  1026.32(b)(1) for the construction phase and the permanent 
phase, such fees and charges must be allocated to the phase for which 
they are charged. All other finance charges under Sec.  1026.4 and 
points and fees under Sec.  1026.32(b)(1) must be allocated to the 
permanent financing. Using the ``but for'' allocation for these amounts 
when separate disclosures are provided for the phases of a 
construction-permanent loan will allow creditors to determine more 
accurately whether the permanent phase is a high-cost mortgage or 
higher-priced mortgage loan or qualified mortgage.
    The Bureau is revising the examples in comment 17(c)(6)-5 to 
reflect these changes. The examples as finalized do not reference 
application fees because application fees are not necessarily finance 
charges under Sec.  1026.4 or points and fees under Sec.  
1026.32(b)(1).\42\ As

[[Page 37670]]

proposed, the comment stated that, if a creditor charges an application 
or origination fee for construction-only financing but charges a 
greater application or origination fee for construction-permanent 
financing, the difference between the two fees must be allocated to the 
permanent transaction. Under this example, if the origination fee for 
construction-only financing is $750, and the origination fee for 
construction-permanent financing is $1000, then $750 is allocated to 
the construction-only financing and $250 is allocated to the permanent 
financing. This example is retained in the comment as finalized, though 
the reference to an application fee is not. Creditors would conduct the 
same kind of analysis to determine how other fees and charges are 
allocated between the construction and permanent phases when separate 
disclosures are used.
---------------------------------------------------------------------------

    \42\ Under Sec.  1026.4(c)(1), application fees charged to all 
applicants for credit, whether or not credit is actually extended, 
are excluded from the finance charge. Conversely, if the application 
fee is only charged to applicants for credit upon the extension of 
credit, the application fee is included in the finance charge.
---------------------------------------------------------------------------

    As finalized, the revisions to comment 17(c)(6)-5 also provide that 
fees and charges that are not finance charges under Sec.  1026.4 or 
points and fees under Sec.  1026.32(b)(1) may be allocated between the 
transactions in any manner the creditor chooses. The comment provides 
an example of the fees and charges that may be allocated in any manner 
the creditor chooses. The example states that a reasonable appraisal 
fee paid to an independent, third-party appraiser may be allocated in 
any manner the creditor chooses because it would be excluded from the 
finance charge pursuant to Sec.  1026.4(c)(7) and excluded from points 
and fees pursuant to Sec.  1026.32(b)(1)(iii). This additional 
commentary addresses how disclosures may be made when an appraisal is 
used to establish the combined maximum loan amount for both the 
construction phase and the permanent phase, a situation that commenters 
on the proposed rule specifically described. Creditors would conduct 
the same kind of analysis to determine other fees and charges that may 
be allocated in any manner.
May Be Permanently Financed by the Same Creditor
The Bureau's Proposal
    The Bureau proposed to add new comment 17(c)(6)-6 to clarify that 
the may be permanently financed by the same creditor condition 
specified in Sec.  1026.17(c)(6)(ii), if satisfied, permits a creditor 
to treat a construction-permanent loan as one transaction or more than 
one transaction. Proposed comment 17(c)(6)-6 explained that a loan to 
finance the construction of a dwelling may be considered permanently 
financed by the same creditor, within the meaning of Sec.  
1026.17(c)(6)(ii), if the creditor generally makes both construction 
and permanent financing available to qualifying consumers, unless a 
consumer expressly states that the consumer will not obtain permanent 
financing from the creditor. Under this approach, the construction 
phase may be permanently financed by the same creditor, within the 
meaning of Sec.  1026.17(c)(6)(ii), in all cases other than where 
permanent financing is not available at all from the creditor (i.e., 
the creditor does not offer permanent financing) or the consumer 
expressly informs the creditor that the consumer will not obtain 
permanent financing from the creditor. This proposal aligned with 
proposed comment 19(e)(1)(iii)-5, which provided that a creditor 
determines the timing requirements for providing the Loan Estimate for 
both the construction and permanent financing based on when the 
application for the construction financing is received, so long as the 
creditor ``may'' provide the permanent financing. The creditor would 
have still been permitted to make the disclosures as a single 
transaction or as more than one transaction, as provided by Sec.  
1026.17(c)(6)(ii).
    The Bureau solicited comment on the proposed addition of comment 
17(c)(6)-6 to determine whether the condition that a construction loan 
may be permanently financed by the same creditor should be considered 
satisfied even if a consumer expressly states that the consumer will 
not seek permanent financing from the creditor, as long as the creditor 
generally makes permanent financing available to qualifying consumers. 
The Bureau also solicited comment on how the issues described in the 
proposal might be addressed if the Bureau adopted the proposal as 
final, and on any additional issues or complexities presented by the 
proposal, as well as how those might be addressed.
Comments Received
    Generally, commenters opposed the Bureau's proposal to clarify the 
meaning of ``may be permanently financed'' in comment 17(c)(6)-6. 
Commenters indicated that there was no need for clarification as 
creditors already understand the meaning of ``may be permanently 
financed'' as used in Sec.  1026.17(c)(6)(ii).
    Commenters also believed the proposal could result in consumer 
harm. Two trade associations and one industry commenter stated that 
because the proposal would require creditors to provide a disclosure 
for the permanent phase, even if the consumer had not applied for 
permanent financing, consumers could perceive unrequested permanent 
financing disclosures as a pressure tactic to enter into permanent 
financing with the creditor. Commenters stated that consumers would 
generally be confused by receiving disclosures for financing they did 
not apply for and for which the creditor had not made a commitment to 
provide. One commenter expressed that consumers would understand the 
receipt of disclosures for permanent financing to mean that 
construction-only loans would not be available.
    Commenters also discussed additional compliance burdens that could 
result from the proposed clarification. Three trade associations and 
two industry commenters indicated that creditors would have difficulty 
accurately disclosing the terms of the permanent transaction at the 
time they receive an application for construction-only financing. 
Commenters stated that, at the time of the construction disclosures, 
creditors may not know the availability, costs, and consumer 
application information for the permanent financing. Further, one trade 
association and one industry commenter stated that, because 
construction and permanent financings are usually in different 
departments, with different staff and different underwriting 
requirements, simultaneous disclosure would be extremely difficult and 
burdensome for such institutions. Additionally, one trade association 
and two industry commenters stated that creditors could have difficulty 
documenting a consumer's express rejection of permanent financing 
because there are many ways a consumer could reject permanent 
financing. One software vendor indicated that creditors would need a 
new form to document a consumer's rejection of permanent financing.
    Additionally, commenters asserted that the proposal would be in 
conflict with comment 17(c)(6)-2. Commenters stated that proposed 
comment 17(c)(6)-6 would force treatment of the permanent and 
construction financing as a single transaction despite comment 
17(c)(6)-2's express optionality for separate transactions.
The Final Rule
    The Bureau is persuaded by commenters' concerns over compliance and 
consumer understanding. The Bureau concludes that proposed comment 
17(c)(6)-6 would not provide

[[Page 37671]]

enough benefit to outweigh the potential consumer confusion and 
compliance burdens that may result. For these reasons the Bureau is not 
adopting proposed comment 17(c)(6)-6.
17(f) Early Disclosures
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to 
comments 17(f)-1 and -2 to reflect a change to the coverage of Sec.  
1026.19(e) and (f) to include closed-end credit transactions, other 
than reverse mortgages, that are secured by a cooperative unit, 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law.

Section 1026.18 Content of Disclosures

    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to 
comments 18-3, 18(g)-6, and 18(s)-1 and -4 to reflect a change to the 
coverage of Sec.  1026.19(e) and (f) to include closed-end credit 
transactions, other than reverse mortgages, that are secured by a 
cooperative unit, regardless of whether a cooperative unit is treated 
as real property under State or other applicable law.

Section 1026.19 Certain Mortgage and Variable-Rate Transactions

Cooperatives
The Bureau's Proposal
    The TILA-RESPA Rule generally applies to closed-end consumer credit 
transactions secured by real property, other than reverse mortgages. 
Regulation Z does not define the term ``real property,'' but Sec.  
1026.2(b)(3) states that, unless defined in Regulation Z, the words 
used therein have the meanings given to them by State law or contract. 
The Bureau proposed to amend Sec.  1026.19(e), (f), and (g) and 
comments 19(e)(1)(i)-1 and -2, 19(f)(1)(i)-1, and 19(f)(3)(ii)-3, to 
cover closed-end consumer credit transactions secured by cooperative 
units, regardless of whether State or other applicable law considers 
cooperative units to be real or personal property. The Bureau also 
proposed conforming amendments to Sec. Sec.  1026.1(d)(5) and 
1026.37(c)(5)(i), the paragraph title for Sec.  1026.25(c)(1), a 
subheading for the commentary to Sec.  1026.25(c)(1), and comments 
17(f)-1 and -2, 18-3, 18(g)-6, 18(s)-1 and -4, and 37(a)(7)-2.
Comments Received
    Commenters, including consumer groups, creditors, vendors, trade 
associations, GSEs, a secondary market investor, and an individual 
commenter, supported the amendments to Regulation Z, including the 
amendments to Sec.  1026.19(e) and (f), to cover closed-end consumer 
credit transactions secured by cooperative units, regardless of whether 
State or other applicable law considers cooperative units to be real or 
personal property.
    A creditor commented that the proposed amendments to Sec.  
1026.19(g), whereby the scope of coverage for Sec.  1026.19(g) would be 
delineated by cross-referencing Sec.  1026.19(e)(1)(i), would have had 
the effect of eliminating the current Sec.  1026.19(g) coverage of 
open-end transactions (except as provided in Sec.  1026.19(g)(1)(ii) 
and (iii)). To the extent that the Bureau were to finalize the 
amendments to Sec.  1026.19(g) as proposed, that creditor commented 
that Sec.  1026.19(g)(1)(ii) and its reference to home equity lines of 
credit would be unnecessary and potentially confusing. An individual 
commenter requested clarification as to whether transactions secured by 
cooperative units are covered by the TILA-RESPA Rule if they are for 
business purposes. Consumer group commenters noted that there may be 
some uncertainty, beyond the TILA-RESPA Rule, as to whether Regulation 
X otherwise covers transactions secured by cooperative units.
    A trade association supported the amendments to cover closed-end 
consumer credit transactions secured by cooperative units, regardless 
of whether State or other applicable law considers cooperative units to 
be real or personal property, while noting that these changes would 
require reprogramming and therefore impose implementation costs. 
Another trade association requested that these amendments become 
effective retroactively to ease compliance. Another trade association 
and two creditors requested retroactive protection from liability for 
creditors who have been treating loans secured by cooperative units as 
covered by the TILA-RESPA Rule as well as retroactive protection for 
creditors who have not been doing so, regardless of whether State or 
other applicable law considers cooperative units to be real or personal 
property.
The Final Rule
    For the reasons discussed below, the Bureau is adopting Sec. Sec.  
1026.19(g) and 1026.37(c)(5)(i) substantially as proposed and is 
adopting, as proposed, the other amendments to Regulation Z, including 
Sec.  1026.19(e) and (f), to cover closed-end consumer credit 
transactions secured by cooperative units, regardless of whether State 
or other applicable law considers cooperative units to be real or 
personal property. Specifically, in part in response to commenters' 
concerns, Sec.  1026.19(g), as finalized, covers consumer credit 
transactions secured by real property or a cooperative unit, regardless 
of whether they are open-end or closed-end transactions (and except as 
provided in Sec.  1026.19(g)(1)(ii) and (iii)). As finalized, Sec.  
1026.19(g)'s coverage continues not to be limited to closed-end 
transactions (except as provided in Sec.  1026.19(g)(1)(ii) and (iii)). 
To conform Sec.  1026.37(c)(5)(i) with the other amendments to 
Regulation Z, including Sec.  1026.19(e) and (f), Sec.  
1026.37(c)(5)(i), as finalized, specifically references the real 
property or cooperative unit securing the transaction.
    Regarding a commenter's request for clarification as to whether 
transactions secured by cooperative units are covered by the TILA-RESPA 
Rule if they are for business purposes, the Bureau notes that an 
extension of credit primarily for a business, commercial or 
agricultural purpose is not subject to Regulation Z, as provided in 
current Sec.  1026.3(a) and the associated commentary. With respect to 
commenters asserting that there may be some uncertainty, beyond the 
TILA-RESPA Rule, as to whether other parts of Regulation X cover 
transactions secured by cooperative units, the Bureau notes that both 
RESPA and Regulation Z include cooperatives within the definition of 
federally related mortgage loan.\43\
---------------------------------------------------------------------------

    \43\ 12 U.S.C. 2602(1); 12 CFR 1024.2(b).
---------------------------------------------------------------------------

    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.
Legal Authority
    The Bureau is finalizing this amendment pursuant to its authority 
under Dodd-Frank Act section 1032(a) and (f), TILA section 105(a), and 
RESPA section 19(a). Section 1032(f) of the Dodd-Frank Act required 
that the Bureau propose for public comment rules and model disclosures 
combining the disclosures required under TILA and sections 4 and 5 of 
RESPA into a single, integrated disclosure for mortgage loan 
transactions covered by

[[Page 37672]]

those laws,\44\ and, as discussed above, RESPA and TILA each generally 
cover loans secured by cooperative units.
---------------------------------------------------------------------------

    \44\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(f)).
---------------------------------------------------------------------------

    The Bureau believes that applying the TILA-RESPA Rule to cover 
closed-end consumer loans secured by cooperative units is consistent 
not only with both TILA and RESPA but also with general industry 
practice. Consequently, the Bureau believes that this extension of 
coverage will facilitate compliance by industry, which is one of the 
purposes of TILA. Furthermore, because this amendment will ensure that 
more consumers receive the integrated disclosures, which the Bureau 
believes, based on its extensive testing of the disclosures, to be 
superior to the pre-existing TILA and RESPA disclosures and because the 
Bureau believes that the integrated disclosures are generally effective 
for transactions secured by cooperative units, whether or not the 
cooperative unit is treated as real property under State or other 
applicable law, the Bureau also believes this amendment will carry out 
the purposes of TILA and RESPA to promote the informed use of credit 
and more effective advance disclosure of settlement costs, 
respectively. In addition, the Bureau believes the integrated 
disclosure requirements improve consumer understanding of the costs, 
benefits, and risks associated with the mortgage transaction, 
consistent with Dodd-Frank Act section 1032(a).

19(e) Mortgage Loans--Early Disclosures

19(e)(1) Provision of Disclosures
19(e)(1)(iii) Timing
The Bureau's Proposal
    Section 1026.19(e)(1)(iii) sets forth the timing requirements for 
providing the Loan Estimate. Generally, the creditor must deliver the 
Loan Estimate or place it in the mail not later than the third business 
day after the creditor receives the consumer's application and not 
later than the seventh business day before consummation. The Bureau 
proposed to add comment 19(e)(1)(iii)-5 to explain how the timing 
requirements apply in the case of construction-permanent loans.
    Proposed comment 19(e)(1)(iii)-5 summarized the provisions of 
Sec. Sec.  1026.17(c)(6)(ii) and 1026.19(e)(1)(iii) and comment 
17(c)(6)-2 relevant to construction-permanent loans, referenced 
proposed comment 17(c)(6)-6, and explained the ways a creditor that 
generally makes both construction and permanent financing available 
complies with the timing requirements in Sec.  1026.19(e)(1)(iii). 
Proposed comment 19(e)(1)(iii)-5 explained that, when the creditor 
received a consumer's application for either construction financing 
only (without the consumer expressly stating that the consumer will not 
obtain permanent financing from the creditor) or an application for 
combined construction-permanent financing, the creditor complies with 
Sec.  1026.19(e)(1)(iii) by delivering or placing in the mail the 
disclosures required by Sec.  1026.19(e)(1)(i) for both the 
construction financing and the permanent financing, either disclosed as 
one or more than one transaction, within the timing requirements of 
Sec.  1026.19(e)(1)(iii). Proposed comment 19(e)(1)(iii)-5.i through -
5.iv would have provided illustrative examples of how the Loan Estimate 
timing provisions apply to construction-permanent loans. Proposed 
comment 19(e)(1)(iii)-5.v would have explained that, if a consumer 
expressly states that the consumer will not obtain permanent financing 
from the creditor after a combined construction-permanent financing 
disclosure already has been provided, the creditor complies with Sec.  
1026.17(c)(6)(ii) by issuing a revised disclosure for construction 
financing only in accordance with the timing requirements of Sec.  
1026.19(e)(4).
    The Bureau also solicited comment on an alternative approach, under 
which a creditor generally would provide a Loan Estimate only for the 
financing for which a consumer applies. For example, under the 
alternative approach, if a consumer applies for construction financing 
only, a creditor would be required to provide the Loan Estimate for 
only the construction financing. Similarly, under the alternative 
approach if the consumer applies for construction and permanent 
financing at the same time, the creditor would be required to provide 
the Loan Estimates for both phases within three days of receiving the 
application. If the construction financing may be permanently financed 
by the same creditor, the proposed alternative approach stated the 
creditor would be permitted to provide the Loan Estimate for the 
permanent financing at the same time as the Loan Estimate was provide 
for the construction financing, but would not be required to do so.
Comments Received
    As explained in the section-by-section analysis for comment 
17(c)(6)-6, commenters generally opposed the proposed clarification of 
``may be permanently financed.'' Similarly, commenters opposed the 
clarification under comment 19(e)(1)(iii)-5 that, consistent with the 
proposed clarification of ``may be permanently financed,'' would have 
required creditors to provide, upon receiving a consumer's application 
for construction financing only, the disclosures required by Sec.  
1026.19(e)(1)(i) for both the construction financing and the permanent 
financing not later than the third business day after the creditor 
receives the application and not later than the seventh business day 
before consummation.
    Commenters indicated that the proposed clarification of ``may be 
permanently financed'' would cause consumer confusion, and the related 
requirements under comment 19(e)(1)(iii)-5, would create substantial 
compliance burdens and confusion about the meaning of comment 17(c)(6)-
2. As explained in the section-by-section analysis for comment 
17(c)(6)-6, for these reasons, the Bureau is not finalizing proposed 
comment 17(c)(6)-6.
    However, several commenters indicated their support for the 
alternative proposal under comment 19(e)(1)(iii)-5. Two trade 
associations explicitly supported the Bureau's proposed alternative. 
Additionally, two other commenters indicated they would support an 
alternative that allowed the creditor to provide disclosures only for 
the products for which a consumer applied, similar to the alternative 
approach mentioned in the Bureau's proposal. One commenter requested 
that, if the consumer applied for separate construction and permanent 
financing, the Bureau require the creditor provide a separate Loan 
Estimate for the construction and permanent financing within three days 
of that application.
The Final Rule
    For the reasons stated above, the Bureau is adopting the 
alternative approach proposed with clarifications. The Bureau notes 
this approach should ease any coordination challenges occasioned by 
different departments, staff, and systems handling the construction and 
permanent phase underwriting. Different departments of the same 
creditor may continue to provide the construction and permanent 
disclosures separately, but within the timing requirements of Sec.  
1026.19(e)(1)(iii). Additionally, the Bureau believes that new 
documentation procedures and systems would not be required under the 
rule as finalized. The Bureau also believes this approach is consistent 
with comment 17(c)(6)-2.

[[Page 37673]]

    In response to comments, the Bureau is clarifying that, for 
construction-permanent financing transactions, the creditor is required 
to disclose the Loan Estimate only for the transaction for which it 
received an application. As finalized, comment 19(e)(1)(iii)-5.i 
provides an example of receipt of an application for construction 
financing only and explains that the Loan Estimate for the construction 
transaction is the only disclosure that is required to be provided at 
that time. Aligned with comment 17(c)(6)-2, the Bureau clarifies under 
comment 19(e)(1)(iii)-5.ii that, if a consumer's applications for 
separate construction and permanent financing transactions are received 
at the same time, the creditor provides the disclosures required under 
Sec.  1026.19(e)(1)(i) as either a combined disclosure or separately 
for each phase of the transaction and within the timing requirements 
provided by Sec.  1026.19(e)(1)(iii). Comment 19(e)(1)(iii)-5.iii 
explains the timing requirements under Sec.  1026.19(e)(1)(iii) when 
construction and permanent phase applications are received separately. 
Further, comment 19(e)(1)(iii)-5.iv clarifies that a creditor need not 
provide a Loan Estimate for permanent financing for which a separate 
application is made if the creditor has already provided a Loan 
Estimate for the permanent phase under Sec.  1026.17(c)(6)(ii), and may 
instead proceed with the disclosures required under Sec.  
1026.19(f)(1)(i).
19(e)(1)(vi) Shopping for Settlement Service Providers
    Section 1026.19(e)(1)(vi)(A) defines how a creditor permits a 
consumer to shop for settlement services. Section 1026.19(e)(1)(vi)(B) 
requires the creditor to identify, on the Loan Estimate, the settlement 
services for which a consumer may shop. Section 1026.19(e)(1)(vi)(C), 
among other things, sets forth the requirement to provide the consumer 
with a written list identifying available providers of the settlement 
services for which a consumer is permitted to shop.
Identifying Settlement Services and Available Providers
The Bureau's Proposal
    Comment 19(e)(1)(vi)-2 refers to the requirement in Sec.  
1026.19(e)(i)(vi)(B) that the creditor identify, on the Loan Estimate, 
the settlement services for which the consumer is permitted to shop and 
provides that the content and format for disclosure of such services 
can be found at Sec.  1026.37(f)(3). In response to several informal 
guidance inquiries regarding the treatment of a settlement service that 
was excluded from the Loan Estimate, the Bureau proposed to revise 
comment 19(e)(1)(vi)-2 to simplify the disclosure requirements under 
Sec.  1026.19(e)(1)(vi)(B) in an effort to reduce uncertainty and to 
ease compliance burden. The proposed revisions to comment 19(e)(1)(vi)-
2 would have clarified that the creditor must specifically identify the 
settlement services for which a consumer is permitted to shop unless, 
based on the best information reasonably available to the creditor, the 
creditor knows that the service is provided as part of a package or 
combination of settlement services (hereinafter referred to as a 
package) offered by a single service provider.
    Comment 19(e)(1)(vi)-4, among other things, provides requirements 
for disclosing settlement service providers under Sec.  
1026.19(e)(1)(vi)(C). It explains that the written list of providers 
must identify settlement service providers that provide services in the 
area in which the consumer or property is located, and must include 
sufficient information about each provider to allow the consumer to 
contact the provider. In response to several informal guidance 
inquiries, the Bureau proposed to revise comment 19(e)(1)(vi)-4 to 
simplify the disclosure requirements under Sec.  1026.19(e)(1)(vi)(C) 
in an effort reduce uncertainty and ease compliance burden. The 
proposed revision to comment 19(e)(1)(vi)-4 was identical to the 
proposed revision to comment 19(e)(1)(vi)-2.
Comments Received
    Several commenters expressed appreciation for the Bureau's interest 
in clarifying and simplifying these provisions. A consumer group stated 
that the Bureau should not allow the disclosure of a package, as 
proposed, and should require the disclosure of all settlement services, 
on the written list, for which a consumer may shop because allowing 
creditors to disclose a package of settlement services would obscure 
costs, reduce competition, and hinder the consumer's ability to shop. 
Industry commenters stated that the Bureau should define and clarify, 
with examples, what a package offered by a single service provider 
means. Industry comments included requests for clarification about the 
interplay between the itemization requirements under Sec. Sec.  
1026.37(f)(3) and 1026.38(f)(3) and the ability to package settlement 
services; how the disclosure of a package would work when title 
services and settlement or closing services are provided by different 
service providers; whether the phrase ``provided by a single service 
provider'' would allow for the use of third parties; and whether a 
package could include settlement services with different tolerance 
thresholds.
The Final Rule
    For the reasons set forth below, the Bureau has decided not to 
finalize the proposed revisions to comments 19(e)(1)(vi)-2 and -4. 
Instead the Bureau is revising comment 19(e)(1)(vi)-2 to clarify that 
Sec.  1026.19(e)(1)(vi)(B) provides that the creditor who permits a 
consumer to shop for settlement services must identify the settlement 
services required by the creditor for which the consumer is permitted 
to shop in the disclosures provided pursuant to Sec.  1026.19(e)(1)(i). 
The Bureau is also revising comment 19(e)(1)(vi)-4 to clarify that 
Sec.  1026.19(e)(1)(vi)(C) provides that the creditor must identify 
settlement service providers, that are available to the consumer, for 
the settlement services required by the creditor for which a consumer 
is permitted to shop. The Bureau is also revising comment 19(e)(1)(vi)-
1 to conform with final comments 19(e)(3)(ii)-6 and 19(e)(3)(iii)-2.
    The purpose of the proposed revisions to comments 19(e)(1)(vi)-2 
and -4 was to clarify and simplify the disclosure requirements for 
settlement services on the Loan Estimate and written list of providers. 
As discussed above, commenters presented concerns about the potential 
complexity and uncertainty the proposed revisions might introduce. In 
pursuit of the original purpose to minimize confusion and compliance 
burden the Bureau believes it can achieve this purpose by revising 
comments 19(e)(1)(vi)-2 and -4 to clarify the current itemization 
requirements under Sec.  1026.19(e)(1)(vi) instead of introducing a new 
disclosure scheme.
    The Bureau understands from the comments that there may be 
uncertainty as to the extent a creditor must itemize settlement 
services on the Loan Estimate and the written list of providers. In 
revising comment 19(e)(1)(vi)-2, the Bureau is clarifying that the 
disclosure of settlement services under Sec.  1026.19(e)(1)(vi)(B) need 
not include all settlement services that may be charged to the 
consumer, but must include at least those settlement services required 
by the creditor for which the consumer may shop. The Bureau is also 
revising comment 19(e)(1)(vi)-4 to provide that the creditor must 
identify settlement service providers, that are available to the

[[Page 37674]]

consumer, for the settlement services that are required by the creditor 
for which a consumer is permitted to shop.
    Current comment 19(e)(1)(vi)-2 notes that Sec.  
1026.19(e)(i)(vi)(B) requires the creditor to identify, on the Loan 
Estimate, the settlement services a consumer is allowed to shop for and 
cross-references Sec.  1026.37(f)(3). Current and final comment 
19(e)(1)(vi)-3, among other things, notes the requirement in Sec.  
1026.19(e)(1)(vi)(C) to identify at least one available provider of a 
settlement service for which a consumer may shop and also cross-
references Sec.  1026.37(f)(3). In addition, the settlement service 
providers identified on the written list required by Sec.  
1026.19(e)(vi)(C) must correspond to the settlement services for which 
the consumer may shop. Comment 37(f)(3)-1 provides that items included 
under the subheading ``Services You Can Shop For'' pursuant to Sec.  
1026.37(f)(3) are for those services: That the creditor requires in 
connection with its decision to make the loan; that would be provided 
by persons other than the creditor or mortgage broker; and for which 
the creditor allows the consumer to shop in accordance with Sec.  
1026.19(e)(1)(vi). Thus the provisions under Sec.  1026.19(e)(1)(vi) 
require the creditor to identify, on the Loan Estimate and the written 
list of providers, the settlement services required by the creditor for 
which a consumer is permitted to shop. For example, if a creditor 
requires a consumer to purchase lender's title insurance and the 
creditor permits the consumer to shop for lender's title insurance, the 
creditor is required by the provisions under Sec.  1026.19(e)(1)(vi) to 
disclose the lender's title insurance, on the Loan Estimate, and at 
least one provider of the required settlement service, on the written 
list, capable of coordinating or performing the services necessary to 
provide the required lender's title insurance. However, the creditor is 
not required by the provisions under Sec.  1026.19(e)(1)(vi) to provide 
a detailed breakdown of all related fees that are not themselves 
required by the creditor but that may be charged to the consumer such 
as a notary fee, title search fee, or other ancillary and 
administrative services needed to perform or provide the settlement 
service required by the creditor.\45\ The same principle is true for 
the disclosure of settlement services under Sec.  1026.37(f)(3). This 
is consistent with the Bureau's concern, noted in the TILA-RESPA Final 
Rule, that a complete breakdown of all settlement services payable by 
the consumer could lead to information overload for the consumer and 
thereby hinder the consumer's ability to shop.\46\
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    \45\ This is consistent with comment 19(e)(3)(ii)-2 which 
explains that Sec.  1026.19(e)(3)(ii) provides flexibility in 
disclosing individual fees by focusing on aggregate amounts and 
illustrates this principle with an example of a Loan Estimate not 
including an estimated charge for a notary fee that is subject to 
Sec.  1026.19(e)(3)(ii) but the notary fee is later charged to the 
consumer. In such example, the creditor does not violate Sec.  
1026.19(e)(3)(ii) as long as the sum of all charges subject to Sec.  
1026.19(e)(3)(ii), including the notary fee, does not exceed the 10 
percent threshold.
    \46\ See the Bureau's discussion regarding information overload 
in the TILA-RESPA Final Rule. 78 FR 79730, 79742 (Dec. 31, 2013).
---------------------------------------------------------------------------

    As discussed in the respective section-by-section analyses of Sec.  
1026.19(e)(3)(ii) and Sec.  1026.19(e)(3)(iii), the Bureau is adding 
new comment 19(e)(3)(ii)-6 and revising comment 19(e)(3)(iii)-2, which 
provide that, for fees paid to an unaffiliated third party, if the 
creditor permits the consumer to shop consistent with Sec.  
1026.19(e)(1)(vi)(A) but fails to provide the list required by Sec.  
1026.19(e)(1)(vi)(C), good faith is determined under Sec.  
1026.19(e)(3)(ii). Final comments 19(e)(3)(ii)-6 and 19(e)(3)(iii)-2 
further provide that whether the creditor permits the consumer to shop 
consistent with Sec.  1026.19(e)(1)(vi)(A) is determined based on all 
the relevant facts and circumstances. As a result, the Bureau is making 
a conforming amendment in final comment 19(e)(1)(vi)-1 to clarify that 
whether the creditor permits the consumer to shop consistent with Sec.  
1026.19(e)(1)(vi)(A) is determined based on all the relevant facts and 
circumstances.
Methods of Providing Settlement Service Providers List
    Section 1026.19(e)(1)(vi) defines how a creditor permits a consumer 
to shop for services and requires the creditor to identify the 
settlement services for which the consumer may shop and provide a 
written list identifying at least one available provider for each of 
those services. The Bureau proposed to amend comment 19(e)(1)(vi)-3 to 
clarify that, although use of the model form H-27 of appendix H to this 
part is not required, creditors using it properly will be deemed to be 
in compliance with Sec.  1026.19(e)(1)(vi)(C).
    A creditor requested that the Bureau consider mandating the use of 
form H-27 rather than allowing creditors to use different variations. 
However, several industry commenters urged the Bureau to further 
clarify that creditors are not required to use model form H-27 and that 
creditors do not lose the model form's safe harbor protection if they 
opt not to include estimated fee amounts on the written list of 
providers.
    The Bureau is adopting comment 19(e)(1)(vi)-3 substantially as 
proposed but with certain minor changes. Regarding commenters' requests 
to consider mandating the use of form H-27 or, alternatively, to 
further clarify that creditors are not required to use it, the Bureau 
notes that TILA section 105(b) permits creditors to delete non-required 
information or rearrange the format of a model form without losing the 
safe harbor protection afforded by use of the model form if, in making 
such deletion or rearranging the format, the creditor does not affect 
the substance, clarity, or meaningful sequence of the disclosure. As 
finalized, comment 19(e)(1)(vi)-3 explicitly notes that flexibility. 
Regarding commenters' request for clarification that creditors do not 
lose the model form's safe harbor protection if they delete the column 
for estimated fee amounts, the Bureau notes that current Sec.  
1026.19(e)(1)(vi) does not require creditors to list the estimated fees 
of the service providers. As finalized, comment 19(e)(1)(vi)-3 states 
that deleting the column for estimated fee amounts is an example of an 
acceptable change to form H-27. Consistent with final comment 
19(e)(1)(vi)-4, final comment 19(e)(1)(vi)-3 also clarifies that the 
settlement service providers identified on the written list required by 
Sec.  1026.19(e)(1)(vi)(C) must correspond to the required settlement 
services for which the consumer may shop, disclosed under Sec.  
1026.37(f)(3).
19(e)(3) Good Faith Determination for Estimates of Closing Costs
    Section 1026.19(e)(3)(i) provides the general rule that an 
estimated closing cost is in good faith if the charge paid by or 
imposed on the consumer does not exceed the estimate for the cost as 
disclosed on the Loan Estimate. However, Sec.  1026.19(e)(3)(ii) 
provides that estimates for certain third-party services and recording 
fees 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 on the Loan Estimate by more than 10 percent (the ``10-
percent tolerance'' category). Section 1026.19(e)(3)(iii) provides that 
certain other estimates are in good faith so long as they are 
consistent with the best information reasonably available to the 
creditor at the time they are disclosed, regardless of whether the 
amount paid by the consumer exceeds the estimate disclosed on the Loan 
Estimate. The Bureau proposed minor changes and technical corrections 
for clarification

[[Page 37675]]

purposes to Sec.  1026.19(e)(3) and its accompanying commentary. Each 
of these proposed changes is discussed in more detail below.
    The Bureau is issuing the clarifications to Sec.  1026.19(e)(3) in 
this final rule pursuant to its authority to prescribe standards for 
good faith estimates under TILA section 128 and RESPA section 5, as 
well as its authority under TILA section 105(a), 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. Section 128(b)(2)(A) of 
TILA provides that, for an extension of credit secured by a consumer's 
dwelling that also is subject to RESPA, good faith estimates of the 
disclosures in TILA section 128(a) shall be made in accordance with 
regulations of the Bureau.\47\ 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.\48\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 1638(b)(2)(A).
    \48\ 12 U.S.C. 2604(c).
---------------------------------------------------------------------------

    The Bureau believes the clarifications to Sec.  1026.19(e)(3) in 
this final rule are authorized under TILA section 105(a). They 
effectuate TILA's purposes, and help prevent potential circumvention or 
evasion of TILA, by helping ensure that the cost estimates are more 
meaningful and better inform consumers of the actual costs associated 
with obtaining credit. The clarifications also further TILA's goals by 
helping ensure more reliable estimates, which should foster competition 
among financial institutions.
    In addition, the Bureau believes the clarifications to Sec.  
1026.19(e)(3) in this final rule are consistent with Dodd-Frank Act 
section 1032(a) because requiring more accurate initial estimates of 
the costs of the transaction helps ensure that the features of mortgage 
loan transactions and settlement services will be more fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the mortgage loan. The Bureau believes the 
clarifications to Sec.  1026.19(e)(3) in this final rule are also in 
the interest of consumers and in the public interest, consistent with 
Dodd-Frank Act section 1405(b), because providing consumers with more 
accurate estimates of the cost of the mortgage loan transaction helps 
improve consumer understanding and awareness of the mortgage loan 
transaction through the use of disclosure.
    Section 19(a) of RESPA authorizes the Bureau to prescribe 
regulations and make interpretations as may be necessary to achieve the 
purposes of RESPA,\49\ which include the elimination of kickbacks, 
referral fees, and other practices that tend to increase unnecessarily 
the costs of certain settlement services.\50\ The Bureau believes that 
the clarifications to Sec.  1026.19(e)(3) in this final rule are 
necessary to achieve the purposes of RESPA under RESPA section 19(a) 
because they encourage settlement service provider competition. Each of 
the clarifications to Sec.  1026.19(e)(3) is discussed in more detail 
below.
---------------------------------------------------------------------------

    \49\ 12 U.S.C. 2617(a).
    \50\ 12 U.S.C. 2601(a).
---------------------------------------------------------------------------

19(e)(3)(i) General Rule

General Rule for Determining Good Faith Under Sec.  1026.19(e)(3)
    Section 1026.19(e)(3)(i) provides the general rule that an 
estimated closing cost is in good faith if the charge paid by or 
imposed on the consumer does not exceed the estimate for the cost as 
disclosed on the Loan Estimate. Comment 19(e)(3)(i)-1 clarifies that 
fees paid to, among others, the creditor, an affiliate of the creditor, 
or a mortgage broker are subject to that general rule, but Sec.  
1026.19(e)(3)(iii) provides that certain estimates are in good faith so 
long as they are consistent with the best information reasonably 
available to the creditor at the time they are disclosed, regardless of 
whether the amount paid by the consumer exceeds the estimate disclosed 
on the Loan Estimate. The Bureau proposed to modify comment 
19(e)(3)(i)-1 to conform it with the regulation text of Sec.  
1026.19(e)(3)(iii).
    A creditor supported the clarification in proposed comment 
19(e)(3)(i)-1. A vendor group noted that proposed comment 19(e)(3)(i)-1 
would be a non-substantive technical change. A secondary market 
investor broadly requested clarification as to which charges are 
subject to the good faith determination under Sec.  1026.19(e)(3)(i).
    The Bureau is adopting comment 19(e)(3)(i)-1 as proposed. Regarding 
a commenter's broad request for clarification as to which charges are 
subject to the good faith determination under Sec.  1026.19(e)(3)(i), 
guidance can be found in Sec.  1026.19(e)(3)(i) through (iii) and the 
associated commentary.
Paid by or Imposed on the Consumer
    Section 1026.19(e)(3)(i) provides that good faith is determined by 
whether a closing cost paid by or imposed on the consumer does not 
exceed the amount originally disclosed on the Loan Estimate, while 
other sections of Regulation Z, including the finance charge definition 
in Sec.  1026.4(a), are framed in terms of whether the charge is 
payable by the consumer. The Bureau proposed for comment the view that 
these standards, ``paid by or imposed on the consumer'' and ``payable 
by the consumer,'' are interchangeable. The proposal would have added 
comment 19(e)(3)(i)-8 to clarify that the phrase ``paid by or imposed 
on,'' as used in Sec.  1026.19(e)(3)(i), has the same meaning as the 
term ``payable,'' as used elsewhere in Regulation Z.
    A trade group and an industry commenter supported adopting proposed 
comment 19(e)(3)(i)-8. One industry commenter supported the proposed 
comment, but stated that the standard should not be applied to specific 
lender or seller credits. A vendor commenter stated that creditors may 
not understand the proposed comment and not accurately disclose costs 
or conduct the good faith analysis under Sec.  1026.19(e)(3) properly. 
The vendor commenter stated that the term ``payable'' would be 
interpreted by industry to cover any types of fees which the consumer 
has the ability to pay, rather than the ones the consumer will pay or 
is legally obligated to pay. One trade group commenter stated that some 
confusion still exists in industry, as the proposed comment was 
substantially different from the standard previously discussed in 
guidance documents issued by the Department of Housing and Urban 
Development concerning the previous tolerance standards under RESPA. A 
law firm commenter representing industry stated further clarification 
of the proposed comment was needed. Lastly, a group of mortgage vendor 
commenters stated that a charge may be imposed on a consumer but not 
paid or payable by the consumer.
    The comments received indicate that the term ``payable'' as used in 
Regulation Z is not clear to industry. Since commenters have shown that 
the term ``payable'' is not commonly understood, the Bureau is 
concerned that proposed comment 19(e)(3)(i)-8 would increase confusion 
concerning the meaning of the phrase ``paid by or imposed on'' in Sec.  
1026.19(e)(3)(i). Additionally, the Bureau believes that other comments 
in the Official Interpretations relating to the paragraphs of Sec.  
1026.19(e) provide sufficient guidance as to the meaning of

[[Page 37676]]

the phrase ``paid by or imposed on.'' \51\ Accordingly, the Bureau is 
not adopting proposed comment 19(e)(3)(i)-8.
---------------------------------------------------------------------------

    \51\ See, e.g., comment 19(e)(3)(i)-2.
---------------------------------------------------------------------------

19(e)(3)(ii) Limited Increases Permitted for Certain Charges
The Bureau's Proposal
    Comment 19(e)(3)(ii)-2, among other things, explains that Sec.  
1026.19(e)(3)(ii) provides flexibility when disclosing individual fees 
by focusing on aggregate amounts and illustrates this principle with an 
example. The Bureau understands that there is some uncertainty 
regarding the interplay between the requirements under Sec.  
1026.19(e)(1)(vi), shopping for settlement service providers, and the 
good faith determination under Sec.  1026.19(e)(3)(ii) and (iii). The 
Bureau's proposed revisions to comment 19(e)(3)(ii)-2 provided that a 
creditor is in compliance with Sec.  1026.19(e)(3)(ii) if the creditor 
permits the consumer to shop for the settlement services disclosed 
pursuant to Sec.  1026.19(e)(1)(vi) and the aggregate increase in 
charges does not exceed 10 percent, even if the amount of an individual 
fee was omitted from the Loan Estimate. As proposed, comment 
19(e)(3)(ii)-2 would have clarified further 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) or 
the list does not comply with the requirements of Sec.  
1026.19(e)(1)(vi)(B) and (C), good faith is determined under Sec.  
1026.19(e)(3)(i) instead of Sec.  1026.19(e)(3)(ii) or (iii), 
regardless of the provider selected by the consumer. The Bureau also 
proposed technical revisions to comment 19(e)(3)(ii)-2 and to make 
other clarifying revisions.
Comments Received
    The Bureau did not receive comments regarding the proposed 
revisions to restructure comment 19(e)(3)(ii)-2 and to make other 
clarifying and technical revisions. Three industry commenters supported 
the Bureau's proposed clarification regarding compliance with Sec.  
1026.19(e)(1)(vi) and the proposal to determine good faith under Sec.  
1026.19(e)(3)(i) for required settlement services when the written list 
of providers is not issued by a creditor.
    Most comments focused on the Bureau's proposed clarification 
regarding compliance with Sec.  1026.19(e)(1)(vi)(B) and (C). A 
commenter asserted that the good faith determination under Sec.  
1026.19(e)(3)(ii) and (iii) should not be tied to whether the written 
list of providers was issued by the creditor. Several commenters 
representing various financial services businesses requested that the 
Bureau clarify and narrow the scope of what constitutes noncompliance 
with Sec.  1026.19(e)(1)(vi)(B) and (C) under proposed comment 
19(e)(3)(ii)-2. In general, these commenters were concerned that 
inadvertent mistakes and typographical errors could be considered 
noncompliance under the proposed revision and thereby constitute a 
violation of Sec.  1026.19(e)(3)(ii) and subject certain settlement 
services to zero tolerance under Sec.  1026.19(e)(3)(i). Two commenters 
asked the Bureau to clarify whether a creditor's use of inconsistent 
terminology between the Loan Estimate, the written list of providers, 
and the Closing Disclosure would be deemed noncompliance with Sec.  
1026.19(e)(3)(ii). One commenter asserted that, if finalized, a strict 
interpretation of the proposed revision would impose litigation and 
compliance risk on creditors and affect secondary market opportunities 
because secondary market participants might not accept loans with 
typographical errors on the written list of providers or Loan Estimate.
    Some commenters asked that the Bureau provide a mechanism to allow 
for a revised written list of providers if the consumer still has time 
to shop, in lieu of prescribing the scope of noncompliance with Sec.  
1026.19(e)(1)(vi)(B) and (C) under proposed revisions to comment 
19(e)(3)(ii)-2. Some commenters stated that neither Regulation Z nor 
the Bureau's informal guidance discuss the circumstances under which a 
revised written list of providers may be issued. One commenter, arguing 
in support of its request to allow for a revised written list of 
providers, asserted that not allowing for a revised written list of 
providers to correct an error would hinder the consumer's ability to 
shop. Relatedly, some commenters noted the Bureau's informal guidance 
allowing for a revised written list of providers when a settlement 
service is added as a result of a change under Sec.  
1026.19(e)(3)(iv).\52\ These commenters asked the Bureau to clarify 
whether a revised written list of providers can be provided when a 
Closing Disclosure is issued in lieu of the Loan Estimate for revised 
estimates pursuant to Sec.  1026.19(e)(3)(iv).
---------------------------------------------------------------------------

    \52\ CFPB Webinar, TILA-RESPA Integrated Disclosure, Part 5--
Implementation Challenges and Questions (May 26, 2015), available at 
https://consumercomplianceoutlook.org/outlook-live/2015/tila-respa-integrated-disclosures-rule-5/.
---------------------------------------------------------------------------

    A trade association representing banks asked the Bureau to clarify 
whether a service or a fee mistakenly omitted from the Loan Estimate or 
the written list of providers can be added to the Closing Disclosure 
and charged to the consumer provided that the sum of the charges is 
within the 10 percent threshold prescribed in Sec.  1026.19(e)(3)(ii).
The Final Rule
    For the reasons discussed below, to conform with final comment 
19(e)(3)(iii)-2, the Bureau is not finalizing proposed modifications to 
comment 19(e)(3)(ii)-2 that would have provided that good faith is 
determined under Sec.  1026.19(e)(3)(i) instead of under Sec.  
1026.19(e)(3)(ii) or (iii) if a creditor permits a consumer to shop but 
fails to provide the list required by Sec.  1026.19(e)(1)(vi)(C) or the 
list does not comply with the requirements of Sec.  
1026.19(e)(1)(vi)(B) and (C). As discussed in the section-by-section 
analysis of Sec.  1026.19(e)(3)(iii), after considering the comments, 
the Bureau is revising comment 19(e)(3)(iii)-2. Final comment 
19(e)(3)(iii)-2 provides that good faith is determined under Sec.  
1026.19(e)(3)(ii) even if the creditor fails to issue the list required 
by Sec.  1026.19(e)(1)(vi)(C), as long as the fee for the settlement 
service required by the creditor is paid to an unaffiliated third party 
and the creditor permits the consumer to shop consistent with Sec.  
1026.19(e)(1)(vi)(A). These revisions do not extinguish the obligation 
to comply with Sec.  1026.19(e)(1)(vi)(B) and (C) if the creditor 
permits the consumer to shop. For example, although the good faith 
determination under Sec.  1026.19(e)(3)(ii) may apply to settlement 
services even when a creditor fails to issue the written list of 
providers, the creditor is still in violation of Sec.  
1026.19(e)(1)(vi)(C) for failure to comply with the requirements to 
issue a written list of providers.
    The Bureau is adopting new comment 19(e)(3)(ii)-6 to conform to 
final comment 19(e)(3)(iii)-2 and thereby clarify the interplay between 
the shopping requirements under Sec.  1026.19(e)(1)(vi) and the good 
faith determination under Sec.  1026.19(e)(3)(ii) and (iii). Comment 
19(e)(3)(ii)-6 provides that when a creditor permits the consumer to 
shop consistent with Sec.  1026.19(e)(1)(vi)(A) but fails to provide 
the list required by Sec.  1026.19(e)(1)(vi)(C), good faith is 
determined under Sec.  1026.19(e)(3)(ii), unless the settlement service 
provider is the creditor or an affiliate of the creditor, in which case 
good faith is determined under Sec.  1026.19(e)(3)(i). In conformity 
with final comment 19(e)(1)(vi)-1, final comment 19(e)(3)(ii)-6 also 
provides that whether

[[Page 37677]]

the creditor permits the consumer to shop consistent with Sec.  
1026.19(e)(1)(vi)(A) is determined based on all the relevant facts and 
circumstances. In addition, the Bureau is revising comment 
19(e)(3)(ii)-1.i to conform with new comment 19(e)(3)(ii)-6. Final 
comment 19(e)(3)(ii)-1.i explains that Sec.  1026.19(e)(3)(ii) permits 
limited increases for fees paid to an unaffiliated third party if the 
creditor permitted the consumer to shop for the third-party service, 
consistent with Sec.  1026.19(e)(1)(vi)(A).
    The Bureau is finalizing as proposed, with minor stylistic changes, 
the portion of comment 19(e)(3)(ii)-2 that relates to an individual 
charge omitted from the Loan Estimate and then imposed at consummation. 
As finalized, comment 19(e)(3)(ii)-2 provides that, under Sec.  
1026.19(e)(3)(ii)(A), 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) increases by more than 
10 percent, regardless of whether a particular charge increases by more 
than 10 percent. This is true even if an individual charge was omitted 
from the estimate provided under Sec.  1026.19(e)(1)(i) and then 
imposed at consummation. Thus, final comment 19(e)(3)(ii)-2 provides 
flexibility when disclosing individual fees by focusing on aggregate 
amounts. The Bureau is also finalizing, as proposed, the revisions to 
restructure comment 19(e)(3)(ii)-2 by separating the examples in the 
comment into subparagraphs i. and ii. and other revisions to enhance 
clarity.
    As discussed above, some commenters asked the Bureau to clarify 
whether a creditor may issue a revised written list of providers. As 
Bureau staff noted in an informal webinar,\53\ a revised written list 
of providers may be issued when a settlement service is added as a 
result of a reason provided for under Sec.  1026.19(e)(3)(iv). Whether 
or not a creditor issues a revised written list of providers, in 
accordance with final comment 19(e)(3)(ii)-6, if the creditor permits 
the consumer to shop consistent with Sec.  1026.19(e)(1)(vi)(A), good 
faith is determined under Sec.  1026.19(e)(3)(ii), unless the 
settlement service provider is the creditor or an affiliate of the 
creditor, in which case good faith is determined under Sec.  
1026.19(e)(3)(i). Whether the creditor permits the consumer to shop 
consistent with Sec.  1026.19(e)(1)(vi)(A) is determined based on all 
the relevant facts and circumstances.
---------------------------------------------------------------------------

    \53\ Id.
---------------------------------------------------------------------------

    As for comments regarding the Sec.  1026.19(e)(3) good faith 
determination if a creditor has not complied with Sec.  
1026.19(e)(1)(vi) because of a typographical error or has used 
inconsistent terminology between disclosures, the Bureau is not 
finalizing its proposal to provide that noncompliance with Sec.  
1026.19(e)(1)(vi)(B) and (C) would subject a settlement service to zero 
tolerance under Sec.  1026.19(e)(3)(i). As discussed above, many 
commenters focused on noncompliance with Sec.  1026.19(e)(1)(vi)(C) and 
remedies for resolving inadvertent errors and omissions on the written 
list of providers. The Bureau believes new comment 19(e)(3)(ii)-6 
addresses the concern regarding the omission of a required settlement 
service from the written list of providers. Relatedly, commenters 
requested clarification regarding the applicable good faith 
determination when an untimely written list of providers is issued. 
Consistent with new comment 19(e)(3)(ii)-6, the creditor may still 
comply with Sec.  1026.19(e)(3)(ii), depending (in part) on whether the 
creditor--based on all relevant facts and circumstances--permitted the 
consumer to shop consistent with Sec.  1026.19(e)(1)(vi)(A).
19(e)(3)(iii) Variations Permitted for Certain Charges
Charges Paid to the Creditor or Affiliates of the Creditor
The Bureau's Proposal
    Section 1026.19(e)(3)(iii) states that certain charges are in good 
faith for purposes of Sec.  1026.19(e)(1)(i) if they are consistent 
with the best information reasonably available, regardless of whether 
the amounts paid by the consumer exceed the amounts disclosed under 
Sec.  1026.19(e)(1)(i). Section 1026.19(e)(3)(iii) applies to the 
following five categories of charges: (A) Prepaid interest; (B) 
property insurance premiums; (C) amounts placed into an escrow, 
impound, reserve, or similar account; (D) 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 under Sec.  
1026.19(e)(1)(vi)(C); and (E) charges paid for third-party services not 
required by the creditor. The Bureau proposed to amend Sec.  
1026.19(e)(3)(iii) to provide that, for purposes of Sec.  
1026.19(e)(1)(i), good faith is determined under Sec.  
1026.19(e)(3)(iii) for all five of the categories of charges listed 
therein, even if such charges are paid to affiliates of the creditor, 
so long as the charges are bona fide. In addition, proposed comment 
19(e)(3)(iii)-4 would have clarified that, to be bona fide for purposes 
of Sec.  1026.19(e)(3)(iii), charges must be lawful and for services 
that are actually performed.
Comments Received
    Industry commenters, including creditors, vendors, trade 
associations, a title insurance underwriter, a secondary market 
investor, and an individual compliance professional, supported the 
provision in proposed Sec.  1026.19(e)(3)(iii) that good faith is 
determined under Sec.  1026.19(e)(3)(iii) for all five of the 
categories of charges listed therein, even if such charges are paid to 
affiliates of the creditor. An individual attorney requested that the 
Bureau further revise Sec.  1026.19(e)(3)(iii) to explicitly include 
charges paid to mortgage broker affiliates. A secondary market investor 
requested that the Bureau provide specific examples for Sec.  
1026.19(e)(3)(iii).
    Some industry commenters expressed concerns with the provision in 
proposed Sec.  1026.19(e)(3)(iii) that excludes charges if they are not 
bona fide. A creditor, trade association, and title insurance 
underwriter stated that the proposed bona fide limitation adds 
confusion and uncertainty. A creditor asserted that the proposed bona 
fide limitation is unnecessary. A title insurance underwriter 
questioned whether including a bona fide limitation for proposed Sec.  
1026.19(e)(3)(iii) suggests that charges are not required to be bona 
fide for purposes of Sec.  1026.19(e)(3)(i) and (ii). The title 
insurance underwriter and a trade association also stated that the 
proposed bona fide limitation can cause confusion as appearing to be in 
conflict with the holding in Freeman v. Quicken Loans, Inc.\54\ The 
trade association further stated that ``bona fide'' is a term of art 
for purposes of analyzing claims under RESPA section 8; the Court in 
Freeman held that the RESPA section 8(b) fee-splitting prohibition does 
not, in the absence of fee-splitting, prohibit charging fees for which 
no services were provided; and, given the holding in Freeman, some 
industry members may be confused by use of the term ``bona fide'' in 
proposed Sec.  1026.19(e)(3)(iii) to exclude charges for services that 
are not actually performed. The trade association suggested that the 
Bureau remove the term ``bona fide'' in proposed Sec.  
1026.19(e)(3)(iii) and instead replace it with the phrase ``for 
services actually performed.''
---------------------------------------------------------------------------

    \54\ 132 S.Ct. 2034 (2012).

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

[[Page 37678]]

    Consumer group commenters did not object to the provision in 
proposed Sec.  1026.19(e)(3)(iii) that good faith is determined under 
Sec.  1026.19(e)(3)(iii) for all five of the categories of charges 
listed therein, even if such charges are paid to affiliates of the 
creditor. However, consumer group commenters expressed concerns with 
comment 19(e)(3)(iii)-4 defining ``bona fide'' charges as being lawful 
charges for services that are actually performed. Those commenters 
stated that, if the Bureau intends for that definition to be limited to 
determining good faith for purposes of Sec.  1026.19(e)(1)(i), then the 
Bureau should expressly state such limitation in the text of Sec.  
1026.19(e)(3)(iii) or its associated commentary. However, if the Bureau 
intends for comment 19(e)(3)(iii)-4 to also define the term ``bona 
fide'' for other purposes in Regulation Z, then consumer group 
commenters stated that the definition should exclude any inflation or 
padding of charges beyond the amount of the charge actually incurred 
and unreasonable charges (i.e., charges exceeding the market rate for 
equivalent services in the local community or any limits set by law).
    Regarding implementation costs, a vendor group supported proposed 
Sec.  1026.19(e)(3)(iii) and noted it would require some moderate 
reprogramming. Regarding an implementation period, a creditor requested 
that proposed Sec.  1026.19(e)(3)(iii) become effective retroactively 
to address uncertainty and legal risk.
The Final Rule
    For the reasons discussed below, the Bureau is adopting Sec.  
1026.19(e)(3)(iii) and comment 19(e)(3)(iii)-4 substantially as 
proposed but with certain modifications. Specifically, in part in 
response to commenters' concerns, the bona fide determination in 
comment 19(e)(3)(iii)-4, as finalized, is expressly limited to 
determining good faith for purposes of Sec.  1026.19(e)(1)(i). That 
limitation is consistent with the Bureau's stated intent in the 
proposal.\55\ For example, the bona fide determination in comment 
19(e)(3)(iii)-4 is distinct from the broader finance charge 
determination under Sec.  1026.4(c)(7) (i.e., whether certain fees are 
bona fide and reasonable in amount) and the points and fees 
determination under Sec.  1026.32(b) (e.g., the bona fide discount 
point definition requires, among other things, a calculation that is 
consistent with established industry practices). Final Sec.  
1026.19(e)(3)(iii) and comment 19(e)(3)(iii)-4 also clarify that for 
purposes of Sec.  1026.19(e)(1)(i), good faith is determined under 
Sec.  1026.19(e)(3)(iii) for categories of charges listed therein, even 
if such charges are paid to the creditor, so long as the charges are 
bona fide. The Bureau believes that, as is the case for charges covered 
under current Sec.  1026.19(e)(3)(ii), charges paid to a creditor 
generally should be treated the same way for purposes of determining 
good faith as is a charge paid to an affiliate of a creditor.
---------------------------------------------------------------------------

    \55\ 81 FR 54317, 54332 (Aug. 15, 2016).
---------------------------------------------------------------------------

    The Bureau declines to make any further changes requested by 
commenters regarding Sec.  1026.19(e)(3)(iii) or comment 19(e)(3)(iii)-
4. The Bureau concludes that it is not necessary to revise Sec.  
1026.19(e)(3)(iii) to explicitly include charges paid to mortgage 
broker affiliates because, unlike creditor affiliates, mortgage broker 
affiliates are not explicitly noted in current Sec.  
1026.19(e)(3)(iii). Good faith is determined under Sec.  
1026.19(e)(3)(i) unless a charge otherwise satisfies the conditions of 
Sec.  1026.19(e)(3)(ii) or (iii). With respect to a commenter's request 
for specific examples regarding Sec.  1026.19(e)(3)(iii), guidance can 
be found in the commentary accompanying Sec.  1026.19(e)(3)(iii).
    Regarding commenters' concern that there is confusion and 
uncertainty associated with the provision in Sec.  1026.19(e)(3)(iii) 
that excludes charges if they are not bona fide, the Bureau believes 
that comment 19(e)(3)(iii)-4 provides sufficient clarity that, to be 
bona fide for purposes of Sec.  1026.19(e)(3)(iii), charges must be 
lawful and for services that are actually performed. The Bureau 
believes that the bona fide provision in Sec.  1026.19(e)(3)(iii) will 
limit any potential consumer harm associated with permitting variations 
for charges within the five categories paid to the creditor or to 
affiliates of the creditor. In response to the commenter's question, 
such a bona fide limitation is not necessary in Sec.  1026.19(e)(3)(i) 
and (ii) because those provisions present less risk of consumer harm.
    Regarding commenters' citation to the Supreme Court's 
interpretation of RESPA section 8(b) in Freeman v. Quicken Loans, Inc., 
the Bureau is not relying on RESPA section 8(b) to adopt Sec.  
1026.19(e)(3)(iii), as clarified by comment 19(e)(3)(iii)-4. Rather, as 
stated in the proposal, the Bureau is adopting Sec.  
1026.19(e)(3)(iii), as clarified by comment 19(e)(3)(iii)-4, pursuant 
to its authority to prescribe standards for good faith estimates under 
TILA section 128 and RESPA section 5, as well as its authority under 
TILA sections 105(a), 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.\56\
---------------------------------------------------------------------------

    \56\ 81 FR 54317, 54331 (Aug. 15, 2016).
---------------------------------------------------------------------------

    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.
Certain Service Providers Selected by the Consumer
The Bureau's Proposal
    Currently, comment 19(e)(3)(iii)-2 explains that Sec.  
1026.19(e)(3)(iii)(D) applies when (1) a creditor permits the consumer 
to shop, consistent with Sec.  1026.19(e)(1)(vi)(A), for a settlement 
service it requires; (2) the creditor provides the list required under 
Sec.  1026.19(e)(1)(vi)(C); and (3) the consumer selects a service 
provider that is not on that list to perform the service. If these 
conditions are met, the actual estimate of a settlement service need 
not be compared to the original estimate for purposes of determining 
good faith under Sec.  1026.19(e)(3). Comment 19(e)(3)(iii)-2 also 
provides that an estimate or lack of an estimate must be based on the 
best information reasonably available at the time the disclosures are 
provided. Although amounts disclosed pursuant to Sec.  
1026.19(e)(3)(iii) may vary from the original estimates, the original 
estimates must not be unreasonably low. Lastly, comment 19(e)(3)(iii)-2 
provides 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 under 
Sec.  1026.19(e)(3)(ii) instead of Sec.  1026.19(e)(3)(iii). This is 
true unless the provider selected by the consumer is an affiliate of 
the creditor, in which case good faith is determined under Sec.  
1026.19(e)(3)(i).
    Section 1026.19(e)(1)(vi) sets forth the requirements creditors 
must comply with if a creditor permits a consumer to shop for a 
settlement service it requires. Among other things, the creditor must 
identify the required settlement services for which the consumer is 
permitted to shop and identify an available provider of that 
service.\57\ Section

[[Page 37679]]

1026.19(e)(3)(ii) sets forth the requirements for the 10 percent 
tolerance category, which includes the requirement that the creditor 
permit the consumer to shop, consistent with Sec.  1026.19(e)(1)(vi), 
for required settlement services. If a creditor permits a consumer to 
shop for a required settlement service, but fails to provide a written 
list of providers, the creditor has not complied with Sec.  
1026.19(e)(1)(vi)(C). The Bureau proposed to revise comment 
19(e)(3)(iii)-2 to provide that good faith is determined under Sec.  
1026.19(e)(3)(i), regardless of the provider selected by the consumer, 
if a creditor fails to issue the list required under Sec.  
1026.19(e)(1)(vi)(C) or if the creditor does not otherwise comply with 
the requirements under Sec.  1026.19(e)(1)(vi)(B) and (C).
---------------------------------------------------------------------------

    \57\ Section 1026.19(e)(1)(vi)(B) requires the creditor to 
identify required settlement services for which the consumer is 
permitted to shop on the Loan Estimate in accordance with Sec.  
1026.37(f)(3). Section 1026.19(e)(1)(vi)(C) requires the creditor to 
identify settlement service providers for required settlement 
services for which a consumer is permitted to shop.
---------------------------------------------------------------------------

Comments Received
    Several industry commenters, including banks, credit unions, 
settlement agents, and document management and compliance software 
companies addressed the Bureau's proposed revisions to comment 
19(e)(3)(ii)-2 in tandem with comment 19(e)(3)(iii)-2 to the extent 
that the proposed revisions in these comments mirrored each other. As 
stated above in the discussion of comment 19(e)(3)(ii)-2, these 
commenters requested that the Bureau define noncompliance and narrow 
the scope of noncompliance with Sec.  1026.19(e)(1)(vi)(B) and (C). 
Commenters were generally concerned that inadvertent mistakes and 
typographical errors could be considered noncompliance under a strict 
interpretation of the proposed amendment. One commenter asked the 
Bureau to clarify whether a creditor's use of inconsistent terminology 
between the Loan Estimate, the written list of providers, and the 
Closing Disclosure would be considered noncompliance.
    Several commenters asked that the Bureau provide a mechanism for 
issuing a revised or corrected written list of providers as long as the 
consumer would still have time to shop. Most industry commenters were 
opposed to the proposed revision to comment 19(e)(3)(ii)-2 that would 
have changed the tolerance threshold for settlement services not 
provided on the written list of providers. Three commenters agreed with 
the Bureau's proposed revision. Commenters asked the Bureau to consider 
the approach taken by the Department of Housing and Urban Development 
(HUD) in the 2008 RESPA Final Rule, which commenters asserted, used the 
10 percent tolerance threshold for settlement services when the written 
list of providers was not issued.\58\ In general, commenters asserted 
that the proposed revision to comment 19(e)(3)(ii)-2 would increase 
compliance cost and require software and system reprogramming and staff 
retraining. Other commenters stated that no industry or consumer 
benefit would be achieved by the proposed revision. Some commenters 
stated that creditors would be required to provide greater amounts of 
tolerance refunds to consumers and the increased cost imposed on 
creditors would ultimately be paid by consumers. One commenter stated 
that the proposed revision did not take into account the potential that 
a consumer actually shopped for settlement services. A state trade 
association commenter representing credit unions stated the Bureau 
should exempt credit unions from the requirement to provide the written 
list of providers because requiring credit unions to provide the 
written list of providers is an unnecessary burden that exposes credit 
unions to compliance risk even when credit unions do not require the 
use of any particular settlement service provider. In general, comments 
regarding the implementation date for the proposed revision ranged from 
six to twelve months.
---------------------------------------------------------------------------

    \58\ The Bureau notes that the 2008 RESPA Final Rule actually 
provides that settlement services are subject to 10 percent 
tolerance unless the borrower selects a provider other than one 
identified by the loan originator in which case these fees are not 
subject to any tolerance. 73 FR 14029, 14094 (Mar. 14, 2008).
---------------------------------------------------------------------------

The Final Rule
    For the reasons discussed below, the Bureau is not finalizing 
comment 19(e)(3)(iii)-2 as proposed but is instead revising it to 
clarify the applicable good faith determination when the written list 
of providers is not issued. Comment 19(e)(3)(iii)-2 continues to 
provide that, if the creditor permits the consumer to shop consistent 
with Sec.  1026.19(e)(1)(vi)(A) but fails to provide the list required 
by Sec.  1026.19(e)(1)(vi)(C), good faith is determined under Sec.  
1026.19(e)(3)(ii) instead of Sec.  1026.19(e)(3)(iii) unless the 
settlement service provider is an affiliate of the creditor in which 
case good faith is determined pursuant to Sec.  1026.19(e)(3)(i). As 
finalized, comment 19(e)(3)(iii)-2 clarifies that whether the creditor 
permits the consumer to shop consistent with Sec.  1026.19(e)(1)(vi)(A) 
is determined based on all the relevant facts and circumstances.
    As discussed above, several commenters asserted that requiring the 
good faith determination under Sec.  1026.19(e)(3)(i) (rather than the 
good faith analysis under Sec.  1026.19(e)(3)(ii)) when a creditor does 
not provide the written list of providers would, in summary, introduce 
uncertainty and significantly increase compliance cost and burden. In 
addition, many commenters presented concerns about the proposed 
revision regarding compliance with the provisions of Sec.  
1026.19(e)(1)(vi)(B) and (C). These comments persuaded the Bureau that 
the proposed revisions could provoke confusion rather than provide 
greater clarity about the requirements under Sec.  1026.19(e)(3).
    As explained in the TILA-RESPA Final Rule, the Bureau believes that 
information asymmetry between the creditor and the consumer is 
pervasive in the mortgage origination process and that the disclosures 
on the Loan Estimate and written list of providers play an important 
role in partially correcting that asymmetry. The disclosures provided 
related to settlement services are an important factor in determining 
whether a creditor's estimates were disclosed in good faith. The Bureau 
believes that the disclosures, presented on the Loan Estimate and the 
written list of providers, inform consumers of their ability to shop 
and promote a meaningful opportunity to shop for the required 
settlement services.
    Currently, comment 19(e)(3)(iii)-2 provides that the good faith 
determination under Sec.  1026.19(e)(3)(ii) applies when a creditor 
does not issue a written list of providers but the creditor permits the 
consumer to shop consistent with Sec.  1026.19(e)(1)(vi)(A), unless the 
settlement service provider is an affiliate of the creditor, in which 
case good faith is determined under Sec.  1026.19(e)(3)(i).
    As part of the good faith determination under Sec.  
1026.19(e)(3)(ii), the creditor must permit the consumer to shop for a 
third-party service. Comment 19(e)(1)(vi)-1 as finalized, and as cross-
referenced by final comments 19(e)(3)(ii)-6 and 19(e)(3)(iii)-2, 
clarifies that whether a creditor permits a consumer to shop consistent 
with Sec.  1026.19(e)(1)(vi)(A) is determined based on all the relevant 
facts and circumstances.
    The Bureau believes that, as finalized, the clarification provided 
under revised comment 19(e)(3)(iii)-2 is a balanced approach to 
preclude the weakening of the consumer protection interests implicit in 
the written list of providers while avoiding a significant increase in 
compliance cost and administrative burden. Although the Bureau is not 
finalizing the proposed revision to comment 19(e)(3)(iii)-2 regarding

[[Page 37680]]

compliance with Sec.  1026.19(e)(1)(vi)(B) and (C), the Bureau 
emphasizes that the good faith determination under Sec.  
1026.19(e)(3)(ii) or (iii) for third-party service charges requires 
compliance with Sec.  1026.19(e)(1)(vi)(A), which is determined based 
on all the relevant facts and circumstances per final comments 
19(e)(1)(vi)-1, 19(e)(3)(ii)-6, and 19(e)(3)(iii)-2.
    Regarding the Sec.  1026.19(e)(3) good faith determination, as 
discussed above some commenters were concerned that typographical 
errors regarding Sec.  1026.19(e)(1)(vi)(B) and (C) could be considered 
a violation of Sec.  1026.19(e)(3)(ii) and subject certain settlement 
services to zero tolerance if the error hinders the consumer's ability 
to shop. As noted in the section-by-section analysis of Sec.  
1026.19(e)(3)(ii) above, typographical errors regarding a settlement 
service under Sec.  1026.19(e)(1)(vi)(B) and (C) do not subject the 
charges for such service to the zero percent tolerance category when 
determining good faith, unless the error interferes with the consumer's 
ability to shop.
    In response to commenters that asked the Bureau to exempt credit 
unions from providing the written list of providers because they do not 
require the consumer to use a particular settlement service provider, 
the Bureau declines to do so. The written list of providers and other 
requirements under Sec.  1026.19(e)(1)(vi) only apply to settlement 
services for which a creditor permits a consumer to shop and provide 
helpful information to consumers to partially correct for the 
information asymmetry between the creditor and the consumer.
19(e)(3)(iii)(E)
    Under Sec.  1026.19(e)(3)(iii)(E) estimates of charges paid for 
third-party services not required by the creditor are in good faith if 
they are consistent with the best information reasonably available to 
the creditor at the time they are disclosed, regardless of whether the 
amount paid by the consumer exceeds the amount disclosed under Sec.  
1026.19(e)(1)(i). The Bureau noted, in the proposal, its understanding 
that there may be some uncertainty as to whether real property taxes 
are included in this category.
    The supplementary information to the TILA-RESPA Final Rule 
erroneously stated that property taxes and other fees were subject to 
tolerance under Sec.  1026.19(e)(3)(i). In February 2016, the Bureau 
corrected this typographical error and clarified that property taxes 
(and property insurance premiums, homeowner's association dues, 
condominium fees, and cooperative fees) are not subject to tolerances, 
whether or not placed into an escrow or impound account.\59\
---------------------------------------------------------------------------

    \59\ 81 FR 7032 (Feb. 10, 2016).
---------------------------------------------------------------------------

    The Bureau proposed to revise Sec.  1026.19(e)(3)(iii)(E) and 
comment 19(e)(3)(iii)-3 to make explicit that an estimate of property 
taxes is in good faith if it is consistent with the best information 
reasonably available to the creditor at the time it is disclosed, 
regardless of whether the amount paid by the consumer exceeds the 
amount disclosed under Sec.  1026.19(e)(1)(i). The Bureau also proposed 
revisions to comment 19(e)(3)(iii)-3, which would provide an 
illustrative example for disclosing property taxes under Sec.  
1026.19(e)(3)(iii)(E).
    In general, commenters representing various industry stakeholders 
supported the proposed revisions to Sec.  1026.19(e)(3)(iii)(E) and 
comment 19(e)(3)(iii)-3. A commenter representing a mortgage finance 
company asked the Bureau to provide specific guidance on the disclosure 
of property taxes under Sec.  1026.19(e)(3)(iii)(E) for new 
construction, refinance, and purchase transactions. A commenter 
representing banks asked the Bureau to define the good faith standard 
under Sec.  1026.19(e)(3)(iii)(E) broadly to prevent industry 
confusion. A commenter representing a mortgage company supported the 
revisions but asked that the Bureau consider changing the good faith 
determination of tolerance for appraisal cost. The commenter asserted 
that appraiser's fees should not be subject to zero tolerance because 
lenders may not know what an appraiser will charge.
    The Bureau is finalizing, as proposed, the revisions to Sec.  
1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)-3. In regard to the 
commenter requesting specific guidance on the disclosure of property 
taxes for new construction and refinance transactions, the Bureau notes 
that the good faith determination under Sec.  1026.19(e)(3)(iii)(E) 
applies to property taxes whether the loan is for new construction or 
to refinance a loan. The original estimated charge, or lack of an 
estimated charge for property taxes, complies with Sec.  
1026.19(e)(3)(iii)(E) if the estimate for property taxes is consistent 
with the best information reasonably available to the creditor at the 
time it is disclosed.
    As discussed above, a commenter asked the Bureau to define or 
interpret good faith under Sec.  1026.19(e)(3)(iii)(E) broadly to stave 
off industry confusion. The Bureau believes that the explanation of the 
good faith determination under Sec.  1026.19(e)(3)(iii)(E) is 
sufficient. The Bureau notes that the good faith determination of an 
estimate under Sec.  1026.19(e)(3)(iii)(E) is based on the best 
information reasonably available to the creditor at the time it is 
disclosed. In addition, the Bureau illustrates this principle with 
several examples under the comments 19(e)(3)(iii)-1 through -3. Revised 
comment 19(e)(3)(iii)-3 as finalized under this rule will explain that 
a creditor complies with the requirements under Sec.  
1026.19(e)(3)(iii)(E) unless the creditor, contrary to the best 
information reasonably available at the time the disclosures are made, 
does not provide an estimate or an unreasonably low estimate.
    In regard to the comment requesting the Bureau to reconsider the 
good faith tolerance determination for appraisal fees, the Bureau 
declines to address this issue in the final rule. The Bureau notes that 
the disclosure of the appraisal fee must be based on the best 
information reasonably available at the time the disclosure is provided 
to the consumer.
19(e)(3)(iv) Revised Estimates
The Bureau's Proposal
    Section 1026.19(e)(3)(iv) provides that, for the purpose 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 estimate 
of the charge originally disclosed on the Loan Estimate (i.e., the 
creditor may reset the applicable tolerance) if the revision is due to 
any of the reasons stated in Sec.  1026.19(e)(3)(iv)(A) through (F). 
Section 1026.17(c)(2)(i) requires that any disclosures provided to the 
consumer must be based on the best information reasonably available to 
the creditor at the time the disclosure is provided to the consumer. 
Proposed comments 19(e)(3)(iv)-2 and -4 would have clarified that Sec.  
1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised 
disclosures for informational purposes, even in situations where the 
creditor is not resetting tolerances for any of the reasons stated in 
Sec.  1026.19(e)(3)(iv)(A) through (F). Proposed comment 19(e)(3)(iv)-5 
would have clarified that, regardless of whether a creditor issues a 
revised Loan Estimate to reset tolerances or simply for informational 
purposes, Sec.  1026.17(c)(2)(i) requires that any disclosures on the 
revised Loan Estimate must be based on the best information reasonably 
available to the creditor at the time the disclosure is provided to the 
consumer.

[[Page 37681]]

Comments Received
    Industry commenters, including vendors, a creditor, and an 
individual compliance professional, supported the clarification in 
proposed comments 19(e)(3)(iv)-2 and -4. However, consumer group 
commenters opposed permitting revised disclosures for informational 
purposes in situations where the creditor is not resetting tolerances 
for any of the reasons stated in Sec.  1026.19(e)(3)(iv)(A) through 
(F). Consumer group commenters asserted that such revised disclosures 
may lead consumers to experience information overload; consumers 
already receive similar information on the Closing Disclosure no later 
than three business days before consummation; and consumers will not 
understand the difference between revised Loan Estimates for resetting 
tolerances and those simply for informational purposes. Consumer group 
commenters also recommended that all disclosures include a statement, 
at the top of the page, directing the consumer to keep any and all 
versions of the disclosures; and a notation, on the first page, 
indicating the quantity of any prior Loan Estimates provided to the 
consumer.
    Several industry commenters, including vendors and an individual 
compliance professional, supported the clarification in proposed 
comment 19(e)(3)(iv)-5. However, other industry commenters opposed 
requiring that, if a creditor opts to provide a revised Loan Estimate, 
any disclosures on the revised Loan Estimate must be based on the best 
information reasonably available to the creditor at the time the 
disclosure is provided to the consumer. A secondary market investor 
expressed concern that the requirement increases the likelihood of 
disclosure errors. Trade associations and a creditor stated that some 
vendors are not currently in compliance with the requirement and their 
systems will need substantial reprogramming. Trade associations also 
expressed their belief that there would be no significant consumer 
injury if creditors were excused from updating disclosures on revised 
Loan Estimates based on the best information reasonably available. A 
creditor requested that industry be given an implementation period of 
at least 180 days if the Bureau finalizes proposed comment 
19(e)(3)(iv)-5, while a vendor group stated that reprogramming for some 
vendors could take up to 12 months.
    Several industry commenters also sought additional clarifications 
regarding revising the Loan Estimate based on the best information 
reasonably available. A trade association requested further 
clarification as to how the requirement noted in proposed comment 
19(e)(3)(iv)-5 comports with the creditor discretion noted in proposed 
comment 19(e)(3)(iv)-4. Two creditors requested clarification as to 
what the impact is on tolerance baselines when a creditor decreases an 
estimated charge on a revised Loan Estimate or Closing Disclosure; an 
individual attorney requested similar clarification while suggesting 
that the Bureau's current small entity compliance guide indicates that 
such decreases do not impact tolerance baselines.
The Final Rule
    The Bureau is adopting as proposed the amendments to comment 
19(e)(3)(iv)-2 and new comment 19(e)(3)(iv)-4 and is adopting new 
comment 19(e)(3)(iv)-5 substantially as proposed. As finalized, 
comments 19(e)(3)(iv)-2 and -4 are consistent with current comment 
19(e)(3)(iv)(A)-1.ii, which states that Sec.  1026.19(e)(3)(iv) does 
not prohibit the creditor from issuing revised disclosures for 
informational purposes, even in situations where the creditor is not 
resetting tolerances for any of the reasons stated in Sec.  
1026.19(e)(3)(iv)(A) through (F). The Bureau declines to make revisions 
that would contradict current comment 19(e)(3)(iv)(A)-1.ii. The Bureau 
concludes that the concerns expressed by consumer group commenters do 
not warrant prohibiting consumers from receiving the best information 
reasonably available, even if consumers will later receive a Closing 
Disclosure. Regarding commenters' assertion that consumers will not 
understand the difference between revised Loan Estimates for resetting 
tolerances and those simply for informational purposes, the Bureau 
notes that the Loan Estimate form intentionally has been designed, 
first and foremost, as a means of providing consumers with the best 
information reasonably available. Therefore, in many instances, 
tracking legal compliance will require reviewing not just the most 
recent Loan Estimate but also prior versions. With respect to the 
comments recommending that creditors be required to add an additional 
statement and notation on the Loan Estimate, the Bureau notes that 
Sec.  1026.37(a)(2) already requires that all Loan Estimates include 
the statement ``Save this Loan Estimate to compare with your Closing 
Disclosure.'' The Bureau declines to mandate the additional disclosures 
requested, which would impose additional regulatory implementation 
costs.
    Comment 19(e)(3)(iv)-5, as finalized, includes an example stating 
that, if the creditor issues revised disclosures reflecting a new rate 
lock extension fee for purposes of determining good faith under Sec.  
1026.19(e)(3)(i), other charges unrelated to the rate lock extension 
must be reflected on the revised disclosures based on the best 
information reasonably available to the creditor at the time the 
revised disclosures are provided. As finalized, comment 19(e)(3)(iv)-5, 
including that example, is consistent with longstanding Sec.  
1026.17(c)(2)(i), as well as current comments 19(e)(1)(i)-1 and 37-1, 
which require that disclosures provided to the consumer must be based 
on the best information reasonably available to the creditor. The 
Bureau declines to make revisions that would contradict current Sec.  
1026.17(c)(2)(i) and current comments 19(e)(1)(i)-1 and 37-1. The 
Bureau concludes that commenters' concerns do not warrant consumers 
receiving Loan Estimates that are not based on the best information 
reasonably available. Regarding a commenter's request for further 
clarification as to how the requirement noted in proposed comment 
19(e)(3)(iv)-5 comports with the creditor discretion noted in proposed 
comment 19(e)(3)(iv)-4, comment 19(e)(3)(iv)-4 notes that creditors 
may, at their option, issue a revised Loan Estimate for informational 
purposes even when creditors are not otherwise required to do so; but, 
if a creditor opts to do so, comment 19(e)(3)(iv)-5, consistent with 
Sec.  1026.17(c)(2)(i) and comments 19(e)(1)(i)-1 and 37-1, requires 
the Loan Estimate to be based on the best information reasonably 
available to the creditor at the time it is provided to the consumer.
    Regarding commenters' request for clarification as to what the 
impact is on tolerance baselines when a creditor decreases an estimated 
charge on a revised Loan Estimate or Closing Disclosure, current Sec.  
1026.19(e)(3)(i) states that, except as otherwise provided in Sec.  
1026.19(e)(3)(ii) through (iv), an estimated closing cost on the Loan 
Estimate is in good faith if the charge paid by or imposed on the 
consumer does not exceed the amount originally disclosed. Moreover, for 
purposes of determining good faith, Sec.  1026.19(e)(3)(iv) states that 
in certain circumstances a creditor may use a revised estimate of a 
charge instead of the estimate of the charge originally disclosed--but 
the rule does not require the creditor to use a revised estimate for

[[Page 37682]]

purposes of determining good faith. Thus, if a creditor decreases an 
estimated charge on a revised Loan Estimate or Closing Disclosure, the 
creditor is not required to use the decreased estimate for purposes of 
determining good faith; the creditor may determine good faith by 
comparing the charge paid by or imposed on the consumer versus the 
amount originally disclosed.
    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.
19(e)(3)(iv)(D) Interest Rate Dependent Charges
The Bureau's Proposal
    In circumstances where a creditor provides an initial Loan Estimate 
disclosing an interest rate without a rate lock agreement in place, 
Sec.  1026.19(e)(3)(iv)(D) requires the creditor to provide a revised 
Loan Estimate to the consumer no later than three business days after 
the date the interest rate is subsequently locked. Section 
1026.19(e)(4)(ii) prohibits a creditor from providing a revised Loan 
Estimate on or after the date on which the creditor provides the 
Closing Disclosure. Consistent with Sec.  1026.19(e)(4)(ii), the Bureau 
proposed to add new comment 19(e)(3)(iv)(D)-2 to clarify that the 
creditor may not provide a revised Loan Estimate on or after the date 
on which the creditor provides the Closing Disclosure, even if the 
interest rate is locked on or after the date on which the creditor 
provides the Closing Disclosure. In addition, new comment 
19(e)(3)(iv)(D)-2 would have also noted that the creditor must provide 
a corrected Closing Disclosure if the disclosures on the previous 
Closing Disclosure become inaccurate, in accordance with the existing 
requirements of Sec.  1026.19(f)(2). The Bureau also proposed technical 
revisions to existing comment 19(e)(3)(iv)(D)-1.
Comments Received
    Some industry commenters stated that new comment 19(e)(3)(iv)(D)-2 
clarified that a revised Loan Estimate must be provided to the consumer 
when the initial Loan Estimate disclosed an interest rate without a 
rate lock agreement, but the interest rate is subsequently locked. 
Other industry commenters sought additional clarity on whether a 
revised Loan Estimate was required in such a situation if the terms and 
charges associated with the loan would not change on the revised Loan 
Estimate, and therefore argued there is no basis to require a revised 
Loan Estimate where there are no changes in the information disclosed.
    Other commenters addressed the statement in proposed new comment 
19(e)(3)(iv)(D)-2 that the creditor must provide a corrected Closing 
Disclosure if the disclosures on the previous Closing Disclosure become 
inaccurate, in accordance with the requirements of Sec.  1026.19(f)(2). 
Some industry commenters sought more clarity on what a creditor must do 
when the interest rate is subsequently locked by a rate lock agreement 
after the Closing Disclosure is issued. A secondary market participant 
commenter also stated that a creditor should not be required to issue a 
revised Closing Disclosure when there are no changes made to the 
interest rate or other terms.
The Final Rule
    For the reasons discussed below, the Bureau is adopting the 
technical revisions to existing comment 19(e)(3)(iv)(D)-1 as proposed 
and is adopting new comment 19(e)(3)(iv)(D)-2 as proposed, with a 
modification for clarity. Commenters that expressed a need for 
clarification in relation to proposed new comment 19(e)(3)(iv)(D)-2 in 
effect argued that Sec.  1026.19(e)(3)(iv)(D) should not require the 
disclosure of a revised Loan Estimate if the terms and charges 
disclosed have not changed. As noted above, Sec.  1026.19(e)(3)(iv)(D) 
explicitly requires the creditor to provide a revised Loan Estimate 
when the initial Loan Estimate did not disclose an interest rate 
subject to a rate lock agreement, even if the terms and charges 
disclosed are the same. As noted in the 2012 TILA-RESPA Proposal, the 
disclosures on the initial Loan Estimate related to the interest rate 
should be able to fluctuate on subsequent Loan Estimates if the 
consumer's rate was not set on the initial Loan Estimate, but revised 
disclosures should be provided when the consumer's interest rate is 
later set.\60\ The Bureau's concern was, and continues to be, that, 
absent a rate lock agreement, the terms and charges of the loan as 
disclosed on the initial Loan Estimate are more likely to change, as 
the consumer would only be able to rely on the interest rate related 
charges and terms on the Loan Estimate when the rate has been locked. 
When a revised Loan Estimate is provided as required by Sec.  
1026.19(e)(3)(iv)(D), the rate lock information disclosed pursuant to 
Sec.  1026.37(a)(13)(i) must be updated to reflect the expiration date 
of the interest rate disclosed, regardless of any changes to the 
disclosed interest rate or interest rate-related charges. Once the 
interest rate is subject to a rate lock agreement, Sec.  
1026.19(e)(3)(iv)(D) does not subsequently require the disclosure of a 
revised Loan Estimate. As discussed above, proposed new comment 
19(e)(3)(iv)(D)-2 included an explicit cross-reference to the 
requirement in Sec.  1026.19(f)(2) for a creditor to provide a 
corrected Closing Disclosure if the disclosures on the previous Closing 
Disclosure become inaccurate. The Bureau is adopting new comment 
19(e)(3)(iv)(D)-2 with this additional cross-reference to provide 
clarity. To provide guidance to commenters that sought clarity on 
whether a corrected Closing Disclosure is required if the interest rate 
becomes subject to a rate lock agreement after the initial Closing 
Disclosure has been provided to the consumer, such a corrected Closing 
Disclosure is required only when the disclosures have become 
inaccurate, pursuant to Sec.  1026.19(f)(2). Notably, information 
disclosed on the Loan Estimate under Sec.  1026.37(a)(13) concerning 
the terms of the rate lock agreement are not required on the Closing 
Disclosure under Sec.  1026.38, therefore a subsequent rate lock 
agreement by itself would not require a corrected Closing Disclosure 
unless the charges and terms become inaccurate.
---------------------------------------------------------------------------

    \60\ 2012 TILA-RESPA Proposal, 77 FR 51116, 51173 (Aug. 23, 
2012).
---------------------------------------------------------------------------

19(e)(3)(iv)(E) Expiration
    Section 1026.19(e)(3)(iv)(E) provides that, for the purpose 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 estimate 
of the charge originally disclosed on the Loan Estimate (i.e., the 
creditor may reset the applicable tolerance) if the consumer indicates 
an intent to proceed with the transaction more than 10 business days 
after the Loan Estimate is provided under Sec.  1026.19(e)(1)(iii).
    To reduce uncertainty, the Bureau proposed to revise Sec.  
1026.19(e)(3)(iv)(E) and to add new comment 19(e)(3)(iv)(E)-2 to 
clarify that, if a creditor voluntarily extends the period disclosed 
under Sec.  1026.37(a)(13)(ii) to a period greater than 10 business 
days, that longer time period becomes the relevant time period for 
purposes of using revised estimates under Sec.  1026.19(e)(3)(iv)(E). 
Proposed revisions to Sec.  1026.19(e)(3)(iv)(E) permitted a creditor 
to use revised estimates under Sec.  1026.19(e)(3)(iv) when the 
consumer indicates an intent to

[[Page 37683]]

proceed with the transaction more than 10 business days, or more than 
any additional number of days specified by the creditor before the 
offer expires, after the disclosures required under Sec.  
1026.19(e)(1)(i) are provided. Proposed new comment 19(e)(3)(iv)(E)-2 
stated that, if the creditor establishes a period greater than 10 
business days after the disclosures were provided (or subsequently 
extends it to such a longer period), the longer time period becomes the 
relevant time period for purposes of Sec.  1026.19(e)(3)(iv)(E). 
Proposed comment 19(e)(3)(iv)(E)-2 further stated that a creditor 
establishes such a period greater than 10 business days by 
communicating the greater time period to the consumer, including 
through oral communication. While not discussed in the section-by-
section analysis of Sec.  1026.19(e)(3)(iv)(E) in the proposal, the 
Bureau also proposed minor stylistic changes to existing comment 
19(e)(3)(iv)(E)-1.
    Commenters generally supported revised Sec.  1026.19(e)(3)(iv)(E) 
and new comment 19(e)(3)(iv)(E)-2, with some concerns related to the 
proper disclosure of the expiration period on the Loan Estimate. These 
concerns are discussed in the section-by-section analysis of Sec.  
1026.37(a)(13), below. Accordingly, the Bureau is adopting, as 
proposed, revised Sec.  1026.19(e)(3)(iv)(E), revised comment 
19(e)(3)(iv)(E)-1, and new comment 19(e)(3)(iv)(E)-2.
19(e)(3)(iv)(F) Delayed Settlement Date on a Construction Loan
    The Bureau proposed to amend Sec.  1026.19(e)(3)(iv)(F) to correct 
a typographical error, replacing a reference to Sec.  1026.19(f) with a 
reference to Sec.  1026.19(e)(3)(iv). Section 1026.19(e)(3)(iv)(F) 
addresses when revised Loan Estimates can be provided for transactions 
involving new construction. Currently, it provides that, if the 
disclaimer under Sec.  1026.19(e)(3)(iv)(F) was not provided, the 
creditor may not issue a revised Loan Estimate except as otherwise 
allowed under Sec.  1026.19(f). However, revised Loan Estimates are 
issued pursuant to Sec.  1026.19(e)(3)(iv), not Sec.  1026.19(f), and 
the proposed modification would have corrected this reference in Sec.  
1026.19(e)(3)(iv)(F).
    In general, commenters supported the proposed revision. A 
compliance professional asserted that there is confusion in the 
industry regarding when Sec.  1026.19(e)(3)(iv)(F) is applicable. 
Specifically, the commenter requested that the Bureau clarify whether 
Sec.  1026.19(e)(3)(iv)(F) applies during the permanent phase or 
construction phase of a construction-permanent loan. The Bureau notes 
that Sec.  1026.19(e)(3)(iv)(F) is applicable to any new construction 
transaction where the creditor reasonably expects that settlement will 
occur more than 60 days after the Loan Estimate is required to be 
provided under Sec.  1026.19(e)(1)(iii). If a construction-permanent 
loan is disclosed as separate transactions and involves new 
construction, Sec.  1026.19(e)(3)(iv)(F) would apply to the 
construction phase Loan Estimate and permanent phase Loan Estimate if 
the creditor reasonably expects that settlement will occur more than 60 
days after that respective Loan Estimate is required to be provided 
under Sec.  1026.19(e)(1)(iii). A commenter representing a title 
company asked the Bureau to apply a retroactive effective date or 
otherwise implement technical non-substantive changes such as this one 
as soon as possible. See comment 1(d)(5)-2 and the Bureau's discussion 
regarding the effective date in part VI, below. For the reasons 
discussed above the Bureau is finalizing as proposed the modification 
to Sec.  1026.19(e)(3)(iv)(F).
19(e)(4) Provision and Receipt of Revised Disclosures
19(e)(4)(ii) Relationship to Disclosures Required Under Sec.  
1026.19(f)
    Section 1026.19(e)(3)(iv) permits creditors, in certain limited 
circumstances, to use revised estimates, instead of the estimate 
originally disclosed to the consumer, to compare to the charges 
actually paid by or imposed on the consumer for purposes of determining 
whether an estimated closing cost was disclosed in good faith (i.e., 
whether the actual charge exceeds the allowed tolerance). This is 
referred to as resetting tolerances.
    Section 1026.19(e)(4) contains rules for the provision and receipt 
of those revised estimates, including a requirement that any revised 
estimates used to determine good faith must be provided to the consumer 
within three business days of the creditor receiving information 
sufficient to establish that a permissible reason for revision applies. 
If the conditions for revising the original estimates are met, 
creditors generally may provide these revised estimates on revised Loan 
Estimates or, in certain circumstances, on Closing Disclosures. The 
creditor cannot provide revised estimates on a Loan Estimate on or 
after the date the Closing Disclosure is provided to the consumer and 
the consumer must receive any revised Loan Estimate used to reset 
tolerances no later than four business days prior to consummation.\61\ 
However, if there are less than four business days between the time the 
revised version of the disclosures is required to be provided (i.e., 
within three business days of the time the creditor received 
information sufficient to establish the reason for revision) and 
consummation, the creditor may provide the revised estimate on a 
Closing Disclosure.\62\ This is referred to herein as the ``four-
business day limit.''
---------------------------------------------------------------------------

    \61\ 12 CFR 1026.19(e)(4)(ii).
    \62\ Id. at comment 19(e)(4)(ii)-1.
---------------------------------------------------------------------------

The Bureau's Proposal
    The proposal would have added new comment 19(e)(4)(ii)-2, which 
provided that ``[i]f there are fewer than four business days between 
the time the revised version of the disclosures is required to be 
provided under Sec.  1026.19(e)(4)(i) and consummation or the Closing 
Disclosure required by Sec.  1026.19(f)(1) has already been provided to 
the consumer, creditors comply with the requirements of Sec.  
1026.19(e)(4) (to provide a revised estimate under Sec.  
1026.19(e)(3)(iv) for the purpose of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii)) if the revised disclosures are reflected in 
the corrected disclosures provided under Sec.  1026.19(f)(2)(i) or 
(2)(ii), subject to the other requirements of Sec.  1026.19(e)(4)(i).''
    The proposed comment was intended to clarify that creditors may use 
corrected Closing Disclosures provided under Sec.  1026.19(f)(2)(i) or 
(ii) (in addition to the initial Closing Disclosure) to reflect changes 
in costs that will be used to reset tolerances.\63\ As noted above, 
existing comment 19(e)(4)(ii)-1 clarifies that creditors may reflect 
revised estimates on the Closing Disclosure to reset tolerances if 
there are less than four business days between the time the revised 
version of the disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) and consummation. Although comment 19(e)(4)(ii)-1 
expressly references only the Closing Disclosure required by Sec.  
1026.19(f)(1)(i), the Bureau has provided informal guidance that the 
provision also applies to corrected Closing Disclosures provided 
pursuant to Sec.  1026.19(f)(2)(i) or (ii). The Bureau proposed comment 
19(e)(4)(ii)-2 to clarify this point.
---------------------------------------------------------------------------

    \63\ See 81 FR 54317, 54334 (Aug. 15, 2016).
---------------------------------------------------------------------------

Comments Received
    The Bureau received comments on this aspect of the proposal from 
trade associations, creditors, GSEs, mortgage software providers, 
secondary market

[[Page 37684]]

purchasers, title companies, and servicers. Commenters generally 
supported the clarification that creditors may use corrected Closing 
Disclosures (in addition to initial Closing Disclosures) to reflect 
revised amounts and reset tolerances. However, some commenters 
expressed continued concern that the rule and commentary would not 
fully clarify ambiguities on this subject even if comment 19(e)(4)(ii)-
2 were finalized as proposed. For example, one trade association 
commenter requested that the Bureau clarify that corrected Closing 
Disclosures can be provided at the closing table, and can be used to 
reset tolerances, if the closing occurs prior to the end of the three-
business-day period after the creditor receives information sufficient 
to establish that a reason for revision applies.
    Further, many commenters interpreted proposed comment 19(e)(4)(ii)-
2 as allowing creditors to use corrected Closing Disclosures to reset 
tolerances regardless of when consummation is expected to occur, as 
long as the creditor provides the corrected Closing Disclosure within 
three business days of receiving information sufficient to establish a 
reason for revision applies pursuant to Sec.  1029.19(e)(4)(i). 
Specifically, under this interpretation, creditors could provide 
initial Closing Disclosures to reset tolerances only if there are less 
than four business days between the time the revised version of the 
disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) and consummation. But this interpretation would remove 
the four-business day limit for corrected Closing Disclosures provided 
pursuant to Sec.  1026.19(f)(2) and therefore allow creditors to 
provide corrected Closing Disclosures to reset tolerances regardless of 
when consummation is expected to occur. Commenters were not uniform in 
their interpretation of the proposal.
    Commenters who interpreted the proposal as removing the four-
business day limit as it applies to corrected Closing Disclosures were 
generally supportive, citing uncertainty about the proper 
interpretation of current rules and stating that current timing rules 
regarding resetting tolerances with a Closing Disclosure are 
unworkable. Some of these commenters described a situation that could 
occur if the creditor has already provided the Closing Disclosure and 
an event occurs or a consumer requests a change that causes an increase 
in closing costs that would be a reason for revision under Sec.  
1026.19(e)(3)(iv). In some circumstances, the creditor may be unable to 
provide a corrected Closing Disclosure to reset tolerances because 
there are four or more days between the time the revised disclosures 
would be required to be provided pursuant to Sec.  1026.19(e)(4)(i) and 
consummation. Commenters seemed to identify this as most likely to 
occur where there was also a delay in the scheduled consummation date 
after the initial Closing Disclosure is provided to the consumer.
    The Bureau understands that this situation can occur because of the 
intersection of current timing rules regarding the provision of revised 
estimates to reset tolerances. Section 1026.19(e)(4)(ii) prohibits 
creditors from providing Loan Estimates on or after the date on which 
the creditor provides the Closing Disclosure. In many cases, this 
limitation would not create issues for creditors because current 
comment 19(e)(4)(ii)-1 explains that creditors may reflect revised 
estimates on a Closing Disclosure to reset tolerances if there are less 
than four business days between the time the revised version of the 
disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) and consummation. But there is no similar provision 
that explicitly provides that creditors may use a Closing Disclosure to 
reflect the revised disclosures if there are four or more days between 
the time the revised version of the disclosures is required to be 
provided pursuant to Sec.  1026.19(e)(4)(i) and consummation. 
Commenters stated that this can lead to circumstances where creditors 
are unable to provide either a revised Loan Estimate (because the 
Closing Disclosure has been provided) or a corrected Closing Disclosure 
(because there are four or more days prior to consummation) to reset 
tolerances. Commenters referred to this situation as a ``gap'' or 
``black hole'' in the rules. Many commenters perceived proposed new 
comment 19(e)(4)(ii)-2 as resolving this issue because they interpreted 
it as allowing creditors to use corrected Closing Disclosures to reset 
tolerances even if there are four or more business days between the 
time the revised version of the disclosures is required to be provided 
pursuant to Sec.  1026.19(e)(4)(i) and consummation.
    Commenters noted various reasons for supporting such a change. Some 
commenters asserted that the inability to pass unforeseen cost 
increases directly to the affected consumers in these instances causes 
the cost of credit to increase for all consumers. Two trade 
associations representing settlement agents stated concerns about 
creditors requesting that settlement agents reduce their fees to absorb 
the cost of the unforeseen cost increases that could not be passed 
directly to the affected consumers. A national title insurance company 
commenter noted its belief that some creditors are currently rejecting 
applications and starting new ones when closing is delayed and costs 
increase, such as for additional appraisal or inspection fees or rate 
lock extension fees, to avoid the compliance and legal risks associated 
with the current rules. This commenter argued that these actions could 
cause further delay to closings and expense to consumers. Other 
commenters similarly noted that the change could minimize closing 
delays and disruptions.
    Some commenters who interpreted the proposal as removing the four-
business day limit for corrected Closing Disclosures supported that 
perceived change, but also cautioned about unintended consequences. For 
example, some commenters stated that the proposal would remove a 
disincentive that currently exists under the rule from providing the 
initial Closing Disclosure extremely early in the mortgage origination 
process, which these commenters stated would not be consistent with the 
Bureau's intent that the Closing Disclosure be a statement of actual 
costs. Some commenters, including a national title insurance company, a 
mortgage servicer, and a mortgage software provider, requested that the 
Bureau provide additional guidance on the timing or circumstances under 
which it is appropriate to provide Closing Disclosures, generally 
(while one large creditor commenter cautioned against such an 
approach). Some commenters suggested other revisions to the rule the 
Bureau might consider in lieu of finalizing proposed comment 
19(e)(4)(ii)-2. For example, one large national lender suggested that 
the Bureau eliminate the four-business day limit and instead develop a 
test to determine if the reason for revision is truly beyond the 
control of the creditor.
    In addition to these comments, some commenters also requested that 
the Bureau amend Sec.  1026.19(e)(4)(i) and comment 19(e)(4)(ii)-1 to 
specifically include interest rate dependent charges referred to in 
Sec.  1026.19(e)(3)(iv)(D) as a reason for providing a revised 
estimate. Further, one trade association commenter stated that it is 
not clear that proposed comment 19(e)(4)(ii)-2 would apply to the 
initial Closing Disclosure, such that a lender may not be able to 
disclose a rate lock with an initial Closing Disclosure. This commenter 
stated that such an interpretation could harm consumers that wish to 
lock their interest rate three business days before

[[Page 37685]]

closing and receive an initial Closing Disclosure the same day to 
ensure a timely closing.
The Final Rule
    As noted above and described in the proposal, proposed comment 
19(e)(4)(ii)-2 was intended to clarify that the reference to Closing 
Disclosures required by Sec.  1026.19(f)(1) in existing comment 
19(e)(4)(ii)-1 refers to both the initial Closing Disclosure required 
by Sec.  1026.19(f)(1) and to any corrected Closing Disclosures 
provided pursuant to Sec.  1026.19(f)(2). Although the Bureau 
recognizes that the text of proposed comment 19(e)(4)(ii)-2 could 
plausibly be interpreted as also removing the existing four-business 
day limit for providing corrected Closing Disclosures to reset 
tolerances, the preamble to the proposal does not describe that the 
Bureau intended such a change.
    At the same time, the Bureau has considered the concerns expressed 
by industry through comments about the implementation challenges caused 
by the current provisions regarding the use of Closing Disclosures to 
reset tolerances, and the potential negative effects of those 
provisions on consumers and creditors. In particular, the Bureau 
recognizes that the current rules may lead to circumstances under which 
creditors might be unable to provide revised estimates for purposes of 
resetting tolerances where the Closing Disclosure has already been 
provided and there are four or more days between consummation and the 
time the revised version of the disclosures is required to be provided 
pursuant to Sec.  1026.19(e)(4)(i). The Bureau believes, however, that 
before finalizing a rule that addresses this issue it is advisable to 
propose more explicit language and to seek comment so that stakeholders 
who understood the proposal in accordance with the Bureau's intent will 
have the opportunity to provide their perspectives on this issue. For 
this reason, the Bureau is issuing a new proposal, concurrent with this 
final rule, that would address this issue. Accordingly, the Bureau 
declines to finalize proposed comment 19(e)(4)(ii)-2.
19(f) Mortgage Loans--Final Disclosures
19(f)(1) Provision of Disclosures
19(f)(1)(i) Scope
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to 
comment 19(f)(1)(i)-1 to reflect a change to the coverage of Sec.  
[thinsp]1026.19(f) to include closed-end credit transactions, other 
than reverse mortgages, that are secured by a cooperative unit, 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law.
19(f)(2) Subsequent Changes
19(f)(2)(iii) Changes Due to Events Occurring After Consummation
The Bureau's Proposal
    The Bureau proposed to add comment 19(f)(2)(iii)-2 to clarify the 
interaction of Sec. Sec.  1026.19(f)(2)(iii) and 1026.17(c)(2)(ii), 
such that a creditor would not be required to provide to the consumer a 
corrected Closing Disclosure for any disclosure that is accurate under 
Sec.  1026.17(c)(2)(ii), even if the amount actually paid by the 
consumer differs from the amount disclosed under Sec.  1026.38(g)(2) 
and (o). Under Sec.  1026.17(c)(2)(ii), for a transaction in which a 
portion of the interest is determined on a per-diem basis and collected 
at consummation, any disclosure affected by the per-diem interest is 
considered accurate if the disclosure is based on the information known 
to the creditor at the time that the disclosure documents are prepared 
for consummation of the transaction.
    The Bureau requested comment on the benefits to consumers of 
receiving a post-consummation disclosure under Sec.  1026.19(f)(2)(iii) 
of the changed per-diem interest amounts reflecting the actual amounts 
paid by the consumer. The Bureau also requested comment on whether 
additional clarity is needed in Sec.  1026.17(e) or Sec.  1026.19(e) 
regarding the effect of post-consummation events on the accuracy of 
disclosures or if additional clarity is needed on the interaction of 
Sec. Sec.  1026.17(e) and 1026.19(e).
Comments Received
    Several industry commenters supported adding proposed comment 
19(f)(2)(iii)-2. One industry commenter opposed adding this proposed 
comment. This commenter indicated that consumers will not have accurate 
disclosures of the per-diem interest that is paid (and other 
disclosures affected by the change in per-diem interest such as the 
annual percentage rate, finance charge, and other material disclosures 
under TILA) if they do not receive a post-consummation disclosure under 
Sec.  1026.19(f)(2)(iii) when the per-diem interest has changed after 
consummation. The commenter also indicated that, with no final document 
showing the actual amount of prepaid interest paid by the consumer, 
buyers and sellers of loans will not be able to accurately calculate 
the purchase amount of the loan, and servicers will not be able to 
accurately credit the consumer's account or accurately provide the 
Internal Revenue Service Form 1098.
    Several industry commenters asked for additional clarifications 
related to per-diem interest. One industry commenter requested 
additional clarification on which disclosures are affected by the per-
diem interest and thus would be covered by proposed comment 
19(f)(2)(iii)-2. Two industry commenters indicated that Sec.  
1026.17(c)(2)(ii) should apply to all disclosures of per-diem interest 
and any affected disclosures that are provided under Sec.  1026.19(e) 
and (f), including disclosures provided before or at consummation. One 
industry commenter suggested that the Bureau modify the proposal to 
state that, even if a creditor is issuing a Closing Disclosure due to 
events occurring after consummation for reasons other than changes in 
the per-diem interest, the creditor must not amend the per-diem 
interest (and affected disclosures) on the corrected disclosure if it 
has changed.
    Several industry commenters requested clarifications related to the 
requirement to provide a corrected Closing Disclosure under Sec.  
1026.19(f)(2)(iii). One industry commenter indicated that creditors in 
escrow states need additional guidance on the requirements for 
populating the post-consummation Closing Disclosure under Sec.  
1026.19(f)(2)(iii) because it is unclear what point in time the Closing 
Disclosure is disclosing. The commenter indicated that creditors in 
escrow states may ``net out'' cash to close to equal ``$0'' because 
these creditors understand the accuracy requirement to mean that they 
must reflect changes that have happened since the time of consummation. 
The commenter recommended that the Bureau amend Sec.  
1026.19(f)(2)(iii) to clarify that this post-consummation Closing 
Disclosure be revised to accurately reflect the changes to any charges 
that are the subject of the redisclosure, and that the cash to close 
amount be amended only to reflect the effect of the changed amount. 
Another industry commenter requested additional guidance on when 
disclosure is required under Sec.  1026.19(f)(2)(iii) in non-escrow 
states where disbursement or recording occurs days after consummation 
and the actual recording fee is found to be less than disclosed on the 
Closing Disclosure at consummation. This commenter requested guidance 
on whether a corrected disclosure under Sec.  1026.19(f)(2)(iii) is 
required to be provided to the consumer after the

[[Page 37686]]

settlement agent has disbursed funds and refunded any excess funds 
remaining. Another industry commenter requested additional guidance on 
whether the delivery of a corrected disclosure under Sec.  
1026.19(f)(2)(iii) would extend the right of rescission period under 
Sec.  1026.23.
The Final Rule
    The Bureau is adopting proposed comment 19(f)(2)(iii)-2 with 
revisions. The Bureau is adopting comment 19(f)(2)(iii)-2 to provide 
that a creditor is not required to provide corrected disclosures under 
Sec.  1026.19(f)(2)(iii) if the only changes that would be required to 
be disclosed in the corrected disclosure are changes to per-diem 
interest and any disclosures affected by the change in per-diem 
interest, even if the amount of per-diem interest actually paid by the 
consumer differs from the amount disclosed under Sec.  1026.38(g)(2) 
and (o). In finalizing new comment 19(f)(2)(iii)-2, the Bureau has 
revised the comment to clarify that, if a creditor is providing a 
corrected Closing Disclosure under Sec.  1026.19(f)(2)(iii) for reasons 
other than changes in per-diem interest and the per-diem interest has 
changed as well, the creditor must disclose in the corrected 
disclosures under Sec.  1026.19(f)(2)(iii) the correct amount of the 
per-diem interest and provide corrected disclosures for any disclosures 
that are affected by the change in per-diem interest.
    As discussed above, one industry commenter suggested that the 
Bureau should modify the proposal to state that, even if a creditor is 
issuing a Closing Disclosure due to events occurring after consummation 
for reasons other than changes in the per-diem interest, the creditor 
must not amend the per-diem interest (and affected disclosures) on the 
corrected disclosure if it has changed. The Bureau is not implementing 
this suggestion. The Bureau is concerned that, if creditors were not 
required to correct the per-diem interest (and affected disclosures) in 
the post-consummation corrected Closing Disclosure that is otherwise 
being provided to consumers under Sec.  1026.19(f)(2)(iii), consumers 
would receive inaccurate information in the corrected Closing 
Disclosure that the creditor knows is incorrect at the time the 
disclosure is provided.
    As discussed above, several industry commenters indicated that 
Sec.  1026.17(c)(2)(ii) should apply to all disclosures of per-diem 
interest and any affected disclosures that are provided under Sec.  
1026.19(e) and (f), including disclosures provided before or at 
consummation. The Bureau is not adopting this suggestion. The Bureau 
notes that Sec.  1026.17(c)(2)(ii) provides that for a transaction in 
which a portion of the interest is determined on a per-diem basis and 
collected at consummation, any disclosure affected by the per-diem 
interest is considered accurate if the disclosure is based on the 
information known to the creditor at the time that the disclosure 
documents are prepared for consummation of the transaction. 
Nonetheless, comment 17(c)(2)(ii)-1 provides that for purposes of 
transactions subject to Sec.  1026.19(e) and (f), the creditor shall 
disclose the actual amount of per-diem interest that will be collected 
at consummation, subject only to the disclosure rules in those 
sections. The Bureau notes that for disclosure of per-diem interest in 
the Loan Estimate, Sec.  1026.19(e)(3)(iii) provides that the prepaid 
interest disclosure must be consistent with the best information 
reasonably available to the creditor at the time it is disclosed. For 
disclosures of per-diem interest in the Closing Disclosure provided on 
or 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) using the best information reasonably available when the 
actual term is unknown to the creditor at the time disclosures are 
made, consistent with Sec.  1026.17(c)(2)(i). As discussed above, new 
comment 19(f)(2)(iii)-2 sets forth the circumstances in which changes 
in per-diem interest must be disclosed in post-consummation disclosures 
under Sec.  1026.19(f)(2)(iii).
    As discussed above, one industry commenter requested additional 
guidance on when disclosure is required under Sec.  1026.19(f)(2)(iii) 
in non-escrow states where disbursement or recording occurs days after 
consummation and the actual recording fee is found to be less than 
disclosed on the Closing Disclosure at consummation. The Bureau is not 
adopting additional clarification in the final rule because this 
situation is already addressed in the example in current comment 
19(f)(2)(iii)-1.i.
    Also, with respect to the comment requesting clarification as to 
how the delivery of a corrected disclosure under Sec.  
1026.19(f)(2)(iii) relates to the right of rescission period under 
Sec.  1026.23, the Bureau notes that guidance for rescission rights 
related to closed-end credit can be found in current Sec.  1026.23 and 
its associated commentary. In addition, one industry commenter 
recommended that the Bureau amend Sec.  1026.19(f)(2)(iii) to clarify 
that the post-consummation Closing Disclosure be revised to accurately 
reflect the changes to any charges that are the subject of the 
redisclosure, and that the cash to close amount be amended only to 
reflect the effect of the changed amount. The Bureau is not addressing 
this issue as part of the final rule. The Bureau did not propose 
changes in the proposal to address this issue and has not collected 
sufficient information to address this issue as part of the final rule.
19(f)(2)(v) Refunds Related to the Good Faith Analysis
    Comment 19(f)(2)(v)-1 explains that under Sec.  1026.19(f)(2)(v), 
if amounts paid at consummation exceed the amounts specified under 
Sec.  1026.19(e)(3)(i) or (ii), the creditor does not violate Sec.  
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer no 
later than 60 days after consummation, and the creditor does not 
violate Sec.  1026.19(f)(1)(i) if the creditor delivers or places in 
the mail disclosures corrected to reflect the refund of such excess no 
later than 60 days after consummation. Comment 19(f)(2)(v)-1 refers to 
comment 38(h)(3)-2 for additional guidance on disclosing refunds. The 
Bureau proposed to revise comment 19(f)(2)(v)-1 to add a cross-
reference to proposed comment 38-4. The Bureau also proposed to revise 
the dollar amounts in the example in comment 19(f)(2)(v)-1 for greater 
clarity.
    A financial holding company asserted that the Bureau's preamble 
states that the Bureau proposed to amend comment 38(h)(3)-2, but the 
Bureau failed to provide amended commentary. The commenter requested 
that the Bureau provide the text of the amended commentary. A mortgage 
company requested that the Bureau increase the timing requirements for 
refunds related to the good faith analysis in Sec.  1026.19(f)(2)(v) 
from 60 days after consummation to the timing under Sec.  
1026.43(e)(3)(iii)(B) for a creditor to cure a violation of the 
qualified mortgage limit on points and fees.
    The Bureau is adopting as proposed the revisions to comment 
19(f)(2)(v)-1. The Bureau believes the cross-reference to final comment 
38-4 is helpful for compliance purposes and the revised example is 
clearer. Comment 19(f)(2)(v)-1 currently cross-references comment 
38(h)(3)-2, and although the Bureau did propose to amend comment 
19(f)(2)(v)-1, the Bureau did not propose to amend the cross-reference 
to comment 38(h)(3)-2 or to amend comment 38(h)(3)-2 itself. Therefore, 
the Bureau is not amending comment 38(h)(3)-2 in this final rule. The 
Bureau also is not altering the timing requirements under Sec.  
1026.19(f)(2)(v) in this final rule as requested by a

[[Page 37687]]

commenter. The Bureau believes that the current 60-day period after 
consummation will give creditors sufficient time to cure tolerance 
violations. Further, the Bureau believes that extending the cure period 
further than 60 days after consummation would undermine the incentive 
for creditors to conduct quality control reviews as soon as reasonably 
practicable after consummation.
19(f)(3) Charges Disclosed
19(f)(3)(ii) Average Charge
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to 
comment 19(f)(3)(ii)-3 to reflect a change to the coverage of Sec.  
[thinsp]1026.19(f) to include closed-end credit transactions, other 
than reverse mortgages, that are secured by a cooperative unit, 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law.
19(f)(4) Transactions Involving a Seller
19(f)(4)(i) Provision to Seller
    Comment 19(f)(4)(i)-1 explains that the settlement agent complies 
with Sec.  1026.19(f)(4)(i) either by providing to the seller a copy of 
the Closing Disclosure provided to the consumer, if it also contains 
the information under Sec.  1026.38 relating to the seller's 
transaction, or by providing the disclosures under Sec.  
1026.38(t)(5)(v) or (vi), as applicable. Section 1026.38(t)(5)(v) 
permits the creditor or settlement agent preparing the form to use form 
H-25 of appendix H for the disclosure provided to both the consumer and 
the seller, with certain modifications to separate the information of 
the consumer and seller, as necessary. Section 1026.38(t)(5)(vi) 
permits certain information to be deleted from the form provided to the 
seller or a third-party. The Bureau proposed to streamline Sec.  
1026.19(f)(4)(i) by replacing unnecessary text with a cross-reference 
to Sec.  1026.19(e)(1)(i), to streamline comment 19(f)(4)(i)-1, and to 
add comment 19(f)(4)(i)-2 to clarify that in purchase transactions with 
simultaneous subordinate financing the settlement agent complies with 
Sec.  1026.19(f)(4)(i) by providing the seller with only the Closing 
Disclosure for the first-lien transaction if that Closing Disclosure 
records the entirety of the seller's transaction.
    A trade association commenter supported the clarifying language in 
the proposed revisions to Sec.  1026.19(f)(4)(i) and its commentary. 
Other commenters specifically supported the Bureau's proposal in 
comment 19(f)(4)(i)-2 to clarify that, in a purchase transaction with 
simultaneous subordinate financing, the settlement agent complies with 
Sec.  1026.19(f)(4)(i) by providing the seller with only the Closing 
Disclosure for the first-lien transaction if that Closing Disclosure 
records the entirety of the seller's transaction.
    For the reasons discussed below, the Bureau is adopting the 
proposed amendments to Sec.  1026.19(f)(4)(i) and comment 19(f)(4)(i)-1 
as final, and is revising new comment 19(f)(4)(i)-2 for better 
alignment with comment 19(f)(4)(i)-1. The Bureau believes streamlining 
Sec.  1026.19(f)(4)(i) and comment 19(f)(4)(i)-1 will aid in industry 
compliance. Although not raised as a concern by commenters, the Bureau 
recognizes that as proposed, new comment 19(f)(4)(i)-2 could have 
appeared to impose additional disclosure requirements for simultaneous 
subordinate financing. Therefore, the Bureau is revising comment 
19(f)(4)(i)-2 to more closely mirror the language of comment 
19(f)(4)(i)-1. Final comment 19(f)(4)(i)-2 provides that in a purchase 
transaction with simultaneous subordinate financing, the settlement 
agent complies with Sec.  1026.19(f)(4)(i) by providing the seller with 
only the first-lien transaction disclosures required under Sec.  
1026.38 that relate to the seller's transaction reflecting the actual 
terms of the seller's transaction in accordance with comment 
19(f)(4)(i)-1 if the first-lien Closing Disclosure records the entirety 
of the seller's transaction. If the first-lien Closing Disclosure does 
not record the entirety of the seller's transaction, comment 
19(f)(4)(i)-2 provides that the settlement agent complies with Sec.  
1026.19(f)(4)(i) by providing the seller with both the first-lien and 
simultaneous subordinate financing transaction disclosures required 
under Sec.  1026.38 that relate to the seller's transaction reflecting 
the actual terms of the seller's transaction in accordance with comment 
19(f)(4)(i)-1. The Bureau concludes that in a purchase transaction with 
simultaneous subordinate financing, if the Closing Disclosure for the 
first-lien transaction records the entirety of the seller's 
transaction, the seller receives no additional benefit from receiving a 
copy of the Sec.  1026.38 disclosures for the simultaneous subordinate 
financing.
19(g) Special Information Booklet at Time of Application
19(g)(1) Creditor To Provide Special Information Booklet
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is adopting amendments to Sec.  1026.19(g)(1) substantially 
as proposed. Specifically, Sec.  1026.19(g)(1), as finalized, covers 
consumer credit transactions secured by real property or a cooperative 
unit, regardless of whether they are open-end or closed-end 
transactions (and except as provided in Sec.  1026.19(g)(1)(ii) and 
(iii)). As finalized, Sec.  1026.19(g)'s coverage continues not to be 
limited to closed-end transactions (except as provided in Sec.  
1026.19(g)(1)(ii) and (iii)).

Section 1026.23 Right of Rescission

23(g) Tolerances for Accuracy
The Bureau's Proposal
    TILA section 125 sets forth a consumer's right to rescind certain 
transactions.\64\ For purposes of a consumer's right of rescission, 
TILA section 106(f)(2) \65\ sets forth the applicable tolerances for 
accuracy of the finance charge \66\ and other disclosures affected by 
any finance charge, which has been understood to include the total of 
payments.\67\ Section 1026.23(g) implements this statutory provision.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 1635.
    \65\ 15 U.S.C. 1605(f)(2).
    \66\ Finance charge is defined in TILA section 106(a) (15 U.S.C. 
1605(a)). Section 1026.4 implements this definition, provides 
examples, and excludes certain charges from the finance charge.
    \67\ See Carmichael v. The Payment Ctr., Inc., 336 F.3d 636, 639 
(7th Cir. 2003) (interpreting the total of payments as a disclosure 
affected by the finance charge and therefore subject to the finance 
charge tolerances as long as a misdisclosure of the total of 
payments resulted from a misdisclosure of the finance charge).
---------------------------------------------------------------------------

    As explained more fully in the section-by-section analysis of Sec.  
1026.38(o)(1), the finance charge tolerance historically applied to the 
total of payments because that calculation was affected by the finance 
charge. However, in the TILA-RESPA Final Rule, the Bureau modified the 
requirement under TILA section 128(a)(5) to disclose the total of 
payments as the sum of the amount financed and the finance charge by 
requiring instead that a creditor disclose the total of payments on the 
Closing Disclosure as the sum of principal, interest, mortgage 
insurance, and loan costs. The Bureau believed that modifying the 
calculation of the total of payments would improve consumer 
understanding.\68\ As explained in the proposal, the Bureau believed it 
would

[[Page 37688]]

be appropriate to continue to apply the tolerances for the finance 
charge and disclosures affected by the finance charge to the modified 
total of payments calculation. Accordingly, the Bureau proposed to 
revise Sec.  1026.23(g) to apply the same tolerances for accuracy to 
the total of payments for purposes of the Closing Disclosure that 
already apply to the finance charge and other disclosures affected by 
the finance charge. The Bureau sought comment on these proposed 
revisions to Sec.  1026.23(g).
---------------------------------------------------------------------------

    \68\ 78 FR 79730, 80038 (Dec. 31, 2013).
---------------------------------------------------------------------------

Comments Received
    Comments received on the proposed tolerances for the total of 
payments apply generally to both Sec. Sec.  1026.23(g) and 
1026.38(o)(1). See the discussion below in the section-by-section 
analysis of Sec.  1026.38(o)(1) for a summary of and responses to those 
comments.
The Final Rule
    For the reasons discussed below in the section-by-section analysis 
of Sec.  1026.38(o)(1), the Bureau adopts the revisions to Sec.  
1026.23(g) as proposed. Specifically, the Bureau redesignates current 
Sec.  1026.23(g)(1) and (2) as Sec.  1026.23(g)(1)(i) and (2)(i) and 
amends Sec.  1026.23(g)(1)(ii) to provide that, in general, the total 
of payments for each transaction subject to Sec.  1026.19(e) and (f) 
shall be considered accurate for purposes of Sec.  1026.23 if the 
disclosed total of payments: (A) Is understated by no more than \1/2\ 
of 1 percent of the face amount of the note or $100, whichever is 
greater; or (B) is greater than the amount required to be disclosed. 
The Bureau further amends Sec.  1026.23(g)(2)(ii) to provide that, in a 
refinancing of a residential mortgage transaction with a new creditor 
(other than a transaction covered by Sec.  1026.32), if there is no new 
advance and no consolidation of existing loans, the total of payments 
for each transaction subject to Sec.  1026.19(e) and (f) shall be 
considered accurate for purposes of Sec.  1026.23 if the disclosed 
total of payments (A) is understated by no more than 1 percent of the 
face amount of the note or $100, whichever is greater; or (B) is 
greater than the amount required to be disclosed. The Bureau also 
adopts new comment 23(g)-1 as proposed, which references the examples 
set forth in new comment 38(o)-1 that illustrate the interaction of the 
finance charge and total of payments accuracy requirements for each 
transaction subject to Sec.  1026.19(e) and (f).
Legal Authority
    The Bureau revises Sec.  1026.23(g) to apply the same tolerances 
for accuracy of the finance charge and other disclosures affected by 
the finance charge to the total of payments for each transaction 
subject to Sec.  1026.19(e) and (f) pursuant to its authority to set 
tolerances for numerical disclosures under TILA section 121(d).\69\ 
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.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 1631(d).
---------------------------------------------------------------------------

    The Bureau has considered the purposes for which it may exercise 
its authority under TILA section 121(d). As noted below in the section-
by-section analysis of Sec.  1026.38(o)(1), the Bureau has concluded 
that the tolerances for the total of payments promote consistency with 
the tolerances in effect before the TILA-RESPA Final Rule. The Bureau 
therefore believes that the tolerances facilitate compliance with the 
statute. Additionally, the Bureau believes that the tolerances in 
revised Sec.  1026.23(g)(1)(ii) and (2)(ii), which are identical to the 
finance charge tolerances provided by Congress in TILA section 106(f), 
are sufficiently narrow to prevent these tolerances from resulting in 
misleading disclosures or disclosures that circumvent the purposes of 
TILA.
23(h) Special Rules for Foreclosures
23(h)(2) Tolerance for Disclosures
The Bureau's Proposal
    For purposes of exercising rescission rights after the initiation 
of foreclosure, TILA section 125(i)(2) explains that the disclosure of 
the finance charge and other disclosures affected by any finance charge 
shall be treated as being accurate if the amount disclosed as the 
finance charge does not vary from the actual finance charge by more 
than $35 or is greater than the amount required to be disclosed.\70\ 
Section 1026.23(h)(2) implements this statutory provision.
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 1635(i)(2).
---------------------------------------------------------------------------

    As explained more fully above in the section-by-section analysis of 
Sec.  1026.23(g) and below in the section-by-section analysis of Sec.  
1026.38(o)(1), the finance charge tolerance historically applied to the 
total of payments because that calculation was affected by the finance 
charge. For the reasons discussed in the section-by-section analyses of 
Sec. Sec.  1026.23(g) and 1026.38(o)(1), the Bureau proposed to revise 
Sec.  1026.23(h)(2) to apply the same tolerances for accuracy to the 
total of payments for purposes of the Closing Disclosure that already 
apply to the finance charge and other disclosures affected by the 
finance charge. The Bureau sought comment on the proposed amendment to 
Sec.  1026.23(h)(2) and its commentary.
Comments Received
    Comments received on the proposed tolerances for the total of 
payments generally apply to both Sec. Sec.  1026.23(h)(2) and 
1026.38(o)(1). See the discussion below in the section-by-section 
analysis of Sec.  1026.38(o)(1) for a summary of and responses to those 
comments.
The Final Rule
    For the reasons discussed below in the section-by-section analysis 
of Sec.  1026.38(o)(1), the Bureau adopts the revisions to Sec.  
1026.23(h)(2) as proposed. Specifically, the Bureau redesignates 
current Sec.  1026.23(h)(2) as Sec.  1026.23(h)(2)(i) and amends Sec.  
1026.23(h)(2)(ii) to provide that, after the initiation of foreclosure 
on the consumer's principal dwelling that secures the credit 
obligation, the total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of Sec.  
1026.23 if the disclosed total of payments: (A) Is understated by no 
more than $35; or (B) is greater than the amount required to be 
disclosed.
    The Bureau revises comment 23(h)(2)-1 to also explain that, for 
each transaction subject to Sec.  1026.19(e) and (f), Sec.  
1026.23(h)(2) is based on the accuracy of the total of payments, taken 
as a whole, rather than its component charges. The Bureau also adopts 
new comment 23(h)(2)-2 as proposed, which references the examples set 
forth in new comment 38(o)-1 that illustrate the interaction of the 
finance charge and total of payments accuracy requirements for each 
transaction subject to Sec.  1026.19(e) and (f).
Legal Authority
    The Bureau revises Sec.  1026.23(h)(2) to apply the same tolerances 
for accuracy of the finance charge and other disclosures affected by 
the finance charge to the total of payments for each transaction 
subject to Sec.  1026.19(e) and (f) pursuant to its authority to set 
tolerances for numerical disclosures under TILA section 121(d).\71\ 
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.

[[Page 37689]]

The Bureau has considered the purposes for which it may exercise its 
authority under TILA section 121(d). As noted below in the section-by-
section analysis of Sec.  1026.38(o)(1), the Bureau has concluded that 
the tolerances for the total of payments promote consistency with the 
tolerances in effect before the TILA-RESPA Final Rule. The Bureau 
therefore believes that the tolerances facilitate compliance with the 
statute. Additionally, the Bureau believes that the tolerances in 
revised Sec.  1026.23(h)(2)(ii), which are identical to the finance 
charge tolerances provided by Congress in TILA section 125(i)(2), are 
sufficiently narrow to prevent these tolerances from resulting in 
misleading disclosures or disclosures that circumvent the purposes of 
TILA.
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 1631(d).
---------------------------------------------------------------------------

Section 1026.25 Record Retention

25(c) Records Related to Certain Requirements for Mortgage Loans
25(c)(1) Records Related to Requirements for Loans Secured by Real 
Property
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to the 
paragraph title for Sec.  1026.25(c)(1), and a subheading for the 
commentary to Sec.  1026.25(c)(1), to reflect a change to the coverage 
of Sec.  [thinsp]1026.19(e) and (f) to include closed-end credit 
transactions, other than reverse mortgages, that are secured by a 
cooperative unit, regardless of whether a cooperative unit is treated 
as real property under State or other applicable law.

Section 1026.37 Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)

37(a) General Information
37(a)(7) Sale Price
    Comment 37(a)(7)-1 explains the requirement in Sec.  
1026.37(a)(7)(ii) to provide the estimated value of the property in 
transactions where there is no seller. The comment explains that, where 
there is no seller, the creditor may use the estimate provided by the 
consumer at application, or if it has performed its own estimate of the 
property value by the time the disclosure is provided to the consumer, 
use that estimate. The Bureau proposed to revise comment 37(a)(7)-1 to 
clarify that, if a creditor has performed its own estimate of the 
property value by the time the disclosure is provided to the consumer, 
the creditor must disclose its own estimate under Sec.  
1026.37(a)(7)(ii).
    One industry commenter requested that, with respect to a 
transaction involving construction where there is no seller, the Bureau 
clarify that the creditor must disclose under Sec.  1026.37(a)(7)(ii) 
the value of the underlying lot at the time of issuing the Loan 
Estimate, irrespective of what the projected value of the property may 
be after construction is finished because the value of the land would 
be the value of the property at the time the Loan Estimate is given. 
This commenter also asked the Bureau to clarify the disclosure 
requirement on the Closing Disclosure under Sec.  1026.38(a)(3)(vii) 
for the appraised value for a transaction involving construction where 
there is no seller. The commenter asked for clarification on whether 
the creditor must disclose only the value of the underlying lot, or 
instead must disclose the projected value of the completed project 
after construction is finished that was used to determine approval of 
the credit transaction.
    The Bureau is adopting the proposed modifications to comment 
37(a)(7)-1, with revisions. As discussed in more detail below, the 
Bureau is adopting the proposed change to final comment 37(a)(7)-1. 
Also, in response to the comment discussed above, the Bureau is 
revising comment 37(a)(7)-1 to provide additional guidance on how 
creditors may make the disclosures under Sec.  1026.37(a)(7)(ii) with 
respect to transactions involving construction where there is no 
seller.
    Current comment 37(a)(7)-1, in part, provides that in transactions 
where there is no seller, such as in a refinancing, Sec.  
1026.37(a)(7)(ii) requires the creditor to disclose the estimated value 
of the property identified in Sec.  1026.37(a)(6) at the time the 
disclosure is issued to the consumer. The commenter appears to read the 
language ``at the time the disclosure is issued to the consumer'' to 
mean that for transactions involving construction where there is no 
seller, the creditor must disclose the value of the land under Sec.  
1026.37(a)(7)(ii), irrespective of what the projected value of the 
property may be after construction is finished, because the value of 
the land would be the value of the property at the time the Loan 
Estimate is given. At the time the Loan Estimate is given, the 
improvements to be made to the land have not been completed. 
Nonetheless, the Bureau notes that the language ``at the time of the 
disclosure'' instead is intended to indicate that the disclosure of the 
estimated value of the property must be based on the best information 
reasonably available to the creditor at the time the disclosure is 
provided, consistent with the general standard set forth for accuracy 
of the Loan Estimate disclosures in comment 19(e)(1)(i)-1. To make this 
clearer, the Bureau is revising comment 37(a)(7)-1 to indicate that 
where there is no seller, Sec.  1026.37(a)(7)(ii) requires the creditor 
to disclose the estimated value of the property identified in Sec.  
1026.37(a)(6) based on the best information reasonably available to the 
creditor at the time the disclosure is provided to the consumer. To 
facilitate compliance, the Bureau also is revising comment 37(a)(7)-1 
to clarify that for transactions involving construction where there is 
no seller, the estimated value of the property may include, at the 
creditor's option, the estimated value of the improvements to be made 
on the property. Alternatively, the creditor in transactions involving 
construction where there is no seller may disclose under Sec.  
1026.37(a)(7)(ii) the estimated value of the property that does not 
include the estimated value of the improvements to be made on the 
property.
    The Bureau believes that this flexibility will give a creditor the 
option of maintaining consistency between the disclosure of the 
estimated value of the property in the Loan Estimate under Sec.  
1026.37(a)(7) and the disclosure of the value of the property in the 
Closing Disclosure under Sec.  1026.38(a)(3)(vii) in transactions 
involving construction where there is no seller. As discussed in the 
section-by-section analysis of Sec.  1026.38(a)(3)(vii), current 
comment 38(a)(3)(vii)-1 provides that, for transactions without a 
seller, the creditor must disclose on the Closing Disclosure under 
Sec.  1026.38(a)(3)(vii) the value of the property that is used to 
determine the approval of the credit transaction. The Bureau is 
revising comment 38(a)(3)(vii)-1 to make clear that, for transactions 
involving construction where there is no seller, the creditor must 
disclose the value of the property that is used to determine the 
approval of the credit transaction, including improvements to be made 
on the property if those improvements are used in determining the 
approval of the credit transaction. Thus, if a creditor includes 
improvements to be made on a property in determining the approval of a 
credit transaction involving construction where there is no seller, the 
creditor must include the improvements in the disclosure of the value 
of the property on the Closing Disclosure under Sec.  
1026.38(a)(3)(vii). Final comment 37(a)(7)-1 allows a creditor the 
flexibility to include the improvements into the estimated value of the 
property disclosed on the Loan Estimate under Sec.  1026.37(a)(7), 
which

[[Page 37690]]

gives the creditor the option of maintaining consistency between the 
disclosure that is given on the Loan Estimate under Sec.  1026.37(a)(7) 
and the disclosure that will be given on the Closing Disclosure under 
Sec.  1026.38(a)(3)(vii) by including improvements to be made in both 
disclosures. On the other hand, if a creditor does not include 
improvements to be made on the property in determining the approval of 
a credit transaction involving construction where there is no seller, 
the creditor must not include the improvements in the disclosure of the 
value of the property on the Closing Disclosure under Sec.  
1026.38(a)(3)(vii). Final comment 37(a)(7)-1 allows a creditor the 
flexibility not to include the improvements into the estimated value of 
the property disclosed under Sec.  1026.37(a)(7), which gives the 
creditor the option of maintaining consistency between the disclosure 
that is given on the Loan Estimate under Sec.  1026.37(a)(7) and the 
disclosure that will be given on the Closing Disclosure under Sec.  
1026.38(a)(3)(vii) by not including improvements to be made in both 
disclosures.
    Current comment 37(a)(7)-1 also provides, in part, that the 
creditor may use the estimate provided by the consumer at application, 
or if it has performed its own estimate of the property value by the 
time the disclosure is provided to the consumer, use that estimate. If 
the creditor has obtained any appraisals or valuations of the property 
for the application at the time the disclosure is issued to the 
consumer, the value determined by the appraisal or valuation to be used 
during underwriting for the application is disclosed as the estimated 
property value. If the creditor has obtained multiple appraisals or 
valuations and has not yet determined which one will be used during 
underwriting, it may disclose the value from any appraisal or valuation 
it reasonably believes it may use in underwriting the transaction. 
Consistent with the proposal, the Bureau is revising comment 37(a)(7)-1 
to clarify that, if a creditor has performed its own estimate of the 
property value by the time the disclosure is provided to the consumer, 
the creditor must disclose its own estimate rather than disclose an 
estimate provided by the consumer at application.
Cooperatives
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau proposed and is now adopting conforming amendments to 
comment 37(a)(7)-2 to reflect a change to the coverage of Sec.  
[thinsp]1026.19(e) and (f) to include closed-end credit transactions, 
other than reverse mortgages, that are secured by a cooperative unit, 
regardless of whether a cooperative unit is treated as real property 
under State or other applicable law.
37(a)(8) Loan Term
    Section 1026.37(a)(8) requires disclosure of the term to maturity 
of the credit transaction. The Bureau proposed to add comment 37(a)(8)-
3 to provide a cross-reference to proposed new comment app. D-7.i, 
which explains the disclosure of the loan term for a construction-
permanent loan, taking into account the unique features of such a 
transaction.
    Commenters generally appreciated the additional clarification 
provided by comment 37(a)(8)-3 and comment app. D-7.i. However, two 
commenters indicated the cross-references to comment 37(a)(8)-3 in 
proposed comment app. D-7.i were not clear. Although both comments app. 
D-7.i.A and B referred to comment 37(a)(8)-3 as providing relevant 
explanations, comment 37(a)(8)-3, as proposed, provided a cross-
reference but did not include any explanations. Two commenters also 
requested the Bureau clarify that the loan term for construction loans 
is determined using the approach applicable to non-construction loans 
in addition to the construction-specific clarifications provided in 
comment 37(a)(8)-3 and comment app. D-7.i.
    For the reasons explained in the discussion of comment app. D-7.i, 
below, the Bureau is finalizing comment 37(a)(8)-3 as proposed. The 
Bureau is not including more than a cross-reference to comment app. D-
7.i in comment 37(a)(8)-3. As explained in the section-by-section 
analysis of comment app. D-7.i, sections, such as Sec.  1026.17(c)(3) 
and (c)(4), are applicable in determining the impact of minor 
variations in the number of days counted for the loan term, as well as 
other disclosures, as applicable. In order to avoid creating an 
impression that only Sec.  1026.17(c)(3) applies for purposes of 
construction and construction-permanent disclosures to the exclusion of 
other potentially applicable sections, the Bureau declines to add 
further clarification in comment 37(a)(8)-3 about the applicability of 
other sections to determining the loan term for loans.
37(a)(9) Purpose
    Section 1026.37(a)(9) requires a creditor to disclose on the Loan 
Estimate the consumer's intended use for the credit, labeled 
``Purpose.'' Comment 37(a)(9)-1.i explains that the creditor must 
disclose the loan purpose as ``Purchase'' when the consumer intends to 
use the proceeds from the transaction to purchase the property that 
will secure the extension of credit. Because the proceeds from 
simultaneous subordinate financing in a purchase transaction are used 
to purchase the property that will secure the extension of credit, the 
Bureau proposed to amend comment 37(a)(9)-1.i to clarify that 
simultaneous subordinate financing used to purchase the property is 
disclosed with the purpose ``Purchase'' under Sec.  1026.37(a)(9). The 
Bureau also proposed to make a minor technical revision to comment 
37(a)(9)-1.iii to change the phrase ``construction-to-permanent'' to 
``construction-permanent'' for consistency with terminology used 
elsewhere in the proposed rule.
    The Bureau received one comment responsive to the proposals to 
amend comments 37(a)(9)-1.i and 37(a)(9)-1.iii. A title insurance 
company stated that the Bureau should provide a corresponding amendment 
that pertains to the Closing Disclosure.
    For the reasons discussed below, the Bureau is adopting the 
amendment to comment 37(a)(9)-1.i as proposed with a technical revision 
and the technical revision to comment 37(a)(9)-1.iii as proposed with 
an additional revision. As discussed above, a commenter requested that 
the Bureau provide an amendment for the Closing Disclosure comparable 
to that in comment 37(a)(9)-1.i. The Bureau concludes that a 
corresponding amendment for the Closing Disclosure is not necessary 
because the Closing Disclosure's requirement to disclose the loan 
purpose, in Sec.  1026.38(a)(5)(ii), specifically cross-references the 
disclosure required by Sec.  1026.37(a)(9), which also includes the 
commentary to Sec.  1026.37(a)(9). An additional conforming amendment 
is being made to comment 37(a)(9)-1.iii to include a cross-reference to 
comment 17(c)(6)-5, which is being amended as discussed above in the 
section-by-section analysis of Sec.  1026.17(c)(6) and provides 
additional guidance on disclosing construction-permanent loans.
37(a)(10) Product
    Section 1026.37(a)(10) requires a description of the loan product 
to be disclosed, including the features that may change the periodic 
payment. Comment 37(a)(10)-2.ii explains disclosure of the interest-
only feature. The Bureau proposed to add a cross-

[[Page 37691]]

reference in comment 37(a)(10)-2.ii to proposed comment app. D-7.ii, 
which explained the disclosure of the time period of the interest-only 
feature for a construction loan or a construction-permanent loan.
    The Bureau did not receive comments on adding a cross-reference to 
comment app. D-7.ii into comment 37(a)(10)-2.ii. The Bureau is adopting 
as proposed the revision to comment 37(a)(10)-2.ii.
37(a)(13) Rate Lock
The Bureau's Proposal
    Section 1026.37(a)(13) requires creditors to disclose the date and 
time at which estimated closing costs expire. Section 
1026.19(e)(3)(iv)(E) provides that, for the purpose 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 estimate of the charge 
originally disclosed on the Loan Estimate (i.e., the creditor may reset 
the applicable tolerance) if the consumer indicates an intent to 
proceed with the transaction more than 10 business days after the Loan 
Estimate is provided under Sec.  1026.19(e)(1)(iii). The Bureau 
proposed to amend comment 37(a)(13)-2 to clarify the relationship 
between the expiration date disclosure under Sec.  1026.37(a)(13)(ii) 
and the ability to reset tolerances under Sec.  1026.19(e)(3)(iv)(E). 
The Bureau also proposed to amend comment 37(a)(13)-2 by adding a 
cross-reference to new proposed comment 19(e)(3)(iv)(E)-2, which would 
clarify when the creditor may use a revised estimate of a charge for 
the purposes of determining good faith under Sec.  1026.19(e)(3)(i) and 
(ii) in circumstances where the creditor voluntarily extends the period 
for which it will honor the estimated charges disclosed on the Loan 
Estimate for a period beyond 10 business days. The Bureau further 
proposed to add new comment 37(a)(13)-4,\72\ to clarify that, once the 
consumer has indicated an intent to proceed with the transaction, the 
date and time at which estimated closing costs expire would be left 
blank on revised Loan Estimates, if any.
---------------------------------------------------------------------------

    \72\ Although the proposed amendatory instructions in the 
proposal correctly labeled this new comment as 37(a)(13)-4, the 
accompanying section-by-section analysis of Sec.  1026.37(a)(13) 
inadvertently described the proposed comment as ``new comment 
37(a)(13)-3.'' There is an existing comment 37(a)(13)-3 concerning 
time zones in the Official Interpretations of Regulation Z, and no 
modification of existing comment 37(a)(13)-3 was proposed.
---------------------------------------------------------------------------

Comments Received
    Some industry commenters supported the revisions to comment 
37(a)(13)-2 and proposed new comment 37(a)(13)-4. A vendor and two 
State trade association commenters stated that the last sentence of the 
Sec.  1026.37(a)(13) disclosure on form H-24 of appendix H, which 
begins with the phrase ``All other estimated closing costs expire on'' 
and includes the date and time when the charges unrelated to the 
interest rate expire, should be either deleted on revised Loan 
Estimates after the consumer has expressed an intention to proceed or 
completed with the term ``N/A.'' One industry commenter stated a 
concern about the applicability of an extended expiration period to 
loans that would be in process when revised comment 37(a)(13)-2 and new 
comment 37(a)(13)-4 are effective, and indicated that changing the 
expiration period for loans in process could be difficult for 
creditors. One vendor and an industry commenter stated that there 
should be no change to the expiration dates because no consumer testing 
was conducted on the change, and that the change could prompt consumer 
confusion and mistrust of creditors. A vendor group stated that the 
proposed revisions could be read to require the disclosure of a 10-day 
expiration date, with any potential extension documented outside the 
disclosures.
The Final Rule
    For the reasons discussed below, the Bureau is adopting revised 
comment 37(a)(13)-2 as proposed and new comment 37(a)(13)-4 as 
proposed. In response to commenters' suggestions to require the 
deletion of the sentence, ``All other estimated closing costs expire 
on,'' on the first page of the Loan Estimate or to complete the 
sentence with the term ``N/A,'' the Bureau notes that new comment 
37(a)(13)-4 was intended to provide guidance with respect to 
expiration-date disclosures on any revised Loan Estimates provided once 
a consumer has indicated an intent to proceed. However, the Bureau did 
not propose modifications to the Loan Estimate form itself.\73\ In 
addition, the terms ``N/A'' or ``not applicable'' are not permitted to 
be used on the Loan Estimate.\74\ Regarding commenters' concerns 
relating to the effect of the proposed revised comment 37(a)(13)-2 and 
proposed new comment 37(a)(13)-4 on loans that are already in process 
when the provisions are effective, the date disclosed on the initial 
Loan Estimate provided by the creditor controls the length of the 
expiration period. For loans where the initial Loan Estimate discloses 
a 10-day expiration date, nothing in current Regulation Z requires a 
creditor to subsequently permit a longer time period. Once the consumer 
has expressed an intention to proceed, the expiration date is moot for 
the purposes of the Loan Estimate, as the amounts disclosed provide the 
applicable baseline for the good faith tolerance requirements under 
Sec.  1026.19(e)(3). Accordingly, the disclosure of the expiration date 
on revised Loan Estimates provided after the consumer indicates an 
intention to proceed does not change the validity of the charges 
disclosed on the Loan Estimate. Regarding suggestions that consumer 
testing is necessary for various permutations of the disclosure on 
revised Loan Estimates provided after the consumer indicates an 
intention to proceed, the Bureau does not consider additional consumer 
testing to be necessary in this instance. The general rule of leaving 
inapplicable disclosures blank on the Loan Estimate furthers the goals 
of reducing information overload.\75\ As to the commenter that stated 
that the proposed revisions could be read to require the disclosure of 
a 10-day expiration date, the Bureau believes that revised comment 
37(a)(13)-2 is clear that the creditor may choose a longer expiration 
period, and that the cross-reference to comment 19(e)(3)(iv)(E)-2, 
which also explicitly references the permission of the creditor to set 
a longer time period under Sec.  1026.19(e)(3)(iv)(E), provides 
sufficient clarity to creditors. Accordingly, the Bureau is adopting 
revised comment 37(a)(13)-2 as proposed and new comment 37(a)(13)-4 as 
proposed.
---------------------------------------------------------------------------

    \73\ 81 FR 54317, 54320 (Aug. 15, 2016).
    \74\ See comment 37-1.
    \75\ 78 FR 79730, 79742 (Dec. 31, 2013).
---------------------------------------------------------------------------

37(b) Loan Terms
37(b)(1) Loan Amount
    Section 1026.37(b)(1) currently requires the disclosure on the Loan 
Estimate of the amount of credit to be extended under the terms of the 
legal obligation, labeled ``Loan Amount.'' To reduce inconsistent 
language in Regulation Z and facilitate compliance, the Bureau proposed 
to revise Sec.  1026.37(b)(1) to indicate that the loan amount 
disclosed on the Loan Estimate (and, accordingly, on the Closing 
Disclosure) would be the total amount the consumer will borrow, as 
reflected by the face amount of the note. This language parallels that 
of Sec.  1026.32(c)(5), which requires the disclosure of the total 
amount the consumer will borrow, as reflected by the face amount of the 
note for loans subject to the Home Ownership and

[[Page 37692]]

Equity Protection Act (HOEPA). Commenters stated that they agreed that 
the proposed revision would clarify the amount to be disclosed and 
supported the proposed revision. Accordingly, the Bureau is adopting 
the proposed revision to Sec.  1026.37(b)(1).
37(b)(2) Interest Rate
    Section 1026.37(b)(2) requires disclosure of the interest rate that 
will be applicable to the transaction at consummation. The Bureau 
proposed to add a cross-reference in comment 37(b)(2)-1 to proposed 
comment app. D-7.iii, which, as discussed further below, explained the 
disclosure of the permanent financing interest rate for a construction-
permanent loan.
    The Bureau did not receive comments on the addition of the cross-
reference in comment 37(b)(2)-1 to proposed comment app. D-7.iii. The 
Bureau is adopting as proposed the revision to comment 37(b)(2)-1.
37(b)(3) Principal and Interest Payment
    Section 1026.37(b)(3) requires disclosure of the initial periodic 
payment amount. The Bureau proposed to add a cross-reference in comment 
37(b)(3)-2 to proposed comment app. D-7.iv, which explained the 
disclosure of an initial periodic payment for a construction or 
construction-permanent loan.
    The Bureau did not receive comments on the addition of the cross-
reference in comment 37(b)(3)-2 to proposed comment app. D-7.iv. 
However, because, as discussed below, the Bureau is not adopting 
proposed comment app. D-7.iv, the Bureau is not adopting the proposed 
revision to comment 37(b)(3)-2.
37(b)(6) Adjustments After Consummation
37(b)(6)(iii) Increase in Periodic Payment
    Section 1026.37(b)(6)(iii) requires disclosures of increases in the 
periodic payment if the periodic payment may increase after 
consummation. The Bureau proposed to add a cross-reference in comment 
37(b)(6)(iii)-1 to proposed comment app. D-7.v, which, as discussed 
further below, explained the disclosure of an increase in the periodic 
payment for a construction or construction-permanent loan.
    The Bureau did not receive comments on the addition of the cross-
reference in comment 37(b)(6)(iii)-1 to proposed comment app. D-7.v. 
The Bureau is adopting as proposed the revision to comment 
37(b)(6)(iii)-1, but, because proposed comment app. D-7.iv is not being 
adopted, the reference to comment app. D-7.v is renumbered as comment 
app. D-7.iv.
37(c) Projected Payments
    Section 1026.37(c) requires itemization of each separate periodic 
payment or range of payments. As described below, the Bureau proposed 
to amend the commentary accompanying Sec.  1026.37(c), (c)(1)(iii)(B), 
and (c)(4)(iv). The Bureau proposed to add new comment 37(c)-2 to 
provide a cross-reference to comment app. D-7.vi, which explains the 
projected payments disclosure for a construction or construction-
permanent loan.
    The Bureau did not receive comments on the addition of the cross-
reference in comment 37(c)-2 to proposed comment app. D-7.vi. The 
Bureau is adopting as proposed the revision to comment 37(c)-2, but, 
because proposed comment app. D-7.iv is not being adopted, the 
reference to comment app. D-7.vi is renumbered as comment app. D-7.v.
37(c)(1) Periodic Payment or Range of Payments
37(c)(1)(iii)
37(c)(1)(iii)(B)
The Bureau's Proposal
    Section 1026.37(c) requires creditors to disclose an itemization of 
the periodic payments. Under certain circumstances, described in Sec.  
1026.37(c)(1)(iii), creditors must disclose the minimum and maximum 
periodic payment amounts (the range). Section 1026.37(c)(1)(iii)(B) 
requires disclosing the range when the periodic principal and interest 
payment may change more than once during a single year. Section 
1026.37(c)(1)(iii)(B) also requires disclosing the range when the 
periodic principal and interest payment may change during the same year 
as the initial periodic payment. Generally, pursuant to Sec.  
1026.37(c)(3)(ii), periodic payments or ranges of payments must be 
disclosed under a subheading that states the years of the loan during 
which the payment or range of payments will apply.
    Comment 37(c)(1)(iii)(B)-1 illustrates the disclosure of ranges of 
payments when multiple changes to periodic principal and interest 
payments occur during a single year. One of the examples in that 
comment involves a loan payment that adjusts upward at three months and 
at six months, adjusts once more at 18 months, and becomes fixed 
thereafter. The Bureau identified inconsistencies between that 
commentary example and the requirements of Sec.  1026.37(c)(1). 
Specifically, that commentary example calls for disclosing as a single 
range in year two: The payment that would apply on the first 
anniversary of the due date of the initial periodic payment; and the 
periodic payment that would apply after the payment adjustment that 
occurs at 18 months. However, Sec.  1026.37(c)(1)(iii)(B) does not 
require disclosing a range merely because the periodic principal and 
interest payment may change once during a single year (unless such 
change may occur during the same year as the initial periodic payment). 
Nor does any other provision of Sec.  1026.37(c)(1) require disclosing 
a range in that circumstance. The same example in comment 
37(c)(1)(iii)(B)-1 also calls for an additional separate payment 
disclosure specifically for ``the anniversary that immediately follows 
the occurrence of the multiple payments or ranges of payments that 
occurred during the second year of the loan.'' However, nothing in 
Sec.  1026.37(c)(1) requires disclosing an additional separate payment 
disclosure for an anniversary in that circumstance. For example, Sec.  
1026.37(c)(1)(i)(D) does not require an additional separate payment 
disclosure for an anniversary unless the anniversary ``immediately 
follows'' the occurrence of multiple events whereby the periodic 
principal and interest payment may change during a single year.
    The Bureau proposed revisions to that example in comment 
37(c)(1)(iii)(B)-1 to harmonize it with the requirements of Sec.  
1026.37(c)(1). As proposed, rather than disclosing as a single payment 
range, the example calls for separately disclosing, under a year two 
subheading, the payment that would apply on the first anniversary of 
the due date of the initial periodic payment and, under a year three 
subheading, the payment that would apply after the payment adjustment 
that occurs at 18 months. However, the Bureau requested comment on 
whether the text of Sec.  1026.37(c)(1) should be amended to conform to 
the example in comment 37(c)(1)(iii)(B)-1 (instead of amending the 
comment to conform to the text of Sec.  1026.37(c)(1)). The Bureau also 
requested comment on whether, rather than complying with a single, 
mandatory approach, creditors should have the discretion to disclose 
payments or ranges of payments in conformity with either the text of 
Sec.  1026.37(c)(1) or the current examples in comment 
37(c)(1)(iii)(B)-1.
Comments Received
    A vendor supported the proposed amendments to comment 
37(c)(1)(iii)(B)-1 to harmonize it with the requirements of Sec.  
1026.37(c)(1). The

[[Page 37693]]

vendor stated that the proposed amendments are consistent with current 
comment 37(c)(3)(ii)-1, which provides that: If an event requiring an 
additional separate payment disclosure occurs on a date (e.g., at 18 
months) other than the anniversary of the due date of the initial 
periodic payment, and if no other events occur during that single year 
(e.g., during year two) that otherwise require disclosure of multiple 
events under Sec.  1026.37(c)(1)(iii)(B), then such payment event is 
disclosed beginning in the next year in the sequence (e.g., in year 
three); in other words, under both current comment 37(c)(3)(ii)-1 and 
proposed comment 37(c)(1)(iii)(B)-1, the payment event that occurs at 
18 months is not disclosed as part of a range of payments in year two. 
The vendor further stated that, in the section-by-section analysis of 
Sec.  1026.37(c)(3) in the TILA-RESPA Final Rule, the Bureau expressly 
concluded that such approach in current comment 37(c)(3)(ii)-1 ensures 
that consumers receive a disclosure that clearly and accurately 
discloses future changes to periodic payments.\76\ The vendor asserted 
that that conclusion in the TILA-RESPA Final Rule similarly supports 
proposed comment 37(c)(1)(iii)(B)-1.
---------------------------------------------------------------------------

    \76\ See 78 FR 79730, 79945 (Dec. 31, 2013).
---------------------------------------------------------------------------

    Regarding alternatives, the vendor stated that system reprogramming 
would be more complicated if the Bureau were to amend the text of Sec.  
1026.37(c)(1) to conform to the example in comment 37(c)(1)(iii)(B)-1 
(instead of finalizing proposed comment 37(c)(1)(iii)(B)-1 to conform 
it to the text of Sec.  [thinsp]1026.37(c)(1)). The vendor stated that 
conforming to comment 37(c)(1)(iii)(B)-1 would then require determining 
not only whether a change of payments occurred within a single year, 
but also require looking to previous years to determine whether 
multiple changes occurred in those years, in order to determine whether 
a year with a singular triggering event under Sec.  1026.37(c)(1)(i)(A) 
should be treated as having multiple changes under Sec.  
1026.37(c)(1)(iii)(B), because the year before it had multiple changes 
(and whether such year had to be treated as having multiple triggering 
events as well, even though there is only a singular triggering event 
under Sec.  1026.37(c)(1)(i)(A), because the year prior to the previous 
year had multiple triggering events).
    The vendor objected to the possibility that, rather than requiring 
compliance with a single, mandatory approach, the Bureau might provide 
creditors with the discretion to disclose in conformity with either the 
current text of Sec.  1026.37(c)(1) or the current examples in comment 
37(c)(1)(iii)(B)-1. The vendor stated that such creditor discretion and 
lack of uniformity would inhibit consumers' ability to comparison shop.
    A trade association objected to proposed comment 37(c)(1)(iii)(B)-1 
as overly prescriptive and requested that creditors be afforded greater 
flexibility in deciding how to provide disclosures to consumers. A 
vendor requested that, instead of finalizing proposed comment 
37(c)(1)(iii)(B)-1 to conform it to the text of Sec.  1026.37(c)(1), 
the Bureau amend the text of Sec.  1026.37(c)(1) to conform to the 
example in comment 37(c)(1)(iii)(B)-1. The vendor asserted that doing 
so would be more useful to consumers because, for example, a payment 
event that occurs at 18 months would be disclosed as part of a range of 
payments in year two, even if no other events occur during year two 
that require disclosure of multiple events under Sec.  
1026.37(c)(1)(iii)(B). The vendor stated that, where proposed comment 
37(c)(1)(iii)(B)-1 would have such payment event disclosed in year 
three, but not in year two, the projected payments table would cause 
the consumer to believe mistakenly that the payment does not change in 
year two. The vendor further stated that, for those creditors whose 
current systems were programmed in reliance on current comment 
37(c)(1)(iii)(B)-1, it would be extremely burdensome if the Bureau were 
to finalize proposed comment 37(c)(1)(iii)(B)-1 to conform it to the 
text of Sec.  1026.37(c)(1). An individual compliance professional also 
requested that the Bureau amend the text of Sec.  1026.37(c)(1) to 
conform to the example in comment 37(c)(1)(iii)(B)-1 and further 
requested that that approach be mandatory for all creditors.
    A vendor group discussed how either alternative (i.e., finalizing 
proposed comment 37(c)(1)(iii)(B)-1 to conform it to the current text 
of Sec.  1026.37(c)(1) or, instead, amending the text of Sec.  
1026.37(c)(1)) could address uncertainty. The vendor group requested 
that, either way, the Bureau require compliance with a single, 
mandatory approach.
    The vendor group noted that current Sec.  1026.37(c)(1) does not 
provide for consistent disclosure of payment changes. During the same 
year as the initial periodic payment (i.e., in year one), Sec.  
1026.37(c)(1)(iii)(B) calls for disclosing any payment change, even a 
single payment change, as part of a range in year one. But in years 
other than year one (e.g., in year two), Sec.  1026.37(c)(1)(iii)(B) 
calls for disclosing a range only if there are multiple payment changes 
in a single year. Otherwise, consistent with current comment 
37(c)(3)(ii)-1, a single payment change is disclosed beginning in the 
next year in the sequence, e.g., in year three (and not as part of a 
range in year two).
    The vendor group requested that, if the Bureau finalizes proposed 
amendments to comment 37(c)(1)(iii)(B)-1 to conform it to the current 
text of Sec.  1026.37(c)(1), the Bureau also amend Sec.  
1026.37(c)(1)(iii)(B) to further clarify that a range is disclosed when 
an event described in Sec.  1026.37(c)(1)(i)(A) occurs prior to the 
first anniversary date of the date the initial periodic payment is due. 
The vendor group also requested that the Bureau make certain additional 
clarifying amendments to the introductory sentence of comment 
37(c)(1)(iii)(B)-1 and to the example of a payment adjustment that 
occurs at 18 months in comment 37(c)(1)(ii)(B)-1.iii. The vendor group 
requested an implementation period of up to one year for reprogramming.
The Final Rule
    For the reasons discussed below, the Bureau is adopting the 
revisions to comment 37(c)(1)(iii)(B)-1 substantially as proposed but 
with certain minor changes. The Bureau concludes that comment 
37(c)(1)(iii)(B)-1 as finalized is consistent with the requirements of 
Sec.  1026.37(c)(1) as well as comment 37(c)(3)(ii)-1. As stated in the 
section-by-section analysis of Sec.  1026.37(c)(3) in the TILA-RESPA 
Final Rule, the approach in current comment 37(c)(3)(ii)-1 ensures that 
consumers receive a disclosure that clearly and accurately discloses 
future changes to periodic payments.\77\ The Bureau declines to adopt 
the alternative of amending the text of Sec.  1026.37(c)(1) and comment 
37(c)(3)(ii)-1 to conform to the example in current comment 
37(c)(1)(iii)(B)-1 because, as noted above, that would unnecessarily 
require disclosing ranges and additional separate payments in more 
circumstances without providing overall benefit to consumers. The 
Bureau also concludes that a single, mandatory approach with respect to 
complying with Sec.  1026.37(c)(1)(iii)(B) and comment 37(c)(1)(ii)(B)-
1 will facilitate consumers' ability to comparison shop.
---------------------------------------------------------------------------

    \77\ 78 FR 79730, 79945 (Dec. 31, 2013).
---------------------------------------------------------------------------

    As to the commenter's concern that current Sec.  1026.37(c)(1) does 
not provide for consistent disclosure of payment changes because Sec.  
1026.37(c)(1)(iii)(B) distinguishes between changes

[[Page 37694]]

occurring in year one versus those occurring in other years, and also 
distinguishes between a year with multiple changes versus a year with a 
single change, the Bureau again declines to revisit major policy 
decisions in this rulemaking. Unlike the example in current comment 
37(c)(1)(iii)(B)-1, which is being amended here because its 
contradiction of Sec.  1026.37(c)(1) and comment 37(c)(3)(ii)-1 
generated uncertainty, the Bureau believes that the distinctions in 
Sec.  1026.37(c)(1)(iii)(B) are clear and, for a given type of loan, 
provide that all creditors will disclose the loan's payment provisions 
in the same manner. As to commenters' request to amend Sec.  
1026.37(c)(1)(iii)(B) to further clarify that a range is disclosed when 
an event described in Sec.  1026.37(c)(1)(i)(A) occurs prior to the 
first anniversary date of the date the initial periodic payment is due, 
the Bureau concludes that such amendment is not warranted as Sec.  
1026.37(c)(1)(iii)(B) already provides for disclosing a range when an 
event described in Sec.  1026.37(c)(1)(i)(A) occurs during the same 
year as the initial periodic payment or range of payments.
    In part in response to commenters' concerns, the Bureau is 
finalizing the introductory sentence of comment 37(c)(1)(iii)(B)-1 with 
the phrase ``multiple changes,'' instead of ``changes,'' to further 
emphasize that Sec.  1026.37(c)(1)(iii)(B) does not require disclosing 
a range merely because the periodic principal and interest payment may 
change once during a single year. The Bureau concludes that doing so 
will further alleviate uncertainty regarding this comment. Moreover, to 
provide clarification, the example in comment 37(c)(1)(iii)(B)-1.iii 
includes a cross-reference to Sec.  1026.37(c)(3)(ii) and, consistent 
with current comment 37(c)(3)(ii)-1, expressly states that, beginning 
in the next year in the sequence (i.e., in year three), the creditor 
separately discloses the periodic payment that would apply after the 
payment adjustment that occurs at 18 months.
    In response to the commenter's request for an implementation period 
of up to one year with respect to this aspect of the proposal, as 
discussed in part VI below, the rule will be effective 60 days from 
publication in the Federal Register, but there will be an optional 
compliance period in effect until October 1, 2018. During the optional 
compliance period, a creditor has the option of complying based on the 
example in current comment 37(c)(1)(iii)(B)-1.
37(c)(4) Taxes, Insurance, and Assessments
37(c)(4)(iv)
    Section 1026.37(c)(4) requires the disclosure on the Loan Estimate 
of the amount of periodic payments for taxes, insurance, and 
assessments. Section 1026.37(c)(4)(iv) requires a statement of whether 
the amounts disclosed under Sec.  1026.37(c)(4)(ii) include payments 
for property taxes, amounts identified in Sec.  1026.4(b)(8), and other 
amounts described under Sec.  1026.37(c)(4)(ii) along with a 
description of any such other amounts, and an indication of whether 
such amounts will be paid by the creditor using escrow account funds. 
Comment 37(c)(4)(iv)-2 explains that creditors may indicate that only 
some of the amounts disclosed under Sec.  1026.37(c)(4)(ii) will be 
paid using escrow account funds when that is the case. In the January 
2015 Amendments, the Bureau removed ``other than amounts for payments 
of property taxes or homeowner's insurance'' from comment 37(c)(4)(iv)-
2 to permit creditors to disclose that only a portion of the property 
taxes or homeowner's insurance payments were being paid from escrow, 
consistent with other situations where the creditor pays only a portion 
of the disclosed amounts from escrow.
    In the preamble to the proposal the Bureau noted that it 
understands that uncertainty remains over the disclosure that only a 
portion of the property taxes and homeowner's insurance payments will 
be paid from escrow. The Bureau proposed to revise comment 
37(c)(4)(iv)-2 to clarify that creditors may indicate that a portion of 
the property taxes and homeowner's insurance will be paid by the 
creditor using funds from the escrow account when that is the case.
    The Bureau is finalizing as proposed the revisions to comment 
37(c)(4)(iv)-2. The Bureau received two comments in support of the 
proposed revision to comment 37(c)(4)(iv)-2. However, one commenter 
asked the Bureau to define and address whether builder's risk insurance 
is considered homeowner's insurance for purposes of the disclosures 
under Sec.  1026.37(c)(4). The Bureau notes that it did not propose to 
address this matter in the proposal, and that treatment of builder's 
risk insurance premiums for purposes of these disclosures on the Loan 
Estimate may depend on the facts and context. Accordingly, the 
finalized revisions to comment 37(c)(4)(iv)-2 do not address the issue 
raised by the commenter.
37(c)(5) Calculation of Taxes and Insurance
37(c)(5)(i)
    As detailed in the section-by-section analysis of Sec.  1026.19, 
the Bureau is adopting amendments to Sec.  1026.37(c)(5)(i) 
substantially as proposed. Section 1026.37(c)(5)(i), as finalized, 
specifically references the real property or cooperative unit securing 
the transaction. This conforming amendment to Sec.  1026.37(c)(5)(i) 
reflects the change to the coverage of Sec.  1026.19(e) and (f) to 
include closed-end credit transactions, other than reverse mortgages, 
that are secured by a cooperative unit, regardless of whether a 
cooperative unit is treated as real property under State or other 
applicable law.
37(d) Costs at Closing
37(d)(2) Optional Alternative Table for Transactions Without a Seller 
or for Simultaneous Subordinate Financing
The Bureau's Proposal
    Section 1026.37(d)(2) only permits creditors to use the optional 
alternative table in transactions without a seller. The Bureau has 
provided informal guidance that, in purchase transactions with 
simultaneous subordinate financing, the optional alternative table may 
be used for the simultaneous subordinate financing Loan Estimate if the 
first-lien Closing Disclosure will record the entirety of the seller's 
transaction and the seller did not contribute to the cost of the 
subordinate financing. The Bureau proposed to amend Sec.  1026.37(d)(2) 
and comment 37(d)(2)-1 to clarify that creditors may use the optional 
alternative table for simultaneous subordinate financing in purchase 
transactions if the first-lien Closing Disclosure will record the 
entirety of the seller's transaction. The Bureau specifically sought 
comment on whether it is appropriate to limit use of the optional 
alternative table for the disclosure of simultaneous subordinate 
financing purchase transactions to situations in which the first-lien 
Closing Disclosure will record the entirety of the seller's 
transaction.
Comments Received
    Commenters included a title insurance company, software vendors, a 
bank, a loan originator, and a compliance professional. Most commenters 
supported the Bureau's proposal to allow the use of the optional 
alternative table if the first-lien Closing Disclosure will record the 
entirety of the seller's transaction. One commenter questioned what 
disclosures should be

[[Page 37695]]

used when the optional alternative tables were used on the Loan 
Estimate because the creditor correctly concludes, based on the best 
information reasonably available to the creditor at the time the 
disclosure is provided to the consumer, that the Closing Disclosure for 
the first-lien loan will record the entirety of the seller's 
transaction, but a seller later agrees to contribute to the costs of 
the subordinate financing. The commenter suggested that the Bureau 
permit the use of the standard disclosures in situations where there is 
a valid change of circumstance following the provision of the optional 
alternative disclosures to the consumer. One commenter stated that the 
proposal could lead to variation among creditors and another commenter 
stated that the Uniform Closing Dataset (UCD) may not allow the use of 
the alternative disclosures for any transactions with sellers. 
Commenters asked the Bureau to clarify how to disclose the loan 
proceeds from the simultaneous subordinate financing being applied to 
the first lien, noting that most creditors prefer that the subordinate 
lien is balanced to zero. A commenter explained that permitting the use 
of the alternative disclosures for simultaneous subordinate financing 
is extremely desirable for industry and consumers and should be 
effective immediately, but that revisions which clarify how 
simultaneous subordinate financing is disclosed on the standard forms 
require systems changes which will take between four and nine months to 
implement.
The Final Rule
    For the reasons discussed below, the Bureau is finalizing the 
proposed amendments to Sec.  1026.37(d)(2) and comment 37(d)(2)-1 with 
minor technical revisions. The Bureau appreciates the commenter's 
question regarding how to proceed under the proposal when the 
alternative table was properly used on the Loan Estimate, or even the 
Closing Disclosure, but a subsequent event causes the continued use of 
the alternative table to be impermissible. However, the Bureau declines 
to implement the commenter's suggestion to permit the use of standard 
disclosures in situations where there is a valid change of circumstance 
following the provision of the alternative disclosures to the consumer. 
On the Closing Disclosure, the calculating cash to close table requires 
a comparison of cash to close amounts disclosed on the Loan Estimate 
and the Closing Disclosure. Because the standard and alternative 
calculating cash to close tables do not contain the same components, 
amounts disclosed on a Loan Estimate's optional alternative calculating 
cash to close table could not be properly compared to amounts disclosed 
on a Closing Disclosure's standard calculating cash to close table. The 
Bureau is, however, directly addressing this concern by adding new 
comment 38(k)(2)(vii)-1, amending comments 38(d)(2)-1 and 38(j)-3, and 
amending proposed new comments 38(t)(5)(vii)(B)-1 and -2 to require the 
disclosure of the seller's contributions to the subordinate financing, 
if any, in the payoffs and payments table on the simultaneous 
subordinate financing Closing Disclosure and the summaries of 
transactions table on the first-lien Closing Disclosure, when the 
alternative disclosures are used for the simultaneous subordinate 
financing. The result of these amendments is that the first-lien 
Closing Disclosure will be able to record the entirety of the seller's 
transaction. For a more detailed discussion of these new and revised 
comments, see the section-by-section analyses of Sec.  1026.38(d)(2), 
(j), (k)(2), and (t)(5)(vii).
    The Bureau recognizes that allowing the use of the optional 
alternative tables for simultaneous subordinate financing purchase 
transactions may cause variability in disclosure among creditors but 
concludes that consumers will not be harmed by such optionality. In 
addition, the Bureau understands that investor requirements may be more 
restrictive than the optionality provided by the Bureau. However, the 
Bureau believes flexibility is beneficial to some creditors, and the 
Bureau will continue to provide the option for creditors to use the 
optional alternative tables for simultaneous subordinate financing 
transactions with sellers.
    The Bureau is addressing the commenter's question regarding the 
disclosure of simultaneous subordinate loan proceeds in the section-by-
section analysis of Sec.  1026.37(h)(2)(iii). The Bureau is clarifying 
how to disclose the proceeds of subordinate financing on the Loan 
Estimate for a first-lien transaction disclosed under Sec.  
1026.37(h)(2), such as a refinance transaction. The Bureau is also 
clarifying how a creditor may disclose, on the simultaneous subordinate 
financing Loan Estimate itself, the amount of subordinate loan proceeds 
that will be applied to the first-lien loan. The Bureau is making 
related revisions in the commentary to Sec.  1026.38(j)(1)(v) and 
(t)(5)(vii)(B).
    As related to a commenter's discussion of the time needed to 
implement these provisions, as discussed in part VI below, the final 
rule will be effective 60 days from publication in the Federal 
Register, but there will be an optional compliance period in effect 
until October 1, 2018.
37(f) Closing Cost Details; Loan Costs
Construction Loan Inspection and Handling Fees
The Bureau's Proposal
    Section 1026.37(f) requires the disclosure of all loan costs 
associated with the transaction. Bureau staff previously has provided 
informal guidance that construction loan inspection and handling fees 
are loan costs associated with the transaction for purposes of Sec.  
1026.37(f), and the Bureau proposed new comment 37(f)-3 to memorialize 
this guidance.
    Under comment 37(f)-3 as proposed, if such inspection and handling 
fees are collected at or before consummation, they are disclosed in the 
loan costs table in the same manner as any other loan cost. For 
example, if the creditor collects a handling fee at or before 
consummation to process the advances of a multiple-advance construction 
loan, the handling fee would be disclosed under Sec.  1026.37(f)(1) as 
an origination charge the consumer will pay to the creditor for 
originating and extending the credit. If the creditor collects an 
inspection fee at or before consummation that will be used to pay a 
third-party inspector that is selected by the creditor, the fee would 
be disclosed under Sec.  1026.37(f)(2) as an amount the consumer will 
pay for settlement services for which the consumer cannot shop.
    Under proposed comment 37(f)-3, a creditor would disclose 
construction loan inspection and handling fees collected at or before 
consummation in the loan costs table. Such fees collected after 
consummation would be disclosed in a separate addendum to the Loan 
Estimate rather than in the loan costs table, as proposed comment 
37(f)(6)-3, discussed below, would provide. The creditor would not 
count inspection and handling fees to be collected after consummation 
for purposes of the calculating cash to close table. In proposing 
comment 37(f)-3, the Bureau noted its belief that disclosing the 
construction loan inspection and handling fees that are collected after 
consummation in an addendum would promote the informed use of credit by 
giving consumers loan cost information necessary to exercise such 
informed use, while preserving the accuracy of the total amount 
determined in the calculating cash to close table that must

[[Page 37696]]

be provided to the consumer in the Loan Estimate.
    Proposed comment 37(f)-3 included a cross-reference to proposed 
comment 37(f)(6)-3 for an explanation of the addendum that would be 
used to disclose post-consummation inspection and handling fees, as 
discussed below. Proposed comment 37(f)-3 also included cross-
references to comments 38(f)-2 and app. D-7.viii, for additional 
explanations of the disclosure of such fees. Because the number of 
post-consummation construction loan inspections and disbursements may 
not be known at the time the disclosures are required to be provided, 
proposed comment 37(f)-3 included a cross-reference to comment 
19(e)(1)(i)-1, which includes instruction on providing disclosures 
based on the best information reasonably available. Finally, proposed 
comment 37(f)-3 provided a cross-reference to Sec.  1026.17(e) and its 
commentary for an explanation of the effect of subsequent events that 
cause inaccuracies in disclosures. The Bureau requested comment in 
particular on whether additional guidance on the effect of subsequent 
events in construction financing would provide additional clarity and 
what issues such additional guidance might address.
Comments Received
    Comments on the disclosure of construction loan inspection and 
handling fees generally were favorable, although commenters also noted 
the difficulties in accurately disclosing fees to be collected after 
consummation and the additional software development that the proposal 
would require. Commenters also requested additional clarifications 
related to making this disclosure, as described below.
    A trade association agreed that construction loan inspection and 
handling fees should be disclosed to consumers seeking construction 
loans as these costs are often significant. However, this association 
stated its members were split on the use of an addendum for this 
purpose, as further noted in the discussion of proposed comment 
37(f)(6)-3, below. A compliance specialist commented that proposed 
comment 37(f)-3 is a positive change that better facilitates the bank's 
processes. Several vendors commented on the software changes the 
disclosure of post-consummation inspection and handling fees would 
require, as further explained in the discussion of proposed comment 
37(f)(6)-3, below.
    Comments received from another compliance specialist did not favor 
the proposal. This commenter did not believe that disclosing the 
construction loan inspection and handling fees that are collected after 
consummation in an addendum would significantly promote the informed 
use of credit by giving consumers loan cost information necessary to 
exercise such informed use. This commenter pointed out a loan agreement 
contract may call for any number of fees to be assessed on the consumer 
for a variety of reasons after consummation, and construction loan 
inspection and handling fees should not be singled out for separate 
handling. A national trade association commented that it will be 
extremely difficult for creditors to provide accurate Loan Estimate 
disclosures for inspection fees because such fees are not known at the 
time the Loan Estimate is required to be provided to the consumer.
    A consumer organization commented that permitting post-consummation 
fees of this type to be disclosed in an addendum raises the question of 
whether they should be included in the Total of Payments, and urged the 
Bureau to clarify that those charges must be added to the Total of 
Payments disclosures on the Loan Estimate and Closing Disclosure. A 
professional association asked whether anticipated inspection fees in 
connection with multiple advance construction loan draws are subject to 
a tolerance from the Loan Estimate to the Closing Disclosures.
The Final Rule
    The Bureau is adopting comment 37(f)-3 as proposed with minor 
modifications to provide additional consistency and clarity. 
Specifically, comment 37(f)-3 as finalized provides that the total of 
inspection and handling fees is disclosed in the loan costs table or in 
a separate addendum. Proposed comment 37(f)(6)-3, discussed below, 
provided that the total of inspection and handling fees to be collected 
after consummation is disclosed on an addendum, but proposed comment 
37(f)-3 did not specify that the total of fees collected at or before 
consummation is disclosed in the loan costs table. While creditors may 
have assumed that proposed comment 37(f)-3 also required a single 
disclosure of the total amount of construction and handling fees, 
rather than an individual listing of each separate fee, the change made 
in finalizing comment 37(f)-3 confirms that the total fee is disclosed.
    Otherwise, comment 37(f)-3 is adopted as proposed. Construction 
loan inspection and handling fees are loan costs uniquely associated 
with construction transactions and, as a commenter agreed, they are 
often significant amounts. Because of the amounts involved, the Bureau 
considers that disclosure of these amounts is particularly helpful in 
promoting informed use of credit, and therefore merit separate 
handling. The Bureau recognizes the difficulty of providing accurate 
disclosures at or before consummation of amounts that will be collected 
after consummation. For that reason, comment 37(f)-3 includes a cross-
reference to comment 19(e)(1)(i)-1, which includes instruction on 
providing disclosures based on the best information reasonably 
available. Comment 37(f)(6)-3, which is discussed below and explains 
the use of an addendum to disclose inspection and handling fees 
collected after consummation, provides examples of what the best 
information reasonably available could be for such disclosures. 
Disclosures made consistent with these comments would be considered 
accurate, even though the inspection and handling fees actually 
collected after consummation in a particular transaction may differ 
from the amount of fees in previous similar transactions upon which the 
disclosures were based. To underscore this outcome, comment 37(f)-3 
also includes a cross-reference to Sec.  1026.17(e) and its commentary. 
Section 1026.17(e) generally provides that, if a disclosure becomes 
inaccurate because of an event that occurs after the creditor delivers 
the required disclosures, the inaccuracy is not a violation. Pursuant 
to that section, the disclosure of inspection and handling fees that is 
based on the best information reasonably available but that becomes 
inaccurate because of an event occurring after consummation, for 
example, topographical features are discovered or weather-related 
events occur that affect the complexity and timing of the inspections 
and therefore affect the amount or timing of the fees, would not be 
considered a violation.
    The impact of basing the disclosure of inspection and handling fees 
on the best information reasonably available and taking into account 
the effect of subsequent events is relevant for responding to the 
commenter that asked whether anticipated inspection fees in connection 
with multiple advance construction loan draws are subject to a 
tolerance if the amount disclosed changes between the Loan Estimate and 
the Closing Disclosures. These fees are subject to the same tolerance 
as any other fees disclosed as loan costs depending on the category 
into which they fall under Sec.  1026.19(e)(3), such as origination 
charges or fees for a service the consumer can or cannot shop for,

[[Page 37697]]

regardless of whether they are paid at or before closing and disclosed 
on the disclosures, or paid after consummation and disclosed on the 
addendum. Thus, if the fees are collected at or before consummation and 
are disclosed as ``Services Borrower Did Not Shop For,'' they would be 
subject to the same tolerance as other amounts under that heading. 
However, when such fees are to be collected after consummation and 
disclosed on an addendum based on the best information reasonably 
available, if a disclosure becomes inaccurate because of an event that 
occurs after the creditor delivers the required disclosures, the 
inaccuracy is not a violation, as provided by Sec.  1026.17(e).
    To provide an example of how the tolerance requirements would 
apply, in a case where a creditor does not permit the consumer to shop 
for the construction inspection service provider, the inspection and 
handling fees would be in the ``zero tolerance'' category under section 
Sec.  1026.19(e)(3)(i). If, at the time a Loan Estimate must be 
provided, the creditor has only a general sense of the scope and site 
of the construction (as is often the case), the creditor may disclose a 
total amount of inspection and handling fees based on the total amount 
of fees the creditor has previously charged in construction 
transactions the creditor believes to be similar to the present 
transaction. The creditor may also disclose a total amount of fees 
based on the estimate the creditor uses in setting the construction 
transaction's commitment amount. In either case, the creditor will 
likely consider the estimated number of inspections that will be 
required and the estimated cost of each inspection to arrive at a 
total, thus using the best information reasonably available. If after 
the Loan Estimate is provided the creditor discovers, for example, that 
the construction site has features that will require additional work 
and therefore additional and more complex inspections, the best 
information reasonably available to the creditor at that time is that 
the total inspection and handling fees will be greater than initially 
estimated. In such a case the creditor may issue a revised Loan 
Estimate pursuant to Sec.  1026.19(e)(3)(iv) to reset the tolerance for 
the inspection and handling fees.
    Further, if after consummation additional topographical features 
are discovered or weather-related events occur that result in 
additional or more costly inspections, consistent with Sec.  1026.17(e) 
there is not a violation when a disclosure becomes inaccurate because 
of an event that occurs after the creditor delivers the required 
disclosures. The example described here would apply both when the 
inspection and handling fees are disclosed in the loan costs table 
because they are collected at or before consummation and when such fees 
are disclosed in a separate addendum because they are collected after 
consummation.
    Therefore, if the inspection and handling fees are in a category of 
fees that is subject to tolerances and these fees change between the 
Loan Estimate and the Closing Disclosure without the disclosure of 
revised estimates that can reset tolerances, the applicable tolerance 
violation could be present. However, if the fees change after 
consummation because of subsequent events, as described in Sec.  
1026.17(e), there would not be a tolerance violation.
    The Bureau agrees with the commenter that noted construction loan 
inspection and handling fees are Loan Cost charges that must be added 
to the Total of Payments disclosures on the Loan Estimate and Closing 
Disclosure. This clarification will be provided in comment app. D-
7.viii, which is also being finalized in this final rule as discussed 
below as comment app D-7.vii. Although commenters assumed, correctly, 
that draw fees are included as inspection and handling fees, the Bureau 
is specifically including draw fees in comment 37(f)-3 for greater 
clarity.
37(f)(6) Use of Addenda
The Bureau's Proposal
    The Bureau proposed to add comment 37(f)(6)-3 to provide 
instruction for the addendum that would be used to disclose post-
consummation construction loan inspection and handling fees. If, 
pursuant to proposed comment 37(f)-3, a creditor is required to 
disclose construction loan inspection and handling fees that will be 
collected after consummation, proposed comment 37(f)(6)-3 explained 
that the creditor discloses the total of such fees under the heading 
``Inspection and Handling Fees Collected After Closing'' in an 
addendum. Proposed comment 37(f)(6)-3 also cross-referenced comment 
19(e)(1)(i)-1 and explained that, if the amount of post-consummation 
inspection and handling fees is not known at the time the disclosures 
are provided, the disclosures in the addendum would be based upon the 
best information reasonably available. To provide additional clarity, 
proposed comment 37(f)(6)-3 also included an example of the best 
information reasonably available standard for purposes of disclosing 
post-consummation inspection and handling fees by providing such 
information could include amounts the creditor has previously charged 
in similar transactions.
Comments Received
    The comments on the use of an addendum to disclose post-
consummation inspection and handling fees collected after consummation 
focused on the technical aspects of the addendum and related software 
implementation issues. Comments from a trade association stated its 
members were split on the use of an addendum for disclosing 
construction loan inspection and handling fees. The commenter noted 
concerns that the use of addenda may result in some borrowers 
overlooking these fees, although use of an addendum and omitting the 
fees from the cash to close table seemed appropriate if the creditor 
permits the consumer to take advances on the construction loan to cover 
these fees. The commenter proposed that, if the creditor does not 
permit advances on the construction loan to cover these costs, 
creditors should disclose the fees and factor them into the cash to 
close table on the Loan Estimate, but for the Closing Disclosure the 
fees should be disclosed on a separate addendum because the Closing 
Disclosure only permits the disclosure of borrower-paid costs in 
columns labeled ``At Closing'' or ``Before Closing.''
    Comments from a vendor's group asked for clarification of whether 
the heading ``Inspection and Handling Fees Collected After Closing'' 
should be formatted pursuant to comment 37(o)(5)-5, which requires that 
information disclosed on a separate page ``should be formatted 
similarly to form H-24 of appendix H to this part, so as not to affect 
the substance, clarity, or meaningful sequence of the disclosure'' or 
in any style of the creditor's choosing, so long as the heading meets 
the ``clear and conspicuous'' standards set forth in Sec.  
1026.37(o)(1) and associated commentary. The commenter noted proposed 
comment 37(f)(6)-3 makes reference to disclosing post-consummation 
inspection and handling fees on ``an addendum'' and asked the Bureau to 
clarify that this information may be included in any addendum provided 
in connection with the Loan Estimate, which contains other additional 
information, for example, pursuant to Sec.  1026.37(f)(6), or whether 
this information should be disclosed in a separate addendum. The 
commenter also estimated that software development for disclosure of 
post-consummation inspection and handling

[[Page 37698]]

fees on a separate section of the addendum would require significant 
time to implement.
    A vendor commented that disclosure of post-consummation inspection 
and handling fees on a separate section of an addendum would require 
significant software development. Another vendor commented that it 
generally supports the effort to provide clarification regarding 
inspection and handling fees, but believed that the programming 
required to differentiate fees paid at, before, and after consummation 
for the disclosures would be extremely complicated. Technology 
companies would be required to reprogram their software to provide for 
a new category of closing costs, with new data points that would need 
to be integrated between the different software companies to ensure 
their proper disclosure. The commenter believed a better alternative 
would be to allow creditors to disclose fees collected after 
consummation using their own methods in documentation that is separate 
from the Loan Estimate and Closing Disclosure, such as in their cover 
letter to consumers or in a separate page.
The Final Rule
    The Bureau is adopting comment 37(f)(6)-3 generally as proposed, 
but with some modifications in response to comments received on 
proposed comments 37(f)-3 and 37(f)(6)-3. Instead of referring to 
``post-consummation charges'' as the proposed comment did, comment 
37(f)(6)-3 as adopted is modified to emphasize that an addendum is used 
only if the fees are to be collected after consummation. This 
modification is made for consistency with comment 37(f)-3, which refers 
to inspection and handling fees collected at or before consummation and 
after consummation. This modification should also provide greater 
clarity because the use of ``post-consummation fees'' may create an 
impression that an addendum may be used for inspection and handling 
fees collected both at or before consummation and after consummation if 
the service that the fee covers is provided after consummation. If 
construction loan inspection and handling fees are collected at or 
before consummation, they are disclosed in the loan costs table and are 
counted for purposes of the calculating cash to close table. Only if 
the fees are expected to be collected after consummation are they 
disclosed in an addendum to the Loan Estimate and in an addendum to the 
Closing Disclosure and not counted for purposes of the calculating cash 
to close table. The Bureau considers when fees are collected to be a 
clearer determinant of when to use an addendum than if a creditor 
permits the consumer to take advances on the construction loan to cover 
these fees, as suggested by a commenter. An advance to cover these fees 
may be taken at or after consummation. If the advance is taken at 
consummation, the fee is collected at consummation and an addendum 
would not be used.
    Thus, if a consumer pays inspection and handling fees in cash that 
is not from loan proceeds at consummation, or if the fees are financed 
at consummation, they are considered collected at consummation and are 
disclosed in the Loan Costs table. In a construction transaction, a fee 
is financed at consummation if an advance to cover the fee is taken at 
consummation. However, if the creditor permits the consumer to take 
advances after consummation to cover construction loan inspection and 
handling fees, the fees are collected after consummation and would be 
disclosed on a Loan Estimate addendum and a Closing Disclosure 
addendum. Further, because the creditor would have estimated the amount 
of inspection and handling fees for purposes of setting the commitment 
amount to allow for sufficient funds to be available for advances to 
cover inspection and handling fees, comment 37(f)(6)-3 is also amended 
to include such estimates as an additional example of the best 
information reasonably available for inspection and handling fee 
disclosures.
    In response to commenters that requested additional clarification 
on the form of the addendum, comment 37(f)(6)-3 is further modified to 
specify that the total of construction loan inspection and handling 
fees is disclosed in an addendum, which may be the addendum pursuant to 
Sec.  1026.37(f)(6) or any other addendum or additional page under 
Sec.  1026.37. A cross-reference to comment 37(o)(1)-1, which explains 
the clear and conspicuous standard, is also added. Because comment 
38(f)-2, discussed below, includes a reference to comment 37(f)(6)-3 
for information on disclosing inspection and handling fees on the 
closing disclosure, a clarifying statement is added for consistency 
that for purposes of comment 38(f)-2, the addendum may be any addendum 
or additional page under Sec.  1026.38.
    To preserve a greater degree of consistency and clarity that such 
fees are included in the transaction, the Bureau is not adopting the 
suggestion from a commenter to allow creditors to disclose fees 
collected after consummation using their own methods in documentation 
that is separate from the Loan Estimate and Closing Disclosure. With 
respect to comments concerning the software development and 
implementation times estimated for these amendments, the Bureau refers 
to the discussion in part VI, below, regarding the final rule's 
effective date and optional compliance period.
37(g) Closing Cost Details; Other Costs
37(g)(4) Other
The Bureau's Proposal
    Section 1026.37(g)(4) requires the disclosure of any other amounts 
(other than amounts disclosed under Sec.  1026.37(g)(1) through (3)) in 
connection with the transaction that the consumer is likely to pay or 
has contracted, with a person other than the creditor or loan 
originator, to pay at consummation and of which the creditor is aware 
at the time of issuing the Loan Estimate. Comment 37(g)(4)-4 provides 
examples of items that are disclosed under Sec.  1026.37(g)(4), 
including but not limited to commissions of real estate brokers or 
agents, additional payments to the seller to purchase personal property 
pursuant to the property contract, homeowner's association and 
condominium charges associated with the transfer of ownership, and fees 
for inspections not required by the creditor but paid by the consumer 
pursuant to the property contract. Currently, amounts for construction 
costs, payoff of existing liens, or payoff of unsecured debt may be, 
but are not required to be, disclosed under Sec.  1026.37(g)(4). If 
such amounts are not disclosed under Sec.  1026.37(g)(4), they are 
factored into the cash to close calculations but are not otherwise 
disclosed on the Loan Estimate. The Bureau proposed to revise comment 
37(g)(4)-4 to require the disclosure of construction costs in 
connection with the transaction that the consumer will be obligated to 
pay, payoff of existing liens secured by the property identified under 
Sec.  1026.37(a)(6), or payoff of unsecured debt under Sec.  
1026.37(g)(4), unless those items are disclosed under Sec.  
1026.37(h)(2)(iii) on the optional alternative calculating cash to 
close table.
    It was expected that the proposed revisions to comment 37(g)(4)-4, 
together with the proposed revisions to comment 38(g)(4)-1 discussed in 
the section-by-section analysis of Sec.  1026.38(g)(4), would create 
greater consistency between disclosures on the Loan Estimate and 
Closing Disclosure for the clear and conspicuous disclosure of these 
amounts, thus facilitating consumer understanding. The preamble

[[Page 37699]]

of the proposed rule also stated the Bureau did not intend, by 
requiring disclosure under Sec.  1026.37(g)(4) of amounts for 
construction costs, payoff of existing liens, and payoff of unsecured 
debt, to subject them to a different determination of good faith than 
currently provided for in Sec.  1026.19(e)(3).
    In proposing the revisions to comment 37(g)(4)-4, the Bureau noted 
that it had considered requiring the disclosure of construction costs, 
payoff of existing liens, and payoff of unsecured debt under the 
summaries of transactions table on the Closing Disclosure under Sec.  
1026.38(j)(1)(v), instead of as ``closing costs'' under Sec. Sec.  
1026.37(g)(4) and 1026.38(g)(4), but did not because the Loan Estimate 
does not have a comparable summaries of transactions table. The Bureau 
noted that disclosing these costs on the summaries of transactions 
table on the Closing Disclosure would not result in these costs being 
enumerated consistently on both the Loan Estimate and the Closing 
Disclosure and would interfere with the comparability between the Loan 
Estimate and the Closing Disclosure.
    The Bureau also noted that it had considered requiring the 
disclosure of construction costs on an addendum, instead of as other 
closing costs under Sec.  1026.37(g)(4) on the Loan Estimate and Sec.  
1026.38(g)(4) on the Closing Disclosure. The construction costs would 
then be factored into the calculating cash to close table calculations 
with the sale price to yield an accurate cash to close amount. However, 
the Bureau noted this approach could add complexity to the calculations 
required on the Closing Disclosure.
    The proposed revision of comment 37(g)(4)-4 also cross-referenced 
proposed comment app. D-7.vii for an explanation of the disclosure of 
construction costs for a construction or construction-permanent loan 
and proposed comment app. D-7.viii for an explanation of the disclosure 
of construction loan inspection and handling fees.
Comments Received
    Comments on the proposed revision of comment 37(g)(4)-4, while 
generally supportive of the attempt to clarify the disclosure of 
payoffs and construction costs, did not generally favor the proposed 
method of disclosure. Some commenters did support the proposal or 
requested that alternative methods of disclosure be allowed to 
continue. A multi-bank financial holding company commenter stated it 
supported the proposed change, but did not explain the basis of its 
support. A consumer organization supported the proposal, stating 
consumer understanding is enhanced when these amounts appear in 
corresponding tables on the Loan Estimate and Closing Disclosure. A 
compliance specialist commenter also supported the proposed required 
disclosure of the three items under Sec.  1026.37(g)(4) or (h)(2)(iii) 
as applicable, stating the proposal would create a standardized 
disclosure framework for all creditors, but strongly opposed the 
disclosure of construction costs on an addendum.
    A nonprofit housing organization commenter supported the proposed 
disclosures but noted that the Bureau did not directly address financed 
funds placed into escrow for repairs to be completed after closing. 
This commenter recommended adoption of a new line in the calculating 
cash to close table called ``Rehabilitation Escrow'' where funds 
financed for home rehabilitation can be disclosed, stating that such 
disclosure will allow consumers to see all of the funds for the 
transaction in the calculating cash to close table without inaccurately 
labeling the rehabilitation funds as loan costs or closing costs. Two 
state bank association commenters and two national industry association 
commenters requested that the Bureau permit alternative methods of 
disclosing construction costs including disclosure on the alternative 
form in the payoffs and payments table, so long as the method used 
discloses the costs and the cash to close table and summaries of 
transactions table balance. These commenters stated parties should not 
be required to change programming that is reasonable and for which 
significant time and expense were spent for an alternative means of 
disclosure that the commenters believed did not provide a positive gain 
for consumers.
    However, a majority of the comments, including comments from 
financial institutions, title insurers, state and national industry 
associations, and software vendors all opposed the proposed required 
disclosure of construction costs, payoff of existing liens, and payoff 
of unsecured debt under Sec. Sec.  1026.37(g)(4) and 1026.38(g)(4).
    Several commenters believed that significant confusion would result 
from the proposed revision of comment 37(g)(4)-4. A financial 
institution commenter stated the proposed changes would confuse 
consumers, creditors, settlement agents, and real estate agents who for 
decades have not considered the costs covered by the proposed comment 
as closing costs. The commenter believed that disclosing funds 
available to draw through construction under ``Other Costs'' would 
significantly overstate a borrower's ``Total Closing Costs,'' which the 
commenter believed to be contrary to the overall purpose of providing 
clear and conspicuous disclosure related to costs and terms associated 
with a loan transaction. A vendor commenter also believed that the 
proposed method of disclosing payoffs and holdbacks would likely be 
confusing to consumers. The commenter stated consumers expect that the 
disclosures will categorize fees and charges to obtain and close the 
loan separately from the costs that are directly or indirectly related 
to the purpose of their transaction, such as payoffs of a prior lien or 
unsecured debt, or construction costs in a construction loan.
    Two trade association commenters stated the proposal will result in 
making the closing costs in many loans, including construction loans, 
appear to be enormous, causing concern and confusion on the part of 
consumers. A title insurer commenter and a vendor commenter were 
concerned that many consumers who see a large amount of closing costs 
on page one of the disclosures may be discouraged from continuing to 
the more detailed and technical information later in the disclosures. 
The commenters believed consumers may even decide not to move forward 
with a refinance or debt consolidation transaction that may be in their 
best interest, because they may believe the closing costs of the 
transaction to be prohibitively expensive.
    A vendor commenter and a title insurer commenter stated that under 
the proposal the actual closing costs that a consumer could negotiate 
or shop for would be ``framed'' within a much larger amount of total 
closing costs. The commenters believed such a framing effect may cause 
the actual closing costs in the transaction to be more difficult to 
discern by consumers and would likely hinder consumers' ability to 
compare the actual closing costs between lenders when shopping for 
mortgage loans. These commenters also believed consumers may view the 
actual closing costs for which they can negotiate or shop as less 
significant, because they could represent a small percentage of the 
total closing costs. A mortgage creditor commenter pointed out that 
Sec.  1026.37(g)(4)(iii) limits the number of items disclosed in 
section H of the Loan Estimate to five. If more than four items need to 
be disclosed, their charges are aggregated on the fifth line of section 
H

[[Page 37700]]

of the Loan Estimate. The commenter stated that as a result of such 
aggregation, the disclosure of construction costs, payoff of existing 
liens, and payoff of unsecured debt would often disappear into the 
aggregate amount along with other charges.
    A title insurer and a vendor commented that a consumer obtaining a 
mortgage loan for the purpose of consolidating credit card debt would 
likely be confused to see such credit card debt included in the amount 
of closing costs, because they would instead consider the payoffs of 
credit card debt to be a reason they are paying closing costs. A 
mortgage lender commenter stated that credit card debt paid at closing 
on a purchase transaction is distinctly different than a ``charge'' in 
connection with the transaction. A group of vendors commented that the 
proposed revision can lead to confusion and misapplication of the 
concept of ``third-party services'' by creditors. These commenters 
asked if a payoff is a ``third-party service not required by the 
creditor,'' what other types of costs could also be considered a 
``third-party service not required by the creditor'' and subject to 
good faith tolerance rather than a more restrictive tolerance? A 
possible unintended outcome could be that consumers may end up paying 
more at consummation than what is permitted. While such overpayments 
may ultimately be refunded, consumers would still be inconvenienced 
because of such confusion.
    Two trade association commenters, a financial institution 
commenter, a title insurer commenter, and a vendor commenter stated 
that varying the disclosure methodology between the standard and the 
alternative forms would be confusing to consumers, especially consumers 
comparing loans between creditors using the different versions of the 
disclosures. These commenters noted a creditor choosing to use the 
alternative form will show significantly lower closing costs than a 
creditor that uses the standard form.
    Several commenters stated that the proposed required disclosure is 
not an approach that has been tested extensively with regard to 
consumers. A title insurer commenter and a trade association commenter 
noted that consumer testing prior to issuance of the TILA-RESPA Final 
Rule did not include the payoff of the prior mortgage loan as a closing 
cost. A vendor commenter believed that consumer testing of this 
proposed method of disclosure of payoffs and holdbacks as closing costs 
should be conducted before its finalization, in light of the change it 
represents from the original design and testing of the disclosures.
    A group of vendors and an individual vendor commented that 
currently, all of their systems can support construction costs in 
``Section H. Other.'' However, these commenters noted the payment of 
construction costs is the purpose for obtaining the loan, just as the 
purchase of the real estate is the purpose of obtaining a general 
purchase loan. The commenters also noted the Bureau is not proposing 
that the sale price must be disclosed in ``Section H. Other'' even 
though it is also a purpose for which loan proceeds must be used. The 
commenters asked whether consumers would understand why the 
construction costs are a closing cost but the sales price is not. The 
commenters agreed if the proposed disclosure is mandated for all 
lenders, results will be consistent when shopping, although that does 
not mean that it is clear to consumers why these disclosures are 
described as closing costs.
    Two trade association commenters and a financial institution 
commenter stated the proposed revision of comment 37(g)(4)-4 can create 
both software and training issues, as loans with a seller would require 
entirely different instruction than those transactions where use of the 
alternate form is allowable. These commenters noted that creditors 
would be required to input the covered costs into their systems 
differently, depending on which version of the disclosures they were 
using, which will create software and staff training difficulties.
    Three trade association commenters stated the proposed addition of 
a specific required method of disclosing construction costs would 
require significant re-programming to the cash to close, loan costs, 
and summary of transactions calculations. Two of these commenters noted 
that many different software systems may be involved in the origination 
of a loan and the production of the disclosures, including loan 
origination software, lender's document production software, title 
production software, and collaborative closing portals. The commenters 
pointed out that these software systems may program the disparate set 
of payoffs and construction costs between the standard and alternative 
disclosures differently. Some systems may require coding of such costs 
only as payoffs and then automatically place the data differently 
between the versions of the disclosure, while some may require the user 
to code such costs differently as payoffs or closing costs between the 
different forms. The commenters concluded the difference in data 
formats may increase costs and frustrate the industry's efforts to use 
uniform data standards.
    A financial institution commenter disagreed with the comparability 
goal of the proposed revision, which would not have permitted 
disclosure of construction costs, payoff of existing liens, and payoff 
of unsecured debt under the summaries of transactions table on the 
Closing Disclosure under Sec.  1026.38(j)(1)(v) because the Loan 
Estimate does not have a comparable summaries of transactions table. 
This commenter believed the comparability goal should not be met at the 
expense of the goal of developing clear disclosures that help consumers 
understand the credit transaction and closing costs. A trade 
association commenter also took issue with the comparability goal of 
the proposal. This commenter stated disclosure on the summaries of 
transactions table is a method that is commonly used now by many 
creditors and closing agents to disclose construction costs or payoffs 
when the standard Closing Disclosure is used and is understood by 
consumers and settlements agents.
    A title insurer, an asset manager, and a group of vendors noted 
that the proposal did not account for disclosure of payoffs of other 
types of secured debt, such as a loan secured by an automobile, which 
should be treated consistently with other payoffs. These commenters 
recommended that the disclosure for payoff of any existing debt be 
treated consistently.
    Two trade association commenters urged excluding temporary 
construction financing transactions from coverage of the TILA-RESPA 
Rule, leaving only the permanent phase of a construction-permanent loan 
subject to the TILA-RESPA integrated disclosure requirements. These 
commenters noted the exclusion of such construction financing 
transactions from other Regulation Z requirements, such as those for 
high-cost mortgages and for making ability-to-repay determinations.
    Several commenters stated that payoffs and holdbacks should not be 
disclosed as closing costs under Sec. Sec.  1026.37(g)(4) and 
1026.38(g)(4) and instead suggested alternative disclosures. A title 
insurer commenter, a vendor commenter, two trade association 
commenters, and three creditor commenters recommended these costs 
should be disclosed in the ``Adjustments and Other Credits'' row of the 
calculating cash to close table under Sec.  1026.37(h)(1)(vii) on the 
Loan Estimate and under Sec.  1026.38(i)(8) on the Closing Disclosure, 
and in the summaries of transactions table on the Closing Disclosure 
under Sec.  1026.38 (j)(1)(v). The

[[Page 37701]]

commenters noted current comment 38(j)(1)(v)-1 clarifies that, 
``amounts paid to any existing holders of liens on the property in a 
refinance transaction'' are disclosed in the summaries of transactions 
table pursuant to Sec.  1026.38(j)(1)(v). These commenters generally 
stated such disclosures would ensure that closing costs appear together 
on the forms, but separate from payoffs and construction costs, which 
consumers do not think of as closing costs. A mortgage lender commenter 
stated it would seem to be more appropriate to provide for the 
availability of a version of the payoffs and payments table for 
purchase transactions in a consistent manner with transactions that do 
not involve a seller.
    Commenters also noted concerns with the reference to the ``bona 
fide cost of construction'' in proposed comment 37(g)(4)-4. A vendor 
group commenter requested that the language be modified to avoid any 
unintended consequences of stating that construction costs and payoffs 
are subject to good faith tolerance, subject to only whether the costs 
are bona fide or not. As an alternative, the commenter requested an 
explanation of how these costs are still subject to good faith 
tolerance as long as they are bona fide. An asset manager commenter 
stated the purpose behind the introduction of the ``bona fide'' 
requirement was not clear, and urged the Bureau to omit it from the 
final rule as it introduces confusion and uncertainty into the process.
The Final Rule
    In response to the comments received, the Bureau is not adopting 
the revision of comment 37(g)(4)-4 as proposed. Instead of requiring 
disclosure under Sec.  1026.37(g)(4) of construction costs in 
connection with the transaction, payoff of existing liens secured by 
the property identified under Sec.  1026.37(a)(6), and payoff of other 
secured or unsecured debt, the final rule provides for the disclosure 
of such amounts under Sec.  1026.38(j)(1)(v). Specifically, as 
discussed below in the section-by-section analysis of Sec.  
1026.38(j)(1)(v), comment 38(j)(1)(v)-2 as finalized identifies these 
amounts as examples of amounts that are disclosed under Sec.  
1026.38(j)(1)(v). The Bureau agrees with the commenters that noted 
payoffs of other types of secured debt, such as a loan secured by an 
automobile or another property, should be treated consistently with 
other payoffs.
    In the preamble to the proposal, the Bureau noted that it had 
considered proposing disclosure of these amounts under Sec.  
1026.38(j)(1)(v) in the summaries of transactions table, but had been 
concerned that disclosure of the amounts under Sec.  1026.38(j)(1)(v) 
would interfere with the comparability between the Loan Estimate and 
the Closing Disclosure.\78\ However, the Bureau has been persuaded by 
the comments raising concerns about the potential confusion that may 
result were these amounts to be disclosed on the Loan Estimate as 
``Other Costs'', and has concluded that the comparability goal should 
not override considerations of clarity. The Bureau is, therefore, 
providing for the disclosure of these amounts under Sec.  
1026.38(j)(1)(v).
---------------------------------------------------------------------------

    \78\ 81 FR 54317, 54340 (Aug. 15, 2016).
---------------------------------------------------------------------------

    In transactions subject to Sec.  1026.37(h)(1)(iii)(A)(2) and (B), 
a creditor factors construction costs in connection with the 
transaction that the consumer will be obligated to pay, payoff of 
existing liens secured by the property identified under Sec.  
1026.37(a)(6), and payoff of other secured or unsecured debt into the 
funds for borrower calculations under Sec.  1026.37(h)(1)(v). When 
these amounts are disclosed under Sec.  1026.38(j)(1)(v) on the Closing 
Disclosure, they are included in existing debt that is factored into 
the funds for borrower calculation under Sec.  1026.37(h)(1)(v). 
Comment 37(h)(1)(v)-2 explains that the total amount of all existing 
debt that is used in the funds for borrower calculation is the sum of 
the amounts that will be disclosed on the Closing Disclosure in the 
summaries of transactions table under Sec.  1026.38(j)(1)(ii), (iii), 
and (v), as applicable.
    This rule does not factor the disclosure of construction costs, 
payoff of existing liens, and payoff of unsecured debt into the 
adjustments and other credits calculation under Sec.  
1026.37(h)(1)(vii) for all transactions as requested by some of the 
commenters. The Bureau is concerned that including these amounts in the 
adjustments and other credits calculation would result in a very high 
estimated cash to close disclosure under Sec.  1026.37(h)(1)(viii) 
because the loan amount is not factored into the calculation for the 
Sec.  1026.37(h)(1)(vii) disclosure. As an example, including 
construction costs of $100,000 in adjustments and other credits on a 
Loan Estimate where the total closing costs under Sec.  
1026.37(h)(1)(i) are entirely offset by closing costs financed under 
Sec.  1026.37(h)(1)(ii) and the disclosures under Sec.  
1026.37(h)(1)(iii) through (vi) are each calculated to be $0 would 
result in an estimated cash to close amount of $100,000.
    However, there are circumstances when the payoff of other secured 
and unsecured debt would be included in the adjustments and other 
credits calculation under Sec.  1026.37(h)(1)(vii) rather than in the 
funds for borrower calculation under Sec.  1026.37(h)(1)(v). Because 
transactions using the down payment and funds for borrower calculation 
under Sec.  1026.37(h)(1)(iii)(A)(1) do not also use the funds for 
borrower calculation under Sec.  1026.37(h)(1)(v), these transactions 
account for payoffs of secured or unsecured debt by including such 
amounts in the adjustments and other credits calculation under Sec.  
1026.37(h)(1)(vii). Comment 37(h)(1)(vii)-6 includes payoffs of secured 
or unsecured debt in a purchase transaction disclosed using the formula 
under Sec.  1026.37(h)(1)(iii)(A)(1) as an example of amounts disclosed 
under Sec.  1026.37(h)(1)(vii). This example is consistent with the 
revision made by this rule to Sec.  1026.37(h)(1)(vii). Under the 
revision, amounts that are required to be paid by the consumer at 
closing in a transaction subject to Sec.  1026.37(h)(1)(iii)(A)(1) are 
included in the Sec.  1026.37(h)(1)(vii) calculation. A payoff of other 
secured or unsecured debt may be required to be paid in a purchase 
transaction subject to Sec.  1026.37(h)(1)(iii)(A)(1), which is a 
transaction in which the loan amount does not exceed sale price. In 
such circumstances, the payoff amounts, such as for a car loan, are 
included in the Sec.  1026.37(h)(1)(vii) calculation, rather than the 
Sec.  1026.37(h)(1)(v) calculation.
    The Bureau declines to exclude construction financing transactions 
from coverage as suggested by a set of commenters. Although such 
transactions are excluded from certain Regulation Z requirements, they 
have long been subject to Regulation Z disclosure requirements as 
evidenced by the history of Appendix D, which provides special 
procedures that creditors may use, at their option, to estimate and 
disclose the terms of multiple-advance construction loans. As stated in 
the TILA-RESPA Final Rule preamble, the Bureau believes that including 
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.\79\ The ``bona 
fide'' language in proposed comment 37(g)(4)-4 is omitted in this final 
rule in response to the commenters that noted

[[Page 37702]]

it may lead to misunderstanding and confusion.
---------------------------------------------------------------------------

    \79\ 78 FR 79730, 79793 (Dec. 31, 2013).
---------------------------------------------------------------------------

37(g)(6) Total Closing Costs
37(g)(6)(ii)
The Bureau's Proposal
    Section 1026.37(g)(6)(ii) requires creditors to disclose the amount 
of any lender credits. Comment 37(g)(6)(ii)-1 cross-references comment 
19(e)(3)(i)-5, which states that lender credits, as identified in Sec.  
1026.37(g)(6)(ii), represent the sum of non-specific lender credits and 
specific lender credits. However, comment 37(g)(6)(ii)-1 describes 
lender credits as payments from the creditor to the consumer that do 
not pay for a particular fee on the disclosures. To correct this 
inconsistency, the Bureau proposed to revise comment 37(g)(6)(ii)-1 to 
conform with the language in comment 19(e)(3)(i)-5. For the reasons 
discussed below, the Bureau is adopting the modifications to comment 
37(g)(6)(ii)-1 as proposed.
Comments Received
    The Bureau received comments on this proposal from industry 
individuals, a loan origination software vendor, a financial services 
advocacy organization, a large bank, a state bank trade association, a 
law firm, and a national credit union trade association. Generally 
commenters supported the proposal, and one industry commenter 
recommended implementing the proposal immediately. Some commenters 
stated that the proposal provides clearer guidance in regard to 
completion of Sec.  1026.37(g)(6)(ii) on the Loan Estimate.
    Several commenters did not oppose the proposal but posited other 
options for the Bureau to consider. An industry commenter requested the 
Bureau provide a concrete definition for ``specific lender credit'' and 
``general lender credit.'' They further suggested that the Bureau 
provide an alternate method of disclosing lender credits. Other 
commenters noted that there is consumer confusion regarding disclosure 
of lender credits between the Loan Estimate and Closing Disclosure, due 
to the ``Paid by Others'' column, which only appears on the Closing 
Disclosure. An industry commenter recommended that Sec.  
1026.37(g)(6)(ii) be revised to allow the disclosure of lender credits 
for the interest rate chosen, separate from other lender credits.
    Several commenters requested additional guidance from the Bureau on 
the tolerance implications of disclosing lender credits, including a 
request for additional guidance as to when it would be appropriate for 
a lender credit to decrease based on a changed circumstance or a 
borrower-requested change. Many commenters requested additional 
guidance for situations where the actual cost of a service increases 
from the estimate, and a creditor has provided a lender credit covering 
the entire estimated cost of a service. Commenters requested that 
comments 19(e)(3)(i)-5 and -6 be amended to state that where an actual 
cost decreases from the estimated cost provided to the consumer, a 
specific lender credit attached to that cost should be permitted to 
decrease with it.
The Final Rule
    The Bureau is adopting the modifications to comment 37(g)(6)(ii)-1 
as proposed. In response to the commenter question on the definition of 
``specific'' lender credits and ``general'' lender credits, the Bureau 
references the definition in comment 19(e)(3)(i)-5, which states that 
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 are generalized 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). With respect 
to commenters who sought alternate methods for disclosing lender 
credits or who expressed concern about the ``Paid by Others'' column, 
the Bureau declines to make changes that were not proposed and that 
would require significant changes to the disclosure forms themselves. 
Wholesale changes to the manner in which costs are displayed on the 
forms would require substantial reprogramming and the Bureau believes 
that, for changes of this nature, it would be prudent to first test 
them for consumer understanding.
    The Bureau also declines to make commenter-requested changes to 
comments 19(e)(3)(i)-5 and -6 to state that where an actual cost 
decreases from the estimated cost provided to the consumer, a specific 
lender credit attached to that cost should be permitted to decrease 
with it. In response to such request and other commenter requests for 
clarity on the tolerance implications of lender credits on the Loan 
Estimate, Sec.  1026.19(e)(3)(iv) already provides when a creditor may 
use a revised estimate for purposes of the Sec.  1026.19(e)(3) good 
faith determination. The section-by-section analysis of Sec.  
1026.19(e)(3)(i) in the TILA-RESPA Final Rule stated that, 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) are satisfied.\80\ Generally, lender credits are 
determined by the terms of the legal obligation between the creditor 
and consumer. Comment 17(c)(1)-1 requires that the disclosures reflect 
the terms to which the consumer and creditor are legally bound at the 
outset of the transaction and comment 19(e)(1)(i)-1 requires 
disclosures based on the best information reasonably available at the 
time the disclosure is provided to the consumer. Comment 17(c)(1)-1 
also specifies that the legal obligation between the creditor and 
consumer is determined by applicable State law or other law. Sales 
contracts, government program guidelines, or other requirements may be 
the basis for the legal obligation between the creditor and consumer. A 
creditor must retain evidence of compliance with the requirements of 
Sec.  1026.19(e), including Sec.  1026.19(e)(3)(iv), consistent with 
the record retention requirements in Sec.  1026.25(c)(1)(i).
---------------------------------------------------------------------------

    \80\ 78 FR 79730, 79824 (Dec. 31, 2013).
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37(h) Calculating Cash to Close
The Bureau's Proposal
    Section 1026.37(h) requires the disclosure of the calculation of an 
estimate of cash due from or to the consumer at consummation, under the 
heading ``Calculating Cash to Close,'' and permits the use of an 
optional alternative calculating cash to close table for transactions 
without a seller. The calculating cash to close table is designed to 
provide the consumer, using a standardized calculation methodology, 
with an estimate of the cash due from or to the consumer at 
consummation. The Bureau recognized when it adopted this requirement 
that the creditor may not know the amount of the deposit, payments to 
others, and funds that the consumer either will pay or will receive at 
consummation and required that the disclosures be based on the best 
information reasonably available.\81\ In doing so, the Bureau 
acknowledged that the actual amount of cash to close at consummation 
could differ significantly from the amount disclosed on the Loan 
Estimate, but determined, nonetheless, that consumers would benefit 
from receiving an estimate of cash due from or to the consumer at 
consummation on the Loan Estimate. Notably, the amounts disclosed in 
the calculating cash to close table are not subject to the specific

[[Page 37703]]

tolerances under Sec.  1026.19(e)(3) or Sec.  1026.22(a).
---------------------------------------------------------------------------

    \81\ 78 FR 79730, 79966-67 (Dec. 31, 2013).
---------------------------------------------------------------------------

    The Bureau proposed amendments to Sec.  1026.37(h) and its 
commentary to address many questions the Bureau has received from 
industry on the proper calculation of the various amounts disclosed on 
the calculating cash to close table and the variation among creditors 
in how the calculating cash to close disclosures are determined. The 
Bureau did not propose any amendments that would require modification 
of the Loan Estimate itself but did propose amendments that would 
clarify or amend calculations that impact the amounts disclosed on the 
calculating cash to close table. The Bureau also proposed similar 
amendments to Sec.  1026.38(e) and (i), which contain the Closing 
Disclosure's alternative and standard calculating cash to close tables, 
respectively.
    The Bureau sought comment on the calculating cash to close table 
for the Loan Estimate and the Closing Disclosure generally. The Bureau 
requested comments on possible alternative methods to determine the 
amounts disclosed on the calculating cash to close table, whether the 
proposed clarifications and revisions would result in more consistent 
calculation of the amounts on the calculating cash to close table, and 
other ways to simplify the calculating cash to close table while still 
providing the consumer with an estimate of the amount due from the 
consumer at consummation, consistent with the requirements of TILA 
section 128(a)(17) and the Bureau's goal of providing understandable 
and consistent information to consumers. The Bureau acknowledged that 
any redesign of the calculating cash to close table, including its 
components, could require extensive changes to existing processes and 
software investments by industry and sought comment on the extent of 
such changes that would be required by the Bureau's proposal, or by any 
other proposals suggested by commenters for revisions to the 
calculating cash to close table.
Comments Received
    General comments on the calculating cash to close table for the 
Loan Estimate in Sec.  1026.37(h) and for the Closing Disclosure in 
Sec.  1026.38(e) and (i) are discussed below. Specific comments on the 
proposed amendments to Sec.  1026.37(h) and Sec.  1026.38(e) and (i) 
are discussed in more detail in the section-by-section analyses related 
to those specific amendments.
    A variety of commenters, including trade associations, GSEs, a 
software vendor, a software vendor group, a mortgage company, a bank, 
and a financial holding company, acknowledged that the calculating cash 
to close tables provide important benefits to consumers and that the 
proposed revisions would improve the ability of creditors to comply 
with the calculating cash to close requirements and provide to 
consumers an accurate cash to close amount. Commenters argued that the 
calculating cash to close tables enable consumers to understand 
components of their cash to close amount without the need to wade 
through the detailed line items in the summaries of transactions or the 
payoffs and payments tables, and described the calculating cash to 
close tables as conducting many of the difficult calculations behind-
the-scenes so that consumers can review the high-level components of 
the calculations, which generally mirror how they think about the 
transaction. Commenters acknowledged the cost of reprogramming, but 
nonetheless supported the proposals, stating that the revised 
disclosure requirements would facilitate creditors' interactions with 
consumers and result in more accurate calculating cash to close 
disclosures.
    One mortgage company, which generally opposed the Bureau's 
proposals to make changes to the standard calculating cash to close 
tables, specifically noted that the alternative calculating cash to 
close tables function better, are less complicated, and present less 
information than the standard tables. Further, the commenter provided 
that the alternative calculating cash to close tables do not rely on 
mathematical formulas that bear no relationship to reality.
    A trade association commenter stated that secondary market 
investors who purchase loans are requiring use of the alternative 
tables for refinance transactions and asked the Bureau to clarify that 
the standard disclosures may be used for refinance transactions. The 
commenter explained that it would be helpful if a single disclosure 
form could be utilized for all types of transactions.
    A number of commenters, including other trade associations, 
mortgage companies, and a consumer group, stated that the standard 
calculating cash to close tables are confusing and complicated. Many 
commenters specifically identified the ``Closing Costs Financed (Paid 
from your Loan Amount)'' and ``Down Payment/Funds from Borrower'' 
labels and calculations as the main areas of concern, asserting that 
the mathematical formulas used to calculate these disclosures do not 
reflect how consumers understand those amounts in the context of a 
residential real estate transaction. One commenter also identified the 
``Funds for Borrower'' disclosure as fundamentally flawed for the same 
reasons.
    Commenters that opposed the proposed amendments suggested a variety 
of solutions, including that the Bureau remove the standard calculating 
cash to close tables, ``fix'' the tables completely, or leave the 
tables alone. Some commenters recommended that the Bureau remove the 
calculating cash to close tables on the Loan Estimate and Closing 
Disclosure, while others recommended that the table only be removed 
from the Closing Disclosure. Commenters that recommended that the 
calculating cash to close table be removed only from the Closing 
Disclosure asserted that the summaries of transactions table plays a 
duplicative role and results in a more accurate cash to close amount, 
rendering the Closing Disclosure's calculating cash to close table 
useless and a source of added confusion for consumers.
    According to some commenters, ``fixing'' the calculating cash to 
close tables completely would involve a complete overhaul of the 
tables. A consumer group argued that none of the proposed changes and 
clarifications will make the table more understandable to consumers. 
The commenter provided examples of its proposed new format, which 
itemizes what the borrower must pay and what is paid by or for the 
borrower, and does not include the closing costs financed disclosure. 
The closing costs financed disclosure would instead be moved to the 
last page. Another commenter recommended that the calculating cash to 
close tables be expanded to identify each formula used and the values 
that are included in each calculation.
    Other commenters suggested different solutions to ``fix'' the 
calculating cash to close tables. These commenters asserted that 
``fixing'' the calculating cash to close tables completely would 
involve replacing the current formulas for the closing costs financed, 
down payment/funds from borrower, and, as requested by one commenter, 
the funds for borrower calculations, with instructions that will allow 
creditors to disclose amounts that consumers will better understand. 
Creditors stated that they are unable to explain the formulas, as they 
currently exist, in a manner that is understandable to consumers.
    Some of these commenters also suggested revisions to the label for 
the closing costs financed and the down payment/funds from borrower 
disclosures to help alleviate consumer confusion. For example, one 
commenter

[[Page 37704]]

suggested renaming the closing costs financed disclosure with what it 
viewed as a more appropriate label, such as ``Amount Resulting from 
Sec.  1026.38(i)(3) Calculation.'' In addition, some commenters 
recommended that the Bureau relabel the down payment/funds from 
borrower disclosure to eliminate consumer confusion. One recommendation 
was for the Bureau to remove the label ``Down Payment'' on the Loan 
Estimate and Closing Disclosure so that the disclosure is simply 
labeled ``Funds from Borrower.'' Alternatively, commenters suggested 
the Bureau relabel the disclosure as ``Funds from Borrower'' for a 
transaction that does not involve a seller and ``Funds from Borrower 
(including Down Payment)'' or ``Down Payment & Funds from Borrower'' 
for a transaction involving a seller. The suggested labels for 
transactions with sellers would convey to the consumer that the amount 
disclosed includes the down payment, as the term is commonly 
understood, but may also include other amounts.
    Commenters that recommended that the Bureau not amend the 
calculating cash to close tables contended that the proposed amendments 
will provide only marginal improvements to the tables without 
addressing the more significant concerns with the closing costs 
financed and down payment/funds from borrower calculations. These 
commenters argued that implementing the proposed amendments will result 
in significant costs related to programming, operational procedures, 
testing, training, developing policies, and internal auditing.
The Final Rule
    After considering the comments, the Bureau is not in this final 
rule deviating significantly from the proposed amendments, which 
address many questions the Bureau has received from industry on the 
proper calculation of the various amounts disclosed on the calculating 
cash to close tables and the variation among creditors in how the 
calculating cash to close disclosures are determined. Removing the 
calculating cash to close table from the Loan Estimate or Closing 
Disclosure, as requested by some commenters, would be a significant 
change from the current disclosure requirements. The Bureau did not 
propose such a departure, nor did the Bureau receive comments on the 
effect on consumers of removing the calculating cash to close tables. 
The Bureau believes, as do a number of commenters, that the calculating 
cash to close tables provide important benefits to consumers. In 
addition to promoting the informed use of credit (which is a purpose of 
TILA), the calculating cash to close tables ensure that the features of 
the transaction are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the loan product, consistent with 
section 1032(a) of the Dodd-Frank Act. The tables conduct many of the 
difficult calculations behind-the-scenes so that consumers can review 
the high-level components of the calculation. The calculating cash to 
close tables contain disclosures required by TILA section 128(a)(17), 
including the amount of settlement charges included in the loan 
(closing costs financed disclosure) and the amount of charges the 
borrower must pay at closing (cash to close amount). The Bureau 
believes that the amendments, as finalized, will improve the ability of 
creditors to comply with the calculating cash to close requirements and 
provide to consumers a more accurate cash to close amount.
    Similarly, making the revisions requested by some commenters would 
also be a significant change from the current disclosure requirements. 
As discussed above, some commenters requested that the Bureau amend the 
closing costs financed and down payment/funds from borrower formulas to 
more closely reflect consumers' understanding of these disclosure 
items. In response, the Bureau notes that each of the calculating cash 
to close disclosure components is designed to work in conjunction with 
the other calculating cash to close disclosures to yield the estimated 
amount of cash due from or to the borrower at closing for a wide 
variety of transaction types. Because money is fungible, in order to 
create standardized disclosures that can be utilized in a wide variety 
of transaction types, the Bureau had to create formulas that earmarked 
loan funds for specific disclosures, including the closing costs 
financed and down payment/funds from borrower disclosures. In addition, 
the Bureau designed the closing costs financed disclosure, which is a 
necessary component of the standard calculating cash to close tables, 
to satisfy the TILA section 128(a)(17) statutory requirement to 
disclose the amount of settlement charges included in the loan. 
Removing that disclosure from the standard calculating cash to close 
tables would result in an inaccurate disclosure of the amount due from 
the consumer at consummation, which would be inconsistent with another 
statutory requirement in TILA section 128(a)(17). One commenter even 
admitted that it tried to develop an alternative closing costs financed 
formula that would work for all transaction types but was unable to do 
so.
    The Bureau recognizes that creating revised labels for the closing 
costs financed and down payment/funds from borrower disclosures, as 
suggested by some commenters, could alleviate confusion associated with 
the disclosures. Consumers would no longer associate the amount 
disclosed on the currently labeled ``Closing Costs Financed (Paid from 
your Loan Amount)'' line of the calculating cash to close table with 
the amount of closing costs they understand to be financed in their 
transactions, or the amount disclosed on the currently labeled ``Down 
Payment/Funds from Borrower'' line of the calculating cash to close 
table with the amount of the down payment they understand to be making 
in their transactions. However, as discussed in the proposal, the 
Bureau's focus in this rulemaking is to provide additional clarity to 
facilitate compliance on an expedited schedule. The labels on the Loan 
Estimate and Closing Disclosure forms were developed through consumer 
testing processes, and it is not feasible, on an expedited schedule, to 
reengage in consumer testing to validate revised labels. Although 
consumer testing of disclosures is not necessary in all instances, the 
Bureau considers that such testing is important in this context. The 
Bureau also notes that the down payment/funds from borrower disclosure 
required under Sec.  1026.37(h)(1)(iii) equally emphasizes ``Down 
Payment'' and ``Funds from Borrower'' in its current display of ``Down 
Payment/Funds from Borrower.'' Its calculation is designed to encompass 
the down payment and other funds due from the borrower using a formula 
that can be applied to a variety of transaction types, including 
transactions with and without sellers.
    The Bureau is not amending the calculating cash to close tables to 
include the formulas used to calculate the individual components, as 
suggested by one commenter. The tables intentionally conduct the 
calculations behind-the-scenes so that consumers can review the high-
level components of the calculation. Consumers wishing to see the final 
details of their transaction can review the summaries of transactions 
table or the payoffs and payments table on the Closing Disclosure, as 
applicable.
    The Bureau is also not completely overhauling the calculating cash 
to close tables, as suggested by a consumer group. The commenter's 
proposed new format would itemize what the borrower

[[Page 37705]]

must pay and what is paid by or for the borrower, and would not include 
the closing costs financed disclosure, which would instead be moved to 
the last page. The examples ranged in length from 11 lines (for a 
refinance transaction) to 16 lines (for a purchase transaction), and 
were substantially longer than the current calculating cash to close 
tables, which are four lines on the alternative calculating cash to 
close tables, seven lines on the Loan Estimate's standard calculating 
cash to close table, and nine lines on the Closing Disclosure's 
standard calculating cash to close table. The Bureau believes the 
degree of itemization in the calculating cash to close tables proposed 
by the commenter is unnecessary and frustrates the benefits of the 
calculating cash to close tables identified by other commenters, 
including providing consumers with the high-level components of the 
cash to close calculation and enabling consumers to understand 
components of their cash to close amount without the need to wade 
through the detailed line items in the summaries of transactions or the 
payoffs and payments tables.
    As discussed above, a trade association commenter asked the Bureau 
to clarify that the standard disclosures may be used for refinance 
transactions. The commenter is correct that, under the Bureau's 
regulations, the standard calculating cash to close tables may be used 
for refinance transactions. A refinance transaction may be disclosed 
using the optional alternative calculating cash to close table under 
Sec.  1026.37(h)(2), but use of that table is not required. However, if 
the creditor previously disclosed the optional alternative calculating 
cash to close table under Sec.  1026.37(h)(2), the alternative 
calculating cash to close table must also be disclosed under Sec.  
1026.38(e). At the same time, secondary market investors may decide, as 
a business practice, to impose additional requirements, such as 
requiring the use of the alternative disclosures for refinance 
transactions.
    The Bureau believes that finalizing the proposed amendments, with 
some revisions as discussed in the applicable section-by-section 
analyses, is necessary in order to resolve issues that have arisen 
during the initial implementation of the TILA-RESPA Rule and on which 
industry has asked the Bureau for guidance. The Bureau has been, and 
remains, engaged in extensive efforts to support industry 
implementation, and finalizing proposed clarifications and amendments 
related to the calculating cash to close tables is one such effort.
    The Bureau is finalizing the proposed amendments and additional 
revisions pursuant to the Bureau's authority under TILA section 105(a) 
and Dodd-Frank Act section 1032(a). The Bureau believes that finalizing 
the proposed amendments and additional revisions will effectuate the 
purposes of TILA by facilitating the informed use of credit. Providing 
consumers with information about the cash to close amount and its 
critical components helps ensure that the features of the transaction 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to understand better the costs, benefits, 
and risks associated with the transaction, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a).
37(h)(1) for All Transactions
The Bureau's Proposal
    Section 1026.37(h)(1) requires the disclosure of a calculation, 
yielding an estimate of the cash needed from the consumer at 
consummation of the transaction, based on seven components. Each of the 
seven components, disclosed under Sec.  1026.37(h)(1)(i) through (vii), 
respectively, is determined by a prescribed calculation. The Bureau 
proposed to add comment 37(h)(1)-2 to clarify that, on the Loan 
Estimate for simultaneous subordinate financing, the sale price 
disclosed under Sec.  1026.37(a)(7) would not be used in any of the 
Sec.  1026.37(h)(1) calculations. The Bureau explained that omitting 
the sale price from the calculating cash to close table calculations 
required under Sec.  1026.37(h)(1) for simultaneous subordinate 
financing transactions would result in a cash to close amount 
reflecting the proceeds of the simultaneous subordinate financing, 
itself included on the first-lien Loan Estimate in the disclosure under 
Sec.  1026.37(h)(1)(vii).
    In the proposal, with respect to the Closing Disclosure, the Bureau 
would have structured the calculating cash to close table calculations 
in Sec.  1026.38(i) to use the sale price disclosed under Sec.  
1026.38(j)(1)(ii), and further would have provided in proposed comment 
38(j)(1)(ii)-1 that for simultaneous subordinate financing 
transactions, the sale price would not be disclosed under Sec.  
1026.38(j)(1)(ii). Thus, these proposed amendments would have meant 
that for simultaneous subordinate financing, the sale price disclosed 
under Sec.  1026.38(j)(1)(ii) would not be used in any of the Sec.  
1026.38(i) calculations.
Comments Received
    A compliance professional supported the proposal to clarify that, 
on the Loan Estimate for simultaneous subordinate financing, the sale 
price disclosed under Sec.  1026.37(a)(7) would not be used in any of 
the Sec.  1026.37(h)(1) calculations. A financial holding company 
stated that if the sale price is removed from the calculating cash to 
close table calculations for simultaneous subordinate financing, the 
calculations do not work on the Loan Estimate or Closing Disclosure. A 
title insurance company noted that the Bureau did not make a 
corresponding change to the commentary to Sec.  1026.38(i), so the 
change appears only to affect the Loan Estimate. A commenter explained 
that revisions which clarify how simultaneous subordinate financing is 
disclosed, including treatment of the sale price, require systems 
changes which will take a full software cycle to implement.
The Final Rule
    For the reasons discussed below, the Bureau is finalizing comment 
37(h)(1)-2 as proposed with technical and conforming revisions. The 
Bureau believes that excluding the sale price from the calculating cash 
to close calculations for simultaneous subordinate financing purchase 
transactions will result in a more accurate disclosure of the actual 
subordinate financing transaction and reduce consumer confusion. As 
discussed above, the Bureau explained in the section-by-section 
analysis of Sec.  1026.37(h)(1) of the proposal that omitting the sale 
price from the cash to close calculations required under Sec.  
1026.37(h)(1) for simultaneous subordinate financing transactions would 
result in a cash to close amount reflecting the proceeds of the 
subordinate financing, itself included on the first-lien Loan Estimate 
in the disclosure under Sec.  1026.37(h)(1)(vii). The Bureau notes that 
this statement is no longer accurate with respect to the final rule. As 
discussed in the section-by-section analysis of Sec.  1026.38(j)(1)(v), 
the Bureau is making amendments in the final rule to permit creditors 
to reflect the proceeds of the subordinate financing that will be 
applied to the first-lien transaction in the summaries of transactions 
table on the subordinate financing Closing Disclosure. Amounts that 
will be disclosed under Sec.  1026.38(j)(1)(v) on the Closing 
Disclosure will be factored into the Loan Estimate in one of two ways. 
In transactions subject to Sec.  1026.37(h)(1)(iii)(A)(2) and (B), a

[[Page 37706]]

creditor factors amounts that will be disclosed under Sec.  
1026.38(j)(1)(v) into the funds for borrower calculation under Sec.  
1026.37(h)(1)(v). However, in transactions subject to Sec.  
1026.37(h)(1)(iii)(A)(1), a creditor factors amounts that will be 
disclosed under Sec.  1026.38(j)(1)(v) into the adjustments and other 
credits calculation under Sec.  1026.37(h)(1)(vii).
    The Bureau is also amending proposed comment 37(h)(1)-2 to refer to 
the sale price disclosure in Sec.  1026.37(a)(7)(i) when referring to 
the sale price, for greater specificity. Section 1026.37(a)(7)(ii) 
provides for the disclosure of the estimated property value, and the 
Bureau does not intend to reference the estimated property value 
disclosure in final comment 37(h)(1)-2.
    The Bureau does not agree with an assertion raised by one commenter 
that the calculating cash to close table calculations will not work if 
the sale price is omitted from the calculations for the simultaneous 
subordinate financing Loan Estimate and Closing Disclosure. Unless 
information specific to the first-lien transaction, including the loan 
amount, is accounted for in the simultaneous subordinate financing 
calculating cash to close table calculations, inclusion of the sale 
price in the subordinate financing cash to close calculations will 
result in a large cash to close amount owed by the consumer, instead of 
a cash to close amount specifically for the subordinate financing 
transaction. The Bureau believes it is less burdensome to subordinate-
lien creditors to omit the sale price from the simultaneous subordinate 
financing cash to close calculations than to import various elements of 
the first-lien transaction into the simultaneous subordinate financing 
calculating cash to close table calculations. For greater clarity and 
ease of implementation, the Bureau is amending Sec. Sec.  
1026.37(h)(1)(iii) and 1026.38(i)(4)(ii) to provide that for 
simultaneous subordinate financing, the down payment/funds from 
borrower amount is determined in accordance with Sec. Sec.  
1026.37(h)(1)(v) and 1026.38(i)(6)(iv), respectively.
    As discussed above, a title insurance company noted that the Bureau 
did not propose an amendment to the commentary to Sec.  1026.38(i) 
similar to the amendment set forth in proposed comment 37(h)(1)-2, 
which caused the commenter to believe that the guidance regarding sale 
price and simultaneous subordinate financing only affects the Loan 
Estimate. The Bureau notes, however, that consistent with the proposal, 
the Bureau is structuring the calculating cash to close table 
calculations in Sec.  1026.38(i) to use the sale price disclosed under 
Sec.  1026.38(j)(1)(ii), and further is providing in final comment 
38(j)(1)(ii)-1 that for simultaneous subordinate financing purchase 
transactions, the sale price is not disclosed under Sec.  
1026.38(j)(1)(ii). These final amendments mean that for simultaneous 
subordinate financing purchase transactions, because no sale price is 
disclosed under Sec.  1026.38(j)(1)(ii), no sale price would be used in 
any of the Sec.  1026.38(i) calculations. As a result, the Bureau does 
not believe that a provision corresponding to the one in final comment 
37(h)(1)-2 is needed in the commentary to Sec.  1026.38(i). 
Nonetheless, the Bureau is making additional revisions to the 
commentary to Sec.  1026.38(i) to clarify that no sale price is used in 
any of the Sec.  1026.38(i) calculations for simultaneous subordinate 
financing purchase transactions. As discussed in the section-by-section 
analysis of Sec.  1026.38(i)(3), the Bureau is amending comment 
38(i)(3)-1 to explain that for some loans, such as simultaneous 
subordinate financing purchase transactions, no sale price will be 
disclosed under Sec.  1026.38(j)(1)(ii) in accordance with final 
comment 38(j)(1)(ii)-1. In addition, as discussed above and in the 
section-by-section analysis of Sec.  1026.38(i)(4), the Bureau is 
revising Sec.  1026.38(i)(4)(ii) and its commentary to make clear that 
on the simultaneous subordinate financing Closing Disclosure, the down 
payment/funds from borrower amount is determined in accordance with the 
formula in Sec.  1026.38(i)(6)(iv).
    The Bureau is providing industry sufficient time to implement all 
of the amendments related to simultaneous subordinate financing. As 
discussed in part VI below, the rule will be effective 60 days from 
publication in the Federal Register, but there will be an optional 
compliance period in effect until October 1, 2018.
37(h)(1)(i) Total Closing Costs
    Section 1026.37(h)(1)(i) requires a creditor to disclose the amount 
of total closing costs disclosed under Sec.  1026.37(g)(6) as a 
positive number, labeled ``Total Closing Costs.'' The Bureau did not 
propose any amendments to Sec.  1026.37(h)(1)(i), but the Bureau did 
propose to address concerns regarding the required disclosure of 
negative and positive numbers elsewhere, including in Sec.  
1026.37(h)(1)(vii) and (2)(iii), and Sec.  1026.38(e)(2)(ii) and 
(4)(ii). In addition, the Bureau received a comment from a software 
vendor requesting that the Bureau amend Sec.  1026.37(h)(2)(ii), the 
alternative calculating cash to close table's companion provision to 
Sec.  1026.37(h)(1)(i), to account for situations where the amount of 
total closing costs disclosed under Sec.  1026.37(g)(6) is a negative 
number, and the Bureau is amending Sec.  1026.37(h)(2)(ii) accordingly. 
Therefore, the Bureau believes it is also important to amend Sec.  
1026.37(h)(1)(i) to account for situations where the amount of total 
closing costs disclosed under Sec.  1026.37(g)(6) is a negative number. 
As amended, Sec.  1026.37(h)(1)(i) requires creditors to disclose under 
Sec.  1026.37(h)(1)(i) the amount disclosed under Sec.  1026.37(g)(6), 
labeled ``Total Closing Costs.'' While the Bureau notes that it is not 
common for the total closing costs disclosed under Sec.  1026.37(g)(6) 
to be a negative number, the Bureau concludes that it is nonetheless 
necessary to amend Sec.  1026.37(h)(1)(i) to address the limited 
circumstances in which a negative number is disclosed under Sec.  
1026.37(g)(6).
37(h)(1)(ii) Closing Costs Financed
The Bureau's Proposal
    Comment 37(h)(1)(ii)-1 explains that 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 under Sec.  1026.37(f) and (g) from the loan amount 
disclosed under 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). The Bureau 
proposed to revise comment 37(h)(1)(ii)-1 and add comment 37(h)(1)(ii)-
2 to provide greater clarity regarding the sale price and loan amount 
in relation to the closing costs financed calculation.
    The Bureau proposed to revise comment 37(h)(1)(ii)-1 to clarify 
that the sale price disclosed under Sec.  1026.37(a)(7) may be included 
in the closing costs financed calculation as a payment to a third party 
not otherwise disclosed under Sec.  1026.37(f) and (g). However, as 
explained in proposed comment 37(h)(1)-2, sale price would not have 
been used in any calculating cash to close table calculations on the

[[Page 37707]]

Loan Estimate for a simultaneous subordinate financing purchase 
transaction. Consistent with proposed revisions to comment 
37(h)(1)(ii)-1, the Bureau also proposed to add comment 38(i)(3)-1 to 
provide similar guidance for the Closing Disclosure regarding the sale 
price in relation to the closing costs financed calculation.
    In addition, the Bureau proposed to remove the word ``total'' from 
the phrase ``total loan amount'' in comment 37(h)(1)(ii)-1 because 
``total loan amount'' is a defined term under Sec.  1026.32(b)(4), and 
the Bureau intended only to reference the loan amount disclosed under 
Sec.  1026.37(b)(1). The Bureau also proposed a technical revision in 
comment 37(h)(1)(ii)-1 to reference the absolute value of the amount 
disclosed under Sec.  1026.37(h)(1)(ii) when that amount is negative in 
order for the calculation to work properly.
    Proposed comment 37(h)(1)(ii)-2 explained that the loan amount 
disclosed under Sec.  1026.37(b)(1) is the total amount the consumer 
will borrow, as reflected by the face amount of the note, consistent 
with proposed revisions to Sec.  1026.37(b)(1). The comment further 
explained that financed closing costs, such as mortgage insurance 
premiums payable at or before consummation, do not reduce the loan 
amount. The intent of this proposed comment was to clarify that, 
regardless of how the term ``loan amount'' is used by creditors or in 
relation to programmatic requirements of specific loan programs, for 
purposes of the Loan Estimate, the amount disclosed as the loan amount 
under Sec.  1026.37(b)(1), and the basis for the calculating cash to 
close table calculations, is the total amount the consumer will borrow 
as reflected by the face amount of the note. This definition of loan 
amount under Sec.  1026.37(b)(1) would not have affected how other 
agencies define or use similar terms for purposes of their own 
programmatic requirements. Consistent with proposed comment 
37(h)(1)(ii)-2, the Bureau also proposed to add comment 38(i)(3)-2 to 
provide similar guidance for the Closing Disclosure regarding the loan 
amount in relation to the closing costs financed calculation.
Comments Received
    A software vendor supported the proposed change to comment 
37(h)(1)(ii)-1, while also noting that the problem it addresses was not 
a significant concern to the industry. A software vendor and software 
vendor group noted a slight inconsistency between the language 
describing the closing costs financed calculation for the Loan Estimate 
in the proposed revisions to comment 37(h)(1)(ii)-1 and the Closing 
Disclosure in proposed comment 38(i)(3)-1, which could permit creditors 
to use two different calculations for the closing costs financed 
disclosures. Specifically, commenters identified the inclusion of the 
word ``may'' in reference to the Loan Estimate's closing costs financed 
formula in the proposed revisions to comment 37(h)(1)(ii)-1, which 
would give creditors a discretionary option to include or exclude the 
sale price in the closing costs financed disclosure on the Loan 
Estimate's calculating cash to close table, whereas on the Closing 
Disclosure, proposed comment 38(i)(3)-1 would have required that the 
sale price disclosed under Sec.  1026.38(j)(1)(ii) be included in the 
closing costs financed calculation.
    A software vendor expressed support for the Bureau's proposed 
comment 37(h)(1)(ii)-2 to clarify that financed mortgage insurance 
premiums do not reduce the loan amount used in the calculation. A trade 
association commenter did not support requiring the loan amount 
disclosed in Sec.  1026.37(b)(1) to be used in the closing costs 
financed calculation; instead, the commenter indicated that creditors 
should be permitted to use the ``base loan amount.''
The Final Rule
    For the reasons discussed below, the Bureau is finalizing the 
proposed amendments to comments 37(h)(1)(ii)-1 and -2 with revisions. 
The Bureau's use of the phrase ``may include the sale price disclosed 
under Sec.  1026.37(a)(7), if applicable'' in the proposed revisions to 
comment 37(h)(1)(ii)-1 was intended to address situations in which the 
standard calculating cash to close table is used for simultaneous 
subordinate financing, in which no sale price would be included, as 
described in proposed comment 37(h)(1)-2. However, the Bureau 
recognizes the need in final comment 37(h)(1)(ii)-1 for greater clarity 
and alignment with final comment 38(i)(3)-1 and is revising comment 
37(h)(1)(ii)-1 accordingly. For the reasons discussed in the section-
by-section analysis of Sec.  1026.37(h)(1), the Bureau is also amending 
comment 37(h)(1)(ii)-1 to refer to the sale price disclosure in Sec.  
1026.37(a)(7)(i) when referring to the sale price. As revised, final 
comment 37(h)(1)(ii)-1 provides, in part, that the estimated total 
amount of payments to third parties includes the sale price disclosed 
under Sec.  1026.37(a)(7)(i), if applicable, unless otherwise excluded 
under comment 37(h)(1)-2.
    The Bureau is also amending comment 37(h)(1)(ii)-1 to include 
additional examples for consistency with existing comment 37(g)(4)-4, 
which is not being revised as proposed. As discussed in the section-by-
section analysis of Sec.  1026.37(g)(4), the Bureau is not finalizing 
the proposal that would have required construction costs, payoff of 
existing liens, and payoff of unsecured debt to be disclosed under 
Sec.  1026.37(g)(4). The closing costs financed disclosure under Sec.  
1026.37(h)(1)(ii) excludes payments to third parties disclosed under 
Sec.  1026.37(f) and (g) from the calculation. Because amounts for 
construction costs, payoff of existing liens, and payoff of unsecured 
debt would be factored into either the funds for borrower calculation 
under Sec.  1026.37(h)(1)(v) or the adjustments and other credits 
calculation under Sec.  1026.37(h)(1)(vii), rather than disclosed under 
Sec.  1026.37(f) or under Sec.  1026.37(g), they will be included in 
the closing costs financed calculation as payments to third parties not 
otherwise disclosed under Sec.  1026.37(f) and (g).
    The Bureau believes its statement in proposed new comment 
37(h)(1)(ii)-2 that the loan amount is the total amount the consumer 
will borrow as reflected by the face amount of the note is sufficiently 
clear and is therefore streamlining the comment by removing the 
example. The Bureau is also making a technical correction, but is not 
otherwise amending proposed comment 37(h)(1)(ii)-2 as requested by a 
commenter. The loan amount disclosed under Sec.  1026.37(b)(1) is an 
integral part of the closing costs financed calculation, and the 
calculating cash to close table generally. Each of the calculating cash 
to close disclosures is designed to work in conjunction with the other 
calculating cash to close disclosures to yield the estimated amount of 
cash due from or to the consumer at closing for a wide variety of 
transaction types. The Bureau designed the calculations so that 
financed closing costs, such as mortgage insurance premiums payable at 
or before consummation, do not reduce the loan amount. For purposes of 
the Loan Estimate, the amount disclosed as the loan amount under Sec.  
1026.37(b)(1), and the basis for the calculating cash to close table 
calculations, is the total amount the consumer will borrow as reflected 
by the face amount of the note. The Bureau emphasizes that this 
definition of loan amount under Sec.  1026.37(b)(1) does not affect how 
other agencies may define or use similar terms for purposes of their 
own programmatic requirements. For example, the ``base

[[Page 37708]]

loan amount'' and ``total loan amount,'' as those terms are used for 
loans made under programs of the Federal Housing Administration (FHA), 
may not be the same as the loan amount required to be disclosed under 
Sec.  1026.37(b)(1).
37(h)(1)(iii) Down Payment and Other Funds From Borrower
The Bureau's Proposal
    Section 1026.37(h)(1)(iii)(A) requires the down payment and funds 
from borrower amount in a purchase transaction as defined in Sec.  
1026.37(a)(9)(i) to be disclosed as a positive number. In these 
transactions, the amount is calculated as the difference between the 
purchase price of the property and the principal amount of the credit 
extended. The calculation does not capture the amount of any existing 
loans that the consumer is assuming or any loans subject to which the 
consumer is taking title to the property (assumed or taken subject to) 
that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(2)(iv). Comment 37(h)(1)(iii)-1 explains that, in the case 
of a transaction other than a construction loan, where the loan amount 
exceeds the purchase price of the property, the amount disclosed must 
be $0. Section 1026.37(h)(1)(iii)(B) provides that, in all transactions 
other than purchase transactions as defined in Sec.  1026.37(a)(9)(i), 
the amount of estimated funds from the consumer is determined in 
accordance with Sec.  1026.37(h)(1)(v).
    The Bureau proposed to revise Sec.  1026.37(h)(1)(iii)(A) to 
account for the amount expected to be disbursed to the consumer or used 
at the consumer's discretion at consummation of the transaction in 
purchase transactions. Proposed Sec.  1026.37(h)(1)(iii)(A)(1) would 
have specified that, in a purchase transaction as defined in Sec.  
1026.37(a)(9)(i), the creditor subtracts the sum of the loan amount and 
any amount for loans assumed or taken subject to that will be disclosed 
on the Closing Disclosure from the sale price of the property, except 
when the sum of the loan amount and any amount for loans assumed or 
taken subject to that will be disclosed on the Closing Disclosure 
exceed the sale price of the property. Proposed Sec.  
1026.37(h)(1)(iii)(A)(2) would have provided that when the sum of the 
loan amount and any amount for loans assumed or taken subject to that 
will be disclosed on the Closing Disclosure exceeds the sale price of 
the property, the creditor calculates the estimated funds from the 
consumer in accordance with revised Sec.  1026.37(h)(1)(v).
    The Bureau also proposed to make conforming amendments to Sec.  
1026.37(h)(1)(iii)(B). As proposed, Sec.  1026.37(h)(1)(iii)(B) would 
have provided that, for all other transactions, the estimated funds 
from the consumer is also calculated in accordance with the funds for 
borrower calculation in revised Sec.  1026.37(h)(1)(v). The Bureau 
proposed to add new comment 37(h)(1)(iii)-2 to explain that the amount 
disclosed under Sec.  1026.37(h)(1)(iii)(A)(2) or (B) is determined in 
accordance with the funds for borrower calculation in revised Sec.  
1026.37(h)(1)(v).
    In addition, the Bureau proposed to replace current comment 
37(h)(1)(iii)-1 with a new comment. As a result of the proposed 
revisions to Sec.  1026.37(h)(1)(iii), current comment 37(h)(1)(iii)-1 
would not have been accurate or necessary. The Bureau proposed to 
remove current comment 37(h)(1)(iii)-1 and to replace it with guidance 
on the calculation set forth in the proposed revisions to Sec.  
1026.37(h)(1)(iii). Proposed new comment 37(h)(1)(iii)-1 explained the 
calculation that must be followed for accurate disclosure under Sec.  
1026.37(h)(1)(iii). The proposed comment also provided guidance 
regarding minimum cash investments. Some loan programs require 
borrowers to provide minimum cash investments, which, under the 
regulations or requirements of those loan programs, may be referred to 
as ``down payments.'' The proposed comment explained that the minimum 
cash investments required of consumers and referred to as ``down 
payments'' under some loan programs would not necessarily be reflected 
in the disclosure, and disclosure of the calculated amount would not 
affect compliance or non-compliance with such loan programs' 
requirements.
Comments Received
    In response to the Bureau's general solicitation of comment on the 
calculating cash to close table, many commenters raised concerns with 
the down payment and funds from borrower disclosure requirements. The 
Bureau discusses commenters' general concerns in the section-by-section 
analysis of Sec.  1026.37(h). The comments summarized below are related 
to the Bureau's specific proposals under Sec.  1026.37(h)(1)(iii) and 
its commentary.
    A bank commenter and a compliance professional supported the 
Bureau's proposal to account for the amount expected to be disbursed to 
the consumer or used at the consumer's discretion at consummation of 
the transaction in purchase transactions. The commenters stated that 
this change will allow the accurate reflection of proceeds due to the 
borrower at closing and urged the Bureau to adopt the proposal.
    A secondary market participant, a trade association, software 
vendors, and a software vendor group objected to the Bureau's 
distinction between the Bureau's down payment disclosure calculation 
and minimum cash investments required of consumers under some loan 
programs, which may also be called ``down payments'' under those loan 
programs. Two commenters argued that creditors would be setting up a 
particular definition of down payment for Sec. Sec.  1026.37 and 
1026.38 that is different from the definition of down payment used by 
consumers, other Federal agencies, and GSEs. The commenters asserted 
that it is misleading to disclose to the consumer a down payment amount 
that does not coincide with the consumer's understanding of what the 
down payment amount should be, and recommended that the Bureau relabel 
the disclosure as ``Funds from Borrower'' instead of ``Down Payment/
Funds from Borrower.'' Commenters also suggested variations of dynamic 
text such as ``Funds from Borrower (including Down Payment)'' and 
``Down Payment & Funds from Borrower'' for transactions involving a 
seller. One commenter stated that the distinction drawn by the Bureau 
in proposed new comment 37(h)(1)(iii)-1 would be extremely confusing to 
a consumer. The commenter asserted that it will be difficult for first 
time home buyers to understand that the federally insured home loan for 
which they are applying requires a certain down payment, but the 
federally required disclosure does not reflect that down payment 
amount. The commenter asserted that it would also be difficult to 
compare a Loan Estimate for a federally insured home loan program with 
a Loan Estimate for a conventional home loan program.
The Final Rule
    For the reasons discussed below, the Bureau is adopting, with 
revisions, the proposed amendments to Sec.  1026.37(h)(1)(iii) and 
proposed comments 37(h)(1)(iii)-1 and -2. The Bureau is adopting the 
amendment to Sec.  1026.37(h)(1)(iii) as proposed with revisions to 
clarify how Sec.  1026.37(h)(1)(iii) applies to simultaneous 
subordinate financing purchase transactions and transactions with 
improvements to be made on the property. The Bureau is also amending 
Sec.  1026.37(h)(1)(iii)(A)(1) and (2) to refer to the sale price 
disclosure in

[[Page 37709]]

Sec.  1026.37(a)(7)(i), specifically. The Bureau is making similar 
amendments to Sec.  1026.38(i)(4)(ii)(A). The Bureau is making minor 
technical revisions to Sec.  1026.37(h)(1)(iii)(B).
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.37(h)(1), under the proposal, in a simultaneous subordinate 
financing transaction, the sale price would have been omitted from the 
calculating cash to close table calculations, including under Sec.  
1026.37(h)(1)(iii). As a result, under the proposal, for simultaneous 
subordinate financing, proposed Sec.  1026.37(h)(1)(iii)(A)(2) would 
have applied because the loan amount disclosed under Sec.  
1026.37(b)(1) and any amount of existing loans assumed or taken subject 
to that will be disclosed under Sec.  1026.38(j)(2)(iv) would have 
exceeded the sale price of the property disclosed under Sec.  
1026.37(a)(7). At least one commenter on the proposal to omit the sale 
price from the cash to close calculations of simultaneous subordinate 
financing transactions suggested that it was not clear that proposed 
Sec.  1026.37(h)(1)(iii)(A)(2) would have applied to simultaneous 
subordinate financing. Therefore, the Bureau is amending proposed Sec.  
1026.37(h)(1)(iii)(A)(2) to explicitly provide that the down payment 
and funds from borrower amount for simultaneous subordinate financing 
is determined in accordance with Sec.  1026.37(h)(1)(iii)(A)(2). The 
Bureau is making similar amendments to Sec.  1026.38(i)(4)(ii)(A)(2).
    The Bureau anticipates that there may be similar uncertainty 
regarding which subparagraph of Sec.  1026.37(h)(1)(iii)(A) applies to 
purchase transactions that involve improvements to be made on the 
property. Therefore, the Bureau is also amending proposed Sec.  
1026.37(h)(1)(iii)(A)(2) to explicitly provide that the down payment 
and funds from borrower amount for purchase transactions that involve 
improvements to be made on the property is determined in accordance 
with Sec.  1026.37(h)(1)(iii)(A)(2). The Bureau is making similar 
amendments to Sec.  1026.38(i)(4)(ii)(A)(2).
    The Bureau is adopting proposed comment 37(h)(1)(iii)-1 with 
revisions. As discussed above, commenters raised concerns with the 
Bureau's distinction between the down payment disclosure calculation 
and minimum cash investments required of consumers under some loan 
programs, which may also be called ``down payments'' under those loan 
programs. The commenters recommended that the Bureau revise the ``Down 
Payment/Funds from Borrower'' label to remove or deemphasize the ``Down 
Payment'' aspect of the label. The Bureau is not amending Sec.  
1026.37(h)(1)(iii) in response to these comments. The Bureau notes that 
the disclosure required under Sec.  1026.37(h)(1)(iii) equally 
emphasizes ``Down Payment'' and ``Funds from Borrower'' with its 
current label, ``Down Payment/Funds from Borrower.'' Its calculation is 
designed to encompass the down payment and other funds from the 
borrower using a formula that can be applied to a variety of 
transaction types, including transactions with and without sellers. The 
Bureau is, however, amending proposed new comment 37(h)(1)(iii)-1 to 
make clear that the disclosure required under Sec.  
1026.37(h)(1)(iii)(A)(1) represents both the down payment and other 
funds from the borrower and to explain that the down payment and funds 
from borrower calculation is independent of any loan program or 
investor requirements. Because the Bureau is revising Sec.  
1026.37(h)(1)(iii)(A)(1) and (2) to refer to the sale price disclosure 
in Sec.  1026.37(a)(7)(i), specifically, as discussed above, the Bureau 
is also making a conforming revision in comment 37(h)(1)(iii)-1.
    The Bureau is adopting comment 37(h)(1)(iii)-2 as proposed with 
several revisions. The Bureau is revising proposed comment 
37(h)(1)(iii)-2 for conformity with revisions made to Sec.  
1026.37(h)(1)(iii) discussed above and for clarity. The Bureau also is 
incorporating portions of the regulatory text and commentary from final 
Sec.  1026.37(h)(1)(v) into comment 37(h)(1)(iii)-2 for additional 
clarity regarding the disclosure requirements when the funds for 
borrower formula under Sec.  1026.37(h)(1)(v) is used in accordance 
with Sec.  1026.37(h)(1)(iii)(A)(2) and (B).
37(h)(1)(v) Funds for Borrower
The Bureau's Proposal
    Section 1026.37(h)(1)(v) provides that the amount of down payment 
and funds from the borrower disclosed under Sec.  1026.37(h)(1)(iii)(B) 
and of funds for the borrower disclosed under Sec.  1026.37(h)(1)(v) 
are calculated by subtracting the principal amount of the credit 
extended, excluding any closing costs financed disclosed under Sec.  
1026.37(h)(1)(ii), from the total amount of all existing debt being 
satisfied in the transaction, except to the extent the satisfaction of 
such existing debt is disclosed under Sec.  1026.37(g). For purposes of 
the funds for borrower disclosure in Sec.  1026.37(h)(1)(v) and the 
down payment/funds from borrower disclosure in Sec.  
1026.37(h)(1)(iii)(B), the calculation is made under Sec.  
1026.37(h)(1)(v). When the result of the calculation is positive, that 
amount is disclosed under Sec.  1026.37(h)(1)(iii)(B) as ``Down 
Payment/Funds from Borrower,'' and $0 is disclosed under Sec.  
1026.37(h)(1)(v) as ``Funds for Borrower.'' When the result of the 
calculation is negative, that amount is disclosed under Sec.  
1026.37(h)(1)(v) as ``Funds for Borrower,'' and $0 is disclosed under 
Sec.  1026.37(h)(1)(iii)(B) as ``Down Payment/Funds from Borrower.'' 
When the result is $0, $0 is disclosed as ``Down Payment/Funds from 
Borrower'' and ``Funds for Borrower'' under Sec.  1026.37(h)(1)(iii)(B) 
and (v), respectively. Current comment 37(h)(1)(v)-1 clarifies that the 
funds for borrower calculation under Sec.  1026.37(h)(1)(v) is used in 
a non-purchase transaction to determine the amount disclosed under 
Sec.  1026.37(h)(1)(iii) and labeled ``Down Payment/Funds from 
Borrower,'' and that, in a purchase transaction, other than a 
construction loan, the amount disclosed under Sec.  1026.37(h)(1)(v) 
and labeled ``Funds for Borrower,'' will be $0, in accordance with 
Sec.  1026.37(h)(1)(v)(A).
    The Bureau proposed to revise Sec.  1026.37(h)(1)(v) to account for 
the amount expected to be disbursed to the consumer or used at the 
consumer's discretion at consummation in purchase transactions. As 
discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(iii) above, the Bureau proposed to amend the down 
payment/funds from borrower calculation under Sec.  1026.37(h)(1)(iii) 
to specify in proposed Sec.  1026.37(h)(1)(iii)(A)(2) that, in purchase 
transactions, when the sum of the loan amount and any amount for 
existing loans assumed or taken subject to that will later be disclosed 
under Sec.  1026.38(j)(2)(iv) exceeds the sale price, the funds for 
borrower calculation in Sec.  1026.37(h)(1)(v), as proposed to be 
revised, will be used for the transaction. The Bureau proposed 
conforming revisions to Sec.  1026.37(h)(1)(v) to reflect the proposed 
changes to Sec.  1026.37(h)(1)(iii)(A)(2). The Bureau also proposed to 
revise comment 37(h)(1)(v)-1 to conform with proposed revisions to 
Sec.  1026.37(h)(1)(iii)(A) and (v). The comment would have provided 
that, when the down payment is determined in accordance with Sec.  
1026.37(h)(1)(iii)(A)(1), $0 is disclosed under Sec.  1026.37(h)(1)(v) 
as funds for borrower.
    The Bureau also proposed to add comment 37(h)(1)(v)-2 to provide 
that the amounts disclosed under Sec.  1026.37(h)(1)(iii)(A)(2) or (B), 
as applicable, and Sec.  1026.37(h)(1)(v), are

[[Page 37710]]

determined by subtracting the sum of the loan amount disclosed under 
Sec.  1026.37(b)(1) and any amount of existing loans assumed or taken 
subject to that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(2)(iv) (less any closing costs financed disclosed under 
Sec.  1026.37(h)(1)(ii)) from the total amount of all existing debt 
being satisfied in the transaction. Proposed comment 37(h)(1)(v)-2 
further would have clarified that the phrase ``total amount of all 
existing debt being satisfied in the transaction'' includes amounts 
that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(1)(ii), (iii), and (v). The Bureau sought comment on whether 
defining the phrase ``total amount of all existing debt being satisfied 
in the transaction'' to mean specifically amounts that will be 
disclosed under Sec.  1026.38(j)(1)(ii), (iii), and (v) is too 
prescriptive and how else the Bureau might provide greater clarity 
around amounts that must be included in this calculation as part of the 
``total amount of all existing debt being satisfied by the 
transaction.'' Consistent with proposed revisions to Sec.  
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1, and proposed comment 
37(h)(1)(v)-2, the Bureau proposed similar provisions for the Closing 
Disclosure in Sec.  1026.38(i)(6)(iv) and comment 38(i)(6)(ii)-1, and 
proposed comment 38(i)(6)(ii)-2.
Comments Received
    A bank, a compliance professional, and a settlement agent supported 
the Bureau's proposed amendments to Sec.  1026.37(h)(1)(v). Two 
commenters stated that the amendments will allow the accurate 
reflection of proceeds due to the borrower at closing and urged the 
Bureau to adopt the proposal. One commenter expressed support for the 
prescriptive nature of proposed comment 37(h)(1)(v)-2 to clarify that 
the amounts included as existing debt being satisfied in the 
transaction are the amounts that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(ii), (iii), and (v), but cautioned 
that the proposed amendments to the commentary of Sec.  1026.37(g)(4) 
regarding the payoff of amounts secured by the real property would have 
unintended consequences because under the proposal, the debt would not 
be disclosed under those paragraphs. A software vendor noted a slight 
wording difference between proposed comment 37(h)(1)(v)-2 pertaining to 
the Loan Estimate and proposed amendments to comment 38(i)(6)(ii)-1 
pertaining to the Closing Disclosure. Specifically, proposed comment 
37(h)(1)(v)-2 provided that the total amount of all existing debt being 
satisfied in the transaction includes the amounts that will be 
disclosed on the Closing Disclosure in the summaries of transactions 
table under Sec.  1026.38(j)(1)(ii), (iii), and (v), as applicable. 
This commenter interpreted the word ``includes'' to mean ``includes, 
but is not limited to,'' whereas the proposed revisions to comment 
38(i)(6)(ii)-1 make clear that for the Closing Disclosure, the total 
amount of all existing debt being satisfied in the transaction is the 
sum of the amounts disclosed on the Closing Disclosure in the summaries 
of transactions table under Sec.  1026.38(j)(1)(ii), (iii), and (v), as 
applicable. The commenter requested that the Bureau revise the comments 
for better consistency and alignment.
The Final Rule
    For the reasons discussed below, the Bureau is adopting, with minor 
revisions and clarifications, the proposed amendments to Sec.  
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1, and proposed comment 
37(h)(1)(v)-2. The Bureau is adopting the amendments to Sec.  
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1 as proposed with minor 
revisions to conform to the additional clarifications contained in 
final comment 37(h)(1)(iii)-1. As discussed in the section-by-section 
analysis of Sec.  1026.37(h)(1)(iii), the Bureau is amending comment 
37(h)(1)(iii)-1 to make clear that the disclosure required under Sec.  
1026.37(h)(1)(iii) represents both the down payment and other funds 
from the borrower. The Bureau is making similar amendments to Sec.  
1026.37(h)(1)(v) and comment 37(h)(1)(v)-1.
    As discussed above, a commenter noted a slight wording difference 
between proposed comment 37(h)(1)(v)-2 pertaining to the Loan Estimate 
and the proposed revisions to comment 38(i)(6)(ii)-1 pertaining to the 
Closing Disclosure. The Bureau is revising comment 37(h)(1)(v)-2 to 
replace the word ``includes'' with the phrase ``is the sum of'' for 
consistency and alignment with final comment 38(i)(6)(ii)-1. The Bureau 
is also making minor technical revisions to comment 37(h)(1)(v)-2.
    As discussed above, a commenter cautioned that the proposed 
amendments to the commentary of Sec.  1026.37(g)(4) regarding the 
payoff of amounts secured by the real property would have unintended 
consequences for the proposal to define existing debt being satisfied 
in the transaction as the amounts that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(ii), (iii), and (v). As discussed 
in the section-by-section analysis of Sec.  1026.37(g)(4), the Bureau 
is not finalizing the proposal that would have required construction 
costs, payoff of existing liens, and payoff of unsecured debt to be 
disclosed under Sec.  1026.37(g)(4).
37(h)(1)(vi) Seller Credits
The Bureau's Proposal
    Section 1026.37(h)(1)(vi) requires creditors to disclose the amount 
that the seller will pay for total loan costs as determined by Sec.  
1026.37(f)(4) and total other costs as determined by Sec.  
1026.37(g)(5), labeled ``Seller Credits,'' under the heading 
``Calculating Cash to Close.'' Section 1026.37(f) and (g) requires 
creditors to disclose loan costs and other transaction costs under the 
headings ``Loan Costs'' and ``Other Costs,'' respectively. Current 
comments 37(h)(1)(vi)-1 and -2 contain guidance on disclosure of seller 
credits. The Bureau believes that under existing Sec.  1026.37, 
creditors have the option to disclose specific seller credits either 
under Sec.  1026.37(f) and (g) or under Sec.  1026.37(h)(1)(vi). 
Nonetheless, the Bureau has received questions on this issue. Thus, the 
Bureau proposed to amend comments 37(h)(1)(vi)-1 and -2 to provide that 
specific seller credits may be disclosed in the calculating cash to 
close table under Sec.  1026.37(h)(1)(vi) or, at the creditor's option, 
may be reflected within the amounts disclosed for those specific items 
in the Loan Costs and Other Costs tables, under Sec.  1026.37(f) and 
(g), respectively. For the reasons discussed below, the Bureau is 
finalizing comments 37(h)(1)(vi)-1 and -2 substantially as proposed but 
with certain minor changes.
Comments Received
    The Bureau received comments on these proposed changes from 
industry individuals, title companies, settlement agents, large banks, 
consumer groups, a large industry trade group, and non-banks. Generally 
commenters supported the proposal.
    Some industry commenters stated that seller credits should only be 
disclosed as ``lump sum'' credits under Sec.  1026.37(h)(1)(vi). Some 
of these commenters expressed the view that disclosing specific seller 
credits in the same location on each Loan Estimate creates consistency 
for consumers in comparing Loan Estimates. They further stated that 
requiring seller credits to be disclosed in the same location on each 
Loan Estimate under Sec.  1026.37(h)(1)(vi) would create less confusion 
for other parties involved in the transaction, including due diligence 
companies and secondary market investors. Several

[[Page 37711]]

commenters stated that the ``itemization'' of seller credits, the 
disclosure of specific seller credits within Sec.  1026.37(f) and (g), 
is a significant pain point for the secondary market, as due diligence 
companies are flagging errors in the disclosure of seller credits, 
because, often a creditor may not have received a breakdown of any 
specific credits at the time the creditor provided the disclosure. One 
industry commenter stated that the disclosure of specific seller 
credits within Sec.  1026.37(f) and (g) presents a burden on the 
creditor to adjust the disclosed amounts of affected closing costs, and 
masks the true amount of these settlement costs to the consumer. This 
commenter noted that the disclosure of seller credits within Sec.  
1026.37(f) and (g) could impact the calculation of good faith tolerance 
cures by lowering the disclosed costs of an individual service by the 
amount of the seller credit.
    Some industry and consumer group commenters, stated that the Bureau 
should require creditors to disclose specific seller credits only in 
the Loan Costs and Other Costs tables under Sec.  1026.37(f) and (g), 
respectively. They noted that requiring a single standard for 
disclosure of specific seller credits would allow consumers to more 
easily compare the Loan Estimate to the Closing Disclosure, as specific 
seller credits must be listed on the Closing Disclosures in the Loan 
Costs and Other Costs tables, under Sec.  1026.38(i)(7), in the seller-
paid column. The consumer group commenters further stated that 
consistent placement of seller credits on Loan Estimates would enhance 
consumer understanding during the shopping process by creating 
consistency in the disclosure of these credits.
    Many industry commenters stated that the Bureau should retain the 
optionality for disclosing specific seller credits under Sec.  
1026.37(f) and (g), respectively, or under Sec.  1026.37(h)(1)(vi). 
Some of these commenters noted that the optionality should be 
maintained because the application of seller credits is governed by 
contracts between buyers and sellers and government programs, such as 
the Veterans Affairs home loan program, which may dictate whether 
specific seller credits must be disclosed under Sec.  1026.37(f) and 
(g), or under Sec.  1026.37(h)(1)(vi). Commenters noted that requiring 
specific seller credits to be disclosed under Sec.  1026.37(f) and (g) 
or Sec.  1026.37(h)(1)(vi) would necessitate mortgage origination 
systems changes. An industry commenter noted that the Bureau should 
retain the optionality because the Bureau has not done any consumer 
testing to support taking away the optionality and that it is not clear 
that consumers are currently confused by the different approaches. 
Another industry commenter stated that it believes that mandating the 
manner in which specific seller credits are disclosed would remove the 
benefit of clarity the integrated disclosures were intended to provide. 
Another industry commenter noted that optionality should be retained to 
facilitate creditors' compliance with the good faith determination 
under Sec.  1026.19(e)(3) and relevant tolerances.
    A number of industry commenters requested additional clarification 
on disclosing specific seller credits on the Loan Estimate. One 
industry commenter specifically asked for clarification on situations 
where the actual cost for that service is less than the estimate. Other 
industry commenters requested clarification about whether a loan cost 
that is fully paid by a specific seller credit may be excluded from the 
Loan Costs and Other Costs tables entirely. A group of vendor 
commenters requested clarification on how flexibility in the disclosure 
of specific seller credits on the Loan Estimate affects the good faith 
determination under Sec.  1026.19(e)(3) and the relevant tolerance for 
those costs. Beyond the proposed clarification regarding the Loan 
Estimate, one industry bank commenter encouraged the Bureau to provide 
flexibility in displaying seller credits on the Closing Disclosure.
The Final Rule
    The Bureau has considered these comments and is finalizing 
amendments to comment 37(h)(1)(vi)-1 and finalizing amendments to 
comment 37(h)(1)(vi)-2 substantially as proposed with certain minor 
changes. The Bureau believes that final comments 37(h)(1)(vi)-1 and -2 
are consistent with existing Sec.  1026.37(h)(1)(vi), under which 
creditors already have the option to disclose seller credits in the 
calculating cash to close table under Sec.  1026.37(h)(1)(vi) or within 
the amounts disclosed for specific items in the Loan Costs and Other 
Costs tables under Sec.  1026.37(f) and (g). In response to commenter 
requests, the Bureau has added an additional example in comment 
37(h)(1)(vi)-2 to provide clarification on circumstances where a seller 
credit covers the entire cost of a service. Final comment 37(h)(1)(vi)-
2 provides the example that, if the creditor knows at the time of the 
delivery of the Loan Estimate that the seller has agreed to pay half of 
a $100 required pest inspection fee, the creditor may either disclose 
the required pest inspection fee as $100 under Sec.  1026.37(f) with a 
$50 seller credit disclosed under Sec.  1026.37(h)(1)(vi) or disclose 
the required pest inspection fee as $50 under Sec.  1026.37(f), 
reflecting the specific seller credit in the amount disclosed for the 
pest inspection fee. If the creditor knows at the time of the delivery 
of the Loan Estimate that the seller has agreed to pay the entire $100 
pest inspection fee, the creditor may either disclose the required pest 
inspection fee as $100 under Sec.  1026.37(f) with a $100 seller credit 
disclosed under Sec.  1026.37(h)(1)(vi) or disclose nothing under Sec.  
1026.37(f), reflecting that the specific seller credit will cover the 
entire pest inspection fee.
    The Bureau declines to implement requests that specific seller 
credits be disclosed exclusively in the calculating cash to close table 
under Sec.  1026.37(h)(1)(vi) or exclusively within the specific 
services in the Loan Costs and Other Costs tables under Sec.  
1026.37(f) and (g). Commenters provided arguments in support of both 
approaches, and many commenters supported preserving the optionality 
consistent with existing Sec.  1026.37(h)(1)(vi). Since the Bureau 
believes that comments 37(h)(1)(vi)-1 and -2 are consistent with 
existing Sec.  1026.37(h)(1)(vi), additional consumer testing is not 
necessary. In response to commenter requests for clarity on the 
disclosure of seller credits on the Loan Estimate, the Bureau provides 
the following discussion.
    Generally, seller credits are determined by the terms of the legal 
obligation between the seller and consumer. Since the creditor is not 
setting the terms of the legal obligation between a seller and a 
consumer, the basis for the optionality in disclosure of seller credits 
is defined in comment 37(h)(1)(vi)-2. Comment 19(e)(1)(i)-1 requires 
disclosures based on the best information reasonably available at the 
time the disclosure is provided to the consumer.
    Similar to the example provided in final comment 37(h)(1)(vi)-2, if 
consistent with the terms of the legal obligation between the seller 
and consumer, creditors may disclose the cost, in full, on the Loan 
Estimate in the Loan Costs or Other Cost tables, pursuant to Sec.  
1026.37(f) and (g), and disclose a seller credit pursuant to Sec.  
1026.37(h)(1)(vi), or creditors may just disclose the cost less the 
seller credit in the Loan Costs or Other Cost tables, pursuant to Sec.  
1026.37(f) and (g). For example, assume the terms of the legal 
obligation between the seller and consumer obligate the seller to 
provide a credit of $200 to the consumer to go

[[Page 37712]]

towards the cost of the appraisal. The creditor may disclose the full 
cost of the appraisal, $500, on the Loan Estimate, under Sec.  
1026.37(f)(2), Services You Cannot Shop For, and include the specific 
seller credit for $200 under Sec.  1026.37(h)(1)(vi). Alternatively, if 
consistent with the terms of the legal obligation, the creditor can 
show $300, i.e., the amount of the appraisal fee less the specific 
seller credit, on the Loan Estimate, under Sec.  1026.37(f)(2), 
Services You Cannot Shop For, and not include the specific seller 
credit pursuant to Sec.  1026.37(h)(1)(vi).
    In response to commenter requests for clarification on how 
disclosing seller credits on the Loan Estimate impacts the good faith 
determination under Sec.  1026.19(e)(3) and relevant tolerances, the 
Bureau provides the following example. Assume a seller offers to 
provide a $500 credit to the consumer to cover the anticipated cost of 
the appraisal. The creditor discloses an appraisal fee of $500, under 
Sec.  1026.37(f)(2), Services You Cannot Shop For, on the Loan Estimate 
and includes a seller credit of $500 under Sec.  1026.37(h)(1)(vi). The 
actual cost of the appraisal is $750. Assume that a review of the terms 
of the legal obligation between the creditor and consumer indicates 
that the consumer has agreed to be charged for any amount above the 
estimated $500 for the appraisal. Given this set of facts, if the 
creditor wants to reset the appraisal tolerance for purposes of the 
good faith determination, the creditor must issue revised disclosures 
with the corrected appraisal fee of $750, subject to the requirements 
of Sec.  1026.19(e)(3)(iv) and (e)(4).
    Assume the same example above, except that the creditor chooses not 
to disclose an appraisal fee under Sec.  1026.37(f)(2), Services You 
Cannot Shop For, on the Loan Estimate because the creditor assumed it 
would be covered by the $500 seller credit for the appraisal. Under 
these facts, and because the cost is in the zero tolerance category 
under Sec.  1026.19(e)(3)(i), if the actual appraisal cost turns out to 
be $750, the creditor will not be able to reset the appraisal tolerance 
for purposes of the good faith determination under Sec.  1026.19(e)(3), 
unless the creditor can otherwise establish a valid justification under 
Sec.  1026.19(e)(3)(iv).
    The Bureau declines to add further commentary in response to 
commenters requesting flexibility in disclosing seller credits on the 
Closing Disclosure, because, unlike the Loan Estimate, the Closing 
Disclosure has a seller-paid column.
37(h)(1)(vii) Adjustments and Other Credits
The Bureau's Proposal
    Section 1026.37(h)(1)(vii) requires that the amount of all loan 
costs determined under Sec.  1026.37(f) and other costs determined 
under Sec.  1026.37(g) that are to be paid by persons other than the 
loan originator, creditor, consumer, or seller, together with any other 
amounts that are required to be paid by the consumer at consummation 
pursuant to a purchase and sale contract, be disclosed as a negative 
number. This assumes that the amount required to be paid by the 
consumer at consummation pursuant to a purchase and sale contract will 
be less than the amount of credits, which, the Bureau understands, may 
not always be the case. Therefore, the Bureau proposed to revise Sec.  
1026.37(h)(1)(vii) to eliminate the requirement that the amount 
disclosed be a negative number. Also, as discussed below, the Bureau 
proposed to revise comments 37(h)(1)(vii)-1, -5, and -6.
    Current comment 37(h)(1)(vii)-1 clarifies that amounts expected to 
be paid by third parties not involved in the transaction, such as gifts 
from family members and not otherwise identified under Sec.  
1026.37(h)(1), are included in the amount disclosed under Sec.  
1026.37(h)(1)(vii), but the comment does not specify whether amounts 
received by the consumer prior to consummation must be included in the 
calculation. The Bureau proposed to revise comment 37(h)(1)(vii)-1 to 
distinguish between amounts paid by third parties at consummation and 
amounts given to consumers in advance of consummation. As proposed, the 
revision to comment 37(h)(1)(vii)-1 would have provided that amounts 
expected to be paid at consummation by third parties not involved in 
the transaction, such as gifts from family members and not otherwise 
identified under Sec.  1026.37(h)(1), would be included in the amount 
disclosed under Sec.  1026.37(h)(1)(vii), although amounts expected to 
be provided to consumers in advance of consummation by third parties 
not otherwise involved in the transaction, including gifts from family 
members, would not be required to be included in the amount disclosed 
under Sec.  1026.37(h)(1)(vii).
    Current comment 37(h)(1)(vii)-5 clarifies that funds that are 
provided to the consumer from the proceeds of subordinate financing, 
local or State housing assistance grants, or other similar sources are 
included in the amount disclosed under Sec.  1026.37(h)(1)(vii), but 
the comment does not specify whether this requirement pertains to the 
first- or subordinate-lien transaction. The Bureau proposed to revise 
comment 37(h)(1)(vii)-5 to clarify that funds that are provided to the 
consumer from the proceeds of subordinate financing, local or State 
housing assistance grants, or other similar sources are included in the 
amount disclosed under Sec.  1026.37(h)(1)(vii) on the first-lien Loan 
Estimate. In the proposal, the Bureau explained that the funds that are 
provided to the consumer from the proceeds of subordinate financing and 
that will be applied to the first-lien transaction would not be 
included in the adjustments and other credits calculation on the 
simultaneous subordinate financing Loan Estimate. The Bureau sought 
comment on whether there are circumstances in which local or State 
housing assistance grants are applied to subordinate financing and not 
to the first lien.
    Current comment 37(h)(1)(vii)-6 clarifies that adjustments that 
require additional funds from the consumer pursuant to the real estate 
purchase and sale contract, such as for additional personal property 
that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(v), may be included in the amount 
disclosed under Sec.  1026.37(h)(1)(vii) and would reduce the total 
amount disclosed. However, such amounts may have already been factored 
into calculations for prior components of the calculating cash to close 
table, thereby being counted twice. The Bureau proposed to revise 
comment 37(h)(1)(vii)-6 to clarify that amounts that will be disclosed 
on the Closing Disclosure under Sec.  1026.38(j)(1)(iii) or adjustments 
that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(1)(v) may be included in the adjustments and other credits 
amount disclosed on the Loan Estimate under Sec.  1026.37(h)(1)(vii), 
provided they are not also included in the calculation for revised 
Sec.  1026.37(h)(1)(iii) or (v) as debt being satisfied in the 
transaction. Otherwise, such amounts would be factored into the cash to 
close calculations twice.
Comments Received
    Industry commenters, including a trade association, a mortgage 
company, a compliance professional, and a financial holding company 
generally expressed support for the proposed amendments to Sec.  
1026.37(h)(1)(vii) and its commentary. One commenter specifically 
expressed support for the

[[Page 37713]]

proposal to amend Sec.  1026.37(h)(1)(vii) to remove the requirement 
that the adjustments and other credits amount be disclosed as a 
negative number, and another stated that eliminating the requirement to 
disclose amounts as positive or negative numbers throughout will go a 
long way in providing creditors with greater flexibility to complete 
the calculating cash to close table in a manner that can be explained 
to consumers and reflects the actual anticipated amount of cash needed 
to close. A credit union commenter stated generally that there is 
confusion surrounding the use of negative values on the form, but did 
not provide specific concerns. Two commenters expressed support for the 
clarification in comment 37(h)(1)(vii)-1 that amounts expected to be 
paid to consumers in advance of consummation are not required to be 
disclosed under Sec.  1026.37(h)(1)(vii), although one commenter was 
concerned with the proposed clarification, noting that at the time of 
disclosure, it is typically not evident whether the borrower will 
receive gift funds before or at consummation. Two commenters supported 
the proposed amendments to comment 37(h)(1)(vii)-5 to clarify that 
funds that are provided to the consumer from the proceeds of 
subordinate financing, local or State housing assistance grants, or 
other similar sources are included in the amount disclosed under Sec.  
1026.37(h)(1)(vii) on the first-lien Loan Estimate. Finally, one 
commenter supported the proposed revisions to comment 37(h)(1)(vii)-6 
to clarify that amounts that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(iii) or adjustments that will be 
disclosed on the Closing Disclosure under Sec.  1026.38(j)(1)(v) may be 
included in the adjustments and other credits amount disclosed on the 
Loan Estimate under Sec.  1026.37(h)(1)(vii) only if they are not also 
included in the calculation for Sec.  1026.37(h)(1)(iii) or (v) as 
existing debt being satisfied in the transaction.
    A trade association commenter stated that in the absence of 
guidance on how to disclose certain amounts, such as loans assumed or 
taken subject to and the sale price of personal property, some 
creditors have been including these amounts in the adjustments and 
other credits disclosures under Sec. Sec.  1026.37(h)(1)(vii) and 
1026.38(i)(8) on the Loan Estimate and Closing Disclosure, 
respectively. The commenter stated that updating software systems to 
accommodate such proposals would require substantial reprogramming, 
which has both time and cost implications.
The Final Rule
    For the reasons discussed below, the Bureau is finalizing proposed 
amendments to Sec.  1026.37(h)(1)(vii) and comment 37(h)(1)(vii)-1 with 
revisions. The Bureau is amending comment 37(h)(1)(vii)-4 to conform to 
final comment 37(h)(1)(vi)-1. The Bureau is finalizing amendments to 
comment 37(h)(1)(vii)-5 as proposed and is finalizing amendments to 
comment 37(h)(1)(vii)-6 with revisions.
    The Bureau is adopting the proposed amendments to Sec.  
1026.37(h)(1)(vii) that allow the adjustments and other credits amount 
to be disclosed as a positive number. The Bureau is further revising 
Sec.  1026.37(h)(1)(vii) for consistency with comment 37(g)(4)-4, for 
which the proposed amendments are not being adopted. As discussed in 
the section-by-section analysis of Sec.  1026.37(g)(4), the Bureau is 
not finalizing the proposal that would have required construction 
costs, payoff of existing liens, and payoff of unsecured debt to be 
disclosed under Sec.  1026.37(g)(4). For transactions disclosed using 
the calculations under Sec.  1026.37(h)(1)(iii)(A)(2) and (B) and Sec.  
1026.37(h)(1)(v), which include certain purchase transactions (e.g., 
``cash back'' purchase transactions, simultaneous subordinate financing 
purchase transactions, and purchase transactions that involve 
improvements to be made on the property) and non-purchase transactions 
(e.g., refinance transactions and construction-only transactions), any 
construction costs and payoffs of secured and unsecured debt will be 
factored into the down payment/funds from borrower and funds for 
borrower calculations in Sec.  1026.37(h)(1)(iii)(A)(2) and (B) and 
Sec.  1026.37(h)(1)(v). For purchase transactions disclosed using the 
down payment/funds from borrower calculation under Sec.  
1026.37(h)(1)(iii)(A)(1), however, payoffs of secured and unsecured 
debt will not be factored into the Sec.  1026.37(h)(1)(iii)(A)(1) 
calculation, which only factors in the sale price, loan amount, and 
loans assumed or taken subject to. These purchase transactions do not 
use the Sec.  1026.37(h)(1)(iii)(A)(2) and (B) and Sec.  
1026.37(h)(1)(v) calculations where such payoffs would be factored in. 
Therefore, for purchase transactions disclosed using the calculation 
under Sec.  1026.37(h)(1)(iii)(A)(1), payoffs of secured and unsecured 
debt will be factored into the adjustments and other credits disclosure 
under Sec.  1026.37(h)(1)(vii). To enable these payoffs to be factored 
into the adjustments and other credits disclosure under Sec.  
1026.37(h)(1)(vii) for transactions disclosed under Sec.  
1026.37(h)(1)(iii)(A)(1), the Bureau is also revising Sec.  
1026.37(h)(1)(vii) for this subset of transactions to remove the 
condition that amounts that are required to be paid by the consumer at 
closing and disclosed in the adjustments and other credits row of the 
calculating cash to close table must be amounts pursuant to a purchase 
and sale contract. For additional clarity, Sec.  1026.37(h)(1)(vii) is 
also revised to specify that other amounts that are required to be paid 
by the consumer at closing in a transaction disclosed under Sec.  
1026.37(h)(1)(iii)(A)(1) or pursuant to a purchase and sale contract do 
not include amounts that are disclosed under Sec.  1026.37(f) and (g). 
Final comment 37(h)(1)(vii)-6, discussed in more detail below, explains 
that amounts included in the calculation for Sec.  
1026.37(h)(1)(iii)(A)(2) or (B) or Sec.  1026.37(h)(1)(v) as existing 
debt being satisfied in the transaction are not also included in the 
adjustments and other credits calculation under Sec.  
1026.37(h)(1)(vii).
    Final comment 37(h)(1)(vii)-1 clarifies that amounts expected to be 
paid at consummation by third parties not otherwise associated with the 
transaction, such as gifts from family members and not otherwise 
identified under Sec.  1026.37(h)(1), are included in the amount 
disclosed under Sec.  1026.37(h)(1)(vii), although amounts expected to 
be provided in advance of consummation by third parties, including 
family members, not otherwise associated with the transaction are not 
required to be disclosed under Sec.  1026.37(h)(1)(vii). The Bureau 
does not believe that additional clarification is needed with respect 
to a creditor not knowing at the time disclosures are provided whether 
a consumer will receive gift funds before or at consummation. The 
Bureau notes that current comment 19(e)(1)(i)-1 provides that if 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 to the creditor at the time the 
disclosure is provided to the consumer, consistent with Sec.  
1026.17(c)(2)(i).
    The Bureau is removing the word ``verbally'' in comment 
37(h)(1)(vii)-4. In comment 37(h)(1)(vi)-1, the Bureau proposed and 
finalized the removal of the word ``verbally'' in the phrase ``verbally 
from the consumer'' that was provided as an example of a way in which 
the creditor may obtain information regarding the amount of seller 
credits that will be paid in the

[[Page 37714]]

transaction, finding the word to be unnecessary. For consistency, the 
Bureau is removing from comment 37(h)(1)(vii)-4 the word ``verbally'' 
in the example of ways in which the creditor may obtain information 
regarding items to be disclosed under Sec.  1026.37(h)(1)(vii).
    As discussed above, the Bureau is finalizing the amendments to 
comment 37(h)(1)(vii)-6 as proposed with revisions for clarity and 
conformity with final Sec.  1026.37(h)(1)(vii). Final comment 
37(h)(1)(vii)-6 provides that adjustments that require additional funds 
from the consumer in a transaction disclosed using the formula under 
Sec.  1026.37(h)(1)(iii)(A)(1) or pursuant to the real estate purchase 
and sale contract, such as for additional personal property that will 
be disclosed on the Closing Disclosure under Sec.  1026.38(j)(1)(iii) 
or adjustments that will be disclosed on the Closing Disclosure under 
Sec.  1026.38(j)(1)(v), are only included in the amount disclosed under 
Sec.  1026.37(h)(1)(vii) if such amounts are not included in the 
calculation under Sec.  1026.37(h)(1)(iii)(A)(2) or (B) or Sec.  
1026.37(h)(1)(v) as debt being satisfied in the transaction. The 
comment provides additional examples of such adjustments, including 
payoffs of secured or unsecured debt in a purchase transaction 
disclosed using the formula under Sec.  1026.37(h)(1)(iii)(A)(1) or 
prorations for property taxes and homeowner's association dues.
    The Bureau understands that creditors have been disclosing loans 
assumed or taken subject to that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(2)(iv) differently absent definitive 
commentary from the Bureau. The amendments discussed in the section-by-
section analyses of Sec.  1026.37(h)(1)(iii) and (v), and Sec.  
1026.38(i)(4) and (6), which include loans assumed or taken subject to 
that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(2)(iv) in those calculating cash to close calculations, are 
intended to address the variation among creditors in how this amount is 
disclosed. As to the commenter's assertion that the disclosure 
requirements for the sale price of personal property were unclear, 
current comment 37(g)(4)-4 provides the sale price of personal property 
as an example of an amount that would be disclosed under Sec.  
1026.37(g)(4). The Bureau recognizes that the industry has taken 
varying approaches to disclosing the amount of loans assumed or taken 
subject to that will be disclosed on the Closing Disclosure under Sec.  
1026.38(j)(2)(iv) absent definitive commentary from the Bureau and is 
providing sufficient time for reprogramming. As discussed in part VI 
below, the rule will be effective 60 days from publication in the 
Federal Register, but there will be an optional compliance period in 
effect until October 1, 2018.
37(h)(2) Optional Alternative Calculating Cash To Close Table for 
Transactions Without a Seller or for Simultaneous Subordinate Financing
    Section 1026.37(h)(2) only permits the use of the optional 
alternative calculating cash to close table in transactions without a 
seller. The Bureau has provided informal guidance that, in purchase 
transactions with simultaneous subordinate financing, the optional 
alternative calculating cash to close table may be used for the 
simultaneous subordinate financing Loan Estimate if the first-lien 
Closing Disclosure will record the entirety of the seller's transaction 
and the seller did not contribute to the subordinate financing. The 
Bureau proposed to amend Sec.  1026.37(h)(2) and comment 37(h)(2)-1 to 
permit creditors to use the optional alternative calculating cash to 
close table for the disclosure of simultaneous subordinate financing 
purchase transactions if the first-lien Closing Disclosure will record 
the entirety of the seller's transaction. The Bureau specifically 
sought comment on whether it is appropriate to limit use of the 
optional alternative calculating cash to close table for disclosure of 
simultaneous subordinate financing purchase transactions to situations 
in which the first-lien Closing Disclosure will record the entirety of 
the seller's transaction.
    Commenters include a title insurance company, software vendors, a 
bank, and a state housing finance agency. Most commenters supported the 
Bureau's proposal to allow the use of the optional alternative 
calculating cash to close table if the first-lien Closing Disclosure 
will record the entirety of the seller's transaction. As discussed more 
fully in the section-by-section analysis of Sec.  1026.37(d)(2), one 
commenter questioned what disclosures should be used when the optional 
alternative tables were initially used for the simultaneous subordinate 
financing, but a seller later agrees to contribute to the costs of the 
subordinate financing, making continued use of the alternative tables 
impermissible under the proposal. Another commenter noted that the 
proposal could lead to variation among creditors and a commenter stated 
that the UCD may not allow the use of the alternative tables for any 
transactions with sellers.
    For the reasons discussed below, the Bureau is finalizing the 
proposed amendments to Sec.  1026.37(h)(2) and comment 37(h)(2)-1 with 
minor technical revisions. As discussed in the section-by-section 
analysis of Sec.  1026.37(d)(2), the Bureau appreciates the commenter's 
question regarding how to proceed under the proposal when the 
alternative table was properly used on the Loan Estimate, or even the 
Closing Disclosure, but a subsequent event causes the continued use of 
the alternative table to be impermissible. The Bureau is directly 
addressing this concern by adding new comment 38(k)(2)(vii)-1, amending 
comments 38(d)(2)-1 and 38(j)-3, and amending proposed new comments 
38(t)(5)(vii)(B)-1 and -2 as discussed in the section-by-section 
analysis of Sec.  1026.37(d)(2).
    The Bureau recognizes that allowing the use of the optional 
alternative tables for simultaneous subordinate financing purchase 
transactions may cause variability in disclosure among creditors but 
concludes that consumers will not be harmed by such optionality. In 
addition, the Bureau understands that investor requirements may be more 
restrictive than the optionality provided by the Bureau. However, the 
Bureau believes flexibility is beneficial to some creditors, and the 
Bureau will continue to provide the option for creditors to use the 
alternative tables for simultaneous subordinate financing transactions 
with sellers.
37(h)(2)(ii) Total Closing Costs
    Section 1026.37(h)(2)(ii) requires a creditor to disclose the 
amount of total closing costs disclosed under Sec.  1026.37(g)(6) as a 
negative number, labeled ``Total Closing Costs.'' The Bureau did not 
propose any amendments to Sec.  1026.37(h)(2)(ii), but the Bureau did 
propose to address concerns regarding the required disclosure of 
negative and positive numbers elsewhere, including in Sec. Sec.  
1026.37(h)(1)(vii) and (2)(iii), and 1026.38(e)(2)(ii) and (4)(ii). In 
addition, the Bureau received a comment from a software vendor 
requesting that the Bureau amend Sec.  1026.37(h)(2)(ii) to account for 
situations where the amount of total closing costs disclosed under 
Sec.  1026.37(g)(6) is a negative number. While the Bureau notes that 
it is not common for the total closing costs disclosed under Sec.  
1026.37(g)(6) to be a negative number, the Bureau agrees with the 
commenter that an amendment is necessary to address the limited 
circumstances in which a negative

[[Page 37715]]

number is disclosed under Sec.  1026.37(g)(6) as total closing costs. 
Therefore, the Bureau is amending Sec.  1026.37(h)(2)(ii) to provide 
that, under Sec.  1026.37(h)(2)(ii), the creditor discloses the amount 
disclosed under Sec.  1026.37(g)(6) as a negative number if the amount 
disclosed under Sec.  1026.37(g)(6) is a positive number and as a 
positive number if the amount disclosed under Sec.  1026.37(g)(6) is a 
negative number, labeled ``Total Closing Costs.''
37(h)(2)(iii) Payoffs and Payments
The Bureau's Proposal
    Section 1026.37(h)(2)(iii) requires the disclosure of the total of 
all payments to third parties not otherwise disclosed under Sec.  
1026.37(f) and (g) as a negative number. The requirement to disclose a 
negative number, however, does not account for the limited 
circumstances in which funds provided by third parties and the proceeds 
of subordinate financing exceed the total amount of payoffs and 
payments to third parties. Comment 37(h)(2)(iii)-1 provides examples of 
payoffs and payments, including payoff of existing liens secured by the 
property identified under Sec.  1026.37(a)(6). The Bureau proposed to 
revise Sec.  1026.37(h)(2)(iii) to remove the requirement to disclose 
as a negative number the total of all payments to third parties not 
otherwise disclosed under Sec.  1026.37(f) or (g). The Bureau also 
proposed to revise comment 37(h)(2)(iii)-1 for conformity with proposed 
revisions to comment 37(g)(4)-4, which would have permitted disclosure 
of certain payoffs under Sec.  1026.37(g)(4) instead of requiring them 
to be included in the payoffs and payments disclosure under Sec.  
1026.37(h)(2)(iii). The proposed revisions to comment 37(h)(2)(iii)-1 
would have also added construction costs as an example of an amount 
included in the payoffs and payments disclosure under Sec.  
1026.37(h)(2)(iii) and explained that credits could be included in the 
payoffs and payments disclosure. Finally, the Bureau proposed to add 
comment 37(h)(2)(iii)-2 to clarify that on a first-lien Loan Estimate 
that uses the optional alternative tables, the proceeds of simultaneous 
subordinate financing, if any, would be included, as a positive number, 
in the total amount disclosed under Sec.  1026.37(h)(2)(iii). The 
Bureau explained that the funds from the subordinate financing that 
will be applied to the first-lien transaction would not have been 
included in the estimated total payoffs and payments amount on the 
simultaneous subordinate financing Loan Estimate.
Comments Received
    A trade association commenter commended the Bureau for permitting 
credits to be included in the payoffs and payments disclosure under 
revised Sec.  1026.37(h)(2)(iii) and comment 37(h)(2)(iii)-1, but 
requested that the Bureau allow industry sufficient time to reprogram 
the forms accordingly. Another trade association commenter stated that 
eliminating the requirement to disclose amounts as positive or negative 
numbers throughout will go a long way in providing creditors with 
greater flexibility to complete the calculating cash to close table in 
a manner that can be explained to consumers and reflects the actual 
anticipated amount of cash needed to close. A credit union stated 
generally that there is confusion surrounding the use of negative 
values on the forms, but did not provide specific concerns. In response 
to the proposed revisions to comment 37(h)(2)(iii)-1, a title insurance 
company requested that the Bureau only permit creditors to disclose 
construction costs and the payoff of existing liens secured by the 
property in the payoffs and payments table under Sec.  
1026.37(h)(2)(iii), instead of providing creditors with the option of 
disclosing these costs under Sec.  1026.37(g)(4), as proposed. A law 
firm expressed concern with the inclusion of construction costs for 
construction purpose loans in the example of permissible payoffs and 
payments, noting that the example seemed to be limited to transactions 
where the loan purpose is construction in accordance with Sec.  
1026.37(a)(9)(iii) and would not cover a refinance transaction that has 
a construction loan component. The commenter requested that the Bureau 
clarify that the example regarding construction costs in comment 
37(h)(2)(iii)-1 will apply to any transaction with a construction loan 
component in which the creditor is otherwise permitted to use the 
alternative calculating cash to close table.
    Commenters supported the Bureau's proposed comment 37(h)(2)(iii)-2 
which would have clarified that the proceeds of simultaneous 
subordinate financing would be required to be included, as a positive 
number, in the total amount disclosed under Sec.  1026.37(h)(2)(iii) on 
the first-lien Loan Estimate that is disclosed using the alternative 
tables. The commenters stated that the revisions will improve the 
ability of creditors to comply with the calculating cash to close table 
requirements and provide an accurate cash to close amount to consumers, 
and stated that the table provides important benefits to consumers. As 
discussed in the section-by-section analysis of Sec.  1026.37(d)(2), 
commenters asserted that most creditors prefer that the Loan Estimate 
for the simultaneous subordinate financing include a disclosure of the 
amount of proceeds that will be applied to the first-lien loan, and 
asked the Bureau to permit this practice and clarify the provision 
under which the disclosure should be made.
The Final Rule
    For the reasons discussed below, the Bureau is adopting the 
amendments to Sec.  1026.37(h)(2)(iii) as proposed, adopting the 
proposed amendments to comment 37(h)(2)(iii)-1 in part and with 
revisions, adopting proposed comment 37(h)(2)(iii)-2 with clarifying 
revisions and renumbering it as comment 37(h)(2)(iii)-2.i, and adding a 
new comment 37(h)(2)(iii)-2.ii. The Bureau appreciates commenters' 
support of the proposal to permit disclosure of a positive number under 
Sec.  1026.37(h)(2)(iii). This amendment to eliminate the requirement 
that the total payoffs and payments amount be disclosed as a negative 
number permits the inclusion of credits and proceeds from simultaneous 
subordinate financing in the payoffs and payments table. Creditors are 
required to disclose under final Sec.  1026.37(h)(2)(iii) the total 
amount of payoffs and payments to be made to third parties not 
otherwise disclosed under Sec.  1026.37(f) and (g), labeled ``Total 
Payoffs and Payments.''
    The Bureau is adopting the proposed amendments to comment 
37(h)(2)(iii)-1 in part with revisions to the construction lending 
example. As discussed in the section-by-section analysis of Sec.  
1026.37(g)(4), the Bureau is not finalizing the proposal that would 
have required certain costs and payoffs to be disclosed under Sec.  
1026.37(g)(4) unless included in the payoffs and payments disclosure 
under Sec.  1026.37(h)(2)(iii). Therefore, the Bureau is not finalizing 
the proposed conforming revision in comment 37(h)(2)(iii)-1, which 
would have permitted creditors to disclose these amounts under Sec.  
1026.37(g)(4) instead of requiring creditors to include them in the 
Sec.  1026.37(h)(2)(iii) payoffs and payments disclosure. The Bureau is 
revising the construction lending example in the proposed revisions to 
comment 37(h)(2)(iii)-1 as requested by a commenter. While the examples 
of amounts incorporated into the total payoffs and payments disclosed 
under Sec.  1026.37(h)(2)(iii) are intended to be informative, they are 
not intended to cover the entire range of possibilities. Nonetheless, 
the Bureau is taking the

[[Page 37716]]

opportunity to broaden the example regarding construction loans in the 
proposed revisions to comment 37(h)(2)(iii)-1 to all loans with a 
construction component in which the creditor is otherwise permitted to 
use the optional alternative calculating cash to close table, 
regardless of whether the loans have a construction purpose under Sec.  
1026.37(a)(9)(iii). Final comment 37(h)(2)(iii)-1 explains that 
examples of the amounts incorporated in the total amount disclosed 
under Sec.  1026.37(h)(2)(iii) include, but are not limited to: Payoffs 
of existing liens secured by the property identified under Sec.  
1026.37(a)(6) such as existing mortgages, deeds of trust, judgments 
that have attached to the real property, mechanics' and materialmen's 
liens, and local, State and Federal tax liens; payments of unsecured 
outstanding debts of the consumer; construction costs associated with 
the transaction that the consumer will be obligated to pay in any 
transaction in which the creditor is otherwise permitted to use the 
alternative calculating cash to close table; and payments to other 
third parties for outstanding debts of the consumer (but not for 
settlement services) as required to be paid as a condition for the 
extension of credit.
    The Bureau is renumbering proposed comment 37(h)(2)(iii)-2 as 
comment 37(h)(2)(iii)-2.i and revising the comment for greater clarity. 
Proposed comment 37(h)(2)(iii)-2 explained that on the Loan Estimate 
for a first-lien transaction disclosed under Sec.  1026.37(h)(2) that 
also has simultaneous subordinate financing, the proceeds of the 
subordinate financing are included in the payoffs and payment 
disclosure. In final comment 37(h)(2)(iii)-2.i, the Bureau adds the 
heading ``First-lien Loan Estimate,'' provides a refinance transaction 
as an example of a first-lien transaction that could be disclosed under 
Sec.  1026.37(h)(2) and that also has simultaneous subordinate 
financing, and makes technical revisions for greater clarity.
    The Bureau is adding comment 37(h)(2)(iii)-2.ii to permit creditors 
to include, in the payoffs and payments disclosure on the simultaneous 
subordinate financing Loan Estimate, the proceeds of the subordinate 
financing that will be applied to the first-lien transaction. Final 
comment 37(h)(2)(iii)-2.ii responds to commenters' questions about how 
to disclose the simultaneous subordinate financing proceeds that will 
be applied to the first lien on the simultaneous subordinate financing 
Loan Estimate. The commenters asserted that most creditors prefer that 
the simultaneous subordinate financing Loan Estimate include a 
disclosure of the amount of loan proceeds that will be applied to the 
first-lien loan, and asked the Bureau to permit this common practice. 
In the proposal, the Bureau noted that the funds that are provided to 
the consumer from the proceeds of simultaneous subordinate financing 
and that will be applied to the first-lien transaction would not be 
included in the total payoffs and payments amount on the simultaneous 
subordinate financing Loan Estimate. As a result, the cash to close 
amount disclosed under Sec.  1026.37(h)(2)(iv) would have represented 
the loan proceeds as ``cash out'' to the borrower. The Bureau 
understands from the comments that a common industry practice may be to 
include the loan proceeds from the simultaneous subordinate financing 
as a payoff on the Loan Estimate and Closing Disclosure for the 
simultaneous subordinate financing transaction, which is inconsistent 
with the Bureau's proposal.
    The Bureau believes that consumers may benefit from allowing 
creditors to continue this apparently common practice. This practice 
may help consumers better understand the simultaneous subordinate 
financing transaction and its relation to the first-lien loan. It 
provides a way for the simultaneous subordinate financing Loan Estimate 
to include a disclosure of the amount of proceeds that will be applied 
to the first-lien loan. Because, under this practice, the cash to close 
amount disclosed under Sec.  1026.37(h)(2)(iv) would not include the 
loan proceeds, the cash to close amount may better represent to 
consumers the cash, if any, they will owe or receive from the 
subordinate-lien loan that will not be applied directly to the first-
lien loan. The Bureau is making similar amendments in commentary to 
Sec.  1026.38(j)(1)(v) and (t)(5)(vii)(B).
    As discussed in part VI below, the Bureau is providing sufficient 
time for industry to reprogram the forms to permit credits to be 
disclosed. The rule will be effective 60 days from publication in the 
Federal Register, but there will be an optional compliance period in 
effect until October 1, 2018.
37(k) Contact Information
    The Bureau proposed a technical, non-substantive, amendment to 
comment 37(k)-3 to replace the current reference to Sec.  1026.38(k)(2) 
with a reference to Sec.  1026.37(k)(2) to correct a typographical 
error. Commenters did not provide any statements concerning this 
typographical correction, other than to request that the correction of 
typographical errors be effective as quickly as possible and be applied 
retroactively.
    The Bureau is adopting the revision to comment 37(k)-3 as proposed. 
Although this revision is not retroactive, the Bureau considers the 
current reference to Sec.  1026.38(k)(2) to be a scrivener's error that 
should be interpreted as a reference to Sec.  1026.37(k)(2).
37(l) Comparisons
37(l)(1) In Five Years
37(l)(1)(i)
    The Bureau proposed to make a technical, non-substantive amendment, 
to comment 37(l)(1)(i)-1 to correct a typographical error. The Bureau 
proposed to replace the word ``fractional'' with ``functional'' in 
comment 37(l)(1)(i)-1 to conform to the language of comment 
37(c)(1)(i)(C)-1. The Bureau received no comments on the proposed 
change and is adopting as proposed the modification to the comment.
37(l)(3) Total Interest Percentage
The Bureau's Proposal
    Section 1026.37(l)(3) requires creditors to disclose the total 
interest percentage (TIP) and provides that the TIP is the total amount 
of interest that the consumer will pay over the life of the loan, 
expressed as a percentage of the principal of the loan. The Bureau 
explained in the TILA-RESPA Final Rule that prepaid interest is 
included in the TIP calculation.\82\ The Bureau proposed to amend 
comment 37(l)(3)-1 to clarify further that prepaid interest is included 
when calculating the TIP.
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    \82\ 78 FR 79730, 79982 (Dec. 31, 2013).
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Comments Received
    Several industry commenters supported the clarifications in the 
proposed comment. Two industry commenters requested that the Bureau 
delete disclosure of the TIP from the disclosures required under 
Sec. Sec.  1026.37 and 1026.38.
    Several industry commenters requested additional clarifications 
related to the TIP. Several industry commenters requested that the 
Bureau modify the proposed comment to clarify whether the prepaid 
interest included in the TIP should only include the borrower-paid 
prepaid interest, or whether all prepaid interest should be included, 
regardless of which party is paying. Two industry commenters requested 
clarification on the impact of a negative prepaid interest amount on 
the calculation, namely whether the negative balance should be used or

[[Page 37717]]

whether a $0 value should be assigned to the prepaid interest component 
of the calculation. One industry commenter indicated that the Bureau 
should clarify that the TIP is considered accurate if the finance 
charge is considered accurate because the TIP is comprised solely of a 
finance charge (consumer-paid interest).
    One industry commenter indicated that there appears to be a 
discrepancy between the TILA statute and Regulation Z as to when the 
amount of prepaid interest disclosed under Sec.  1026.37 is accurate. 
The commenter indicated that that discrepancy can impact the accuracy 
of the TIP. This commenter requested additional clarification on this 
issue.
The Final Rule
    The Bureau is adopting comment 37(l)(3)-1 as proposed with several 
revisions. As proposed, the Bureau is adopting final comment 37(l)(3)-1 
to provide that prepaid interest is included when calculating the TIP. 
In response to comments received, the Bureau also is amending comment 
37(l)(3)-1 to clarify that it is the prepaid interest that the consumer 
will pay which is included when calculating the TIP. This clarification 
is consistent with Sec.  1026.37(l)(3), which defines the TIP as the 
total amount of interest that the consumer will pay over the life of 
the loan, expressed as a percentage of the amount of credit extended. 
In addition, in response to comments received, the Bureau also is 
revising comment 37(l)(3)-1 to clarify that prepaid interest that is 
disclosed as a negative number under Sec. Sec.  1026.37(g)(2) or 
1026.38(g)(2) must be included as a negative value when calculating the 
TIP.
    As discussed above, one industry commenter indicated that the 
Bureau should clarify that the TIP is considered accurate if the 
finance charge is considered accurate because the TIP is comprised 
solely of a finance charge (consumer-paid interest). The Bureau is not 
addressing this issue in the final rule. The Bureau notes that total 
interest is a component of the finance charge but is not the same as 
the finance charge.
    As discussed above, one industry commenter indicated that there 
appears to be a discrepancy between the TILA statute and Regulation Z 
as to when the amount of prepaid interest disclosed under Sec.  1026.37 
is accurate. The commenter notes TILA section 121(c), which provides 
that in the case of any consumer credit transaction a portion of the 
interest on which is determined on a per-diem basis and is to be 
collected upon the consummation of such transaction, any disclosure 
with respect to such portion of interest shall be deemed to be accurate 
for purposes of TILA if the disclosure is based on information actually 
known to the creditor at the time that the disclosure documents are 
being prepared for the consummation of the transaction. This TILA 
section is implemented in Sec.  1026.17(c)(2)(ii). The commenter also 
notes that Sec.  1026.19(e)(3)(iii) provides that the prepaid interest 
disclosure must be consistent with the best information reasonably 
available to the creditor at the time it is disclosed. Thus, Sec.  
1026.17(c)(2)(ii) provides that the prepaid interest disclosure is 
accurate if it is based on information known to the creditor at the 
time the disclosure is ``prepared,'' while Sec.  1026.19(e)(3)(iii) 
provides that the prepaid interest disclosure is accurate if it is 
based on the best information reasonably available to the creditor at 
the time it is ``disclosed.'' The commenter indicated that that 
discrepancy can impact the accuracy of the TIP and asked for additional 
clarity on this issue.
    The Bureau does not believe that additional clarification is 
needed. In the TILA-RESPA Final Rule, the Bureau made clear that the 
standard for accuracy for prepaid interest disclosures set forth in 
TILA section 121(c), as implemented by Sec.  1026.17(c)(2)(ii), does 
not apply to transactions subject to Sec.  1026.19(e) and (f). 
Specifically, comment 17(c)(2)(ii)-1 provides that for purposes of 
transactions subject to Sec.  1026.19(e) and (f), the creditor shall 
disclose the actual amount of per-diem interest that will be collected 
at consummation, subject only to the disclosure rules in Sec.  
1026.19(e) and (f). The Bureau notes that for disclosures of per-diem 
interest in the Loan Estimate, Sec.  1026.19(e)(3)(iii) provides that 
the prepaid interest disclosure must be consistent with the best 
information reasonably available to the creditor at the time it is 
disclosed. For disclosure of per-diem interest in the Closing 
Disclosure provided at or 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) using the best information 
reasonably available when the actual term is unknown to the creditor at 
the time disclosures are made, consistent with Sec.  1026.17(c)(2)(i). 
See the section-by-section analysis of Sec.  1026.19(f)(2)(iii) for a 
discussion of the disclosure of per-diem interest in post-consummation 
disclosures required under Sec.  1026.19(f)(2)(iii).
37(o) Form of Disclosures
37(o)(4) Rounding
The Bureau's Proposal
    Section 1026.37(o)(4)(i)(A) requires the disclosure of rounded 
amounts for the amounts disclosed pursuant to Sec.  1026.37(b)(6) and 
(7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), (f), (g), (h), (i), 
and (l), except that the per-diem amount required to be disclosed by 
Sec.  1026.37(g)(2)(iii) and the monthly amounts required to be 
disclosed by Sec.  1026.37(g)(3)(i) through (iii) and (g)(3)(v) shall 
not be rounded. Section 1026.37(o)(4)(ii) requires the percentage 
amounts disclosed pursuant to Sec.  1026.37(b)(2) and (6), (f)(1)(i), 
(g)(2)(iii), (j), and (l)(3) to be disclosed up to two or three decimal 
places and the percentage amount disclosed pursuant to Sec.  
1026.37(l)(2) to be disclosed up to three decimal places. The Bureau, 
through informal guidance, received many inquiries regarding rounding 
requirements. Based on these inquiries the Bureau understands that 
there is confusion and uncertainty regarding the rounding requirements 
under Sec.  1026.37(o)(4). In response, the Bureau proposed revisions 
to Sec.  1026.37(o)(4)(i)(A) and (ii) and to comments 37(o)(4)(i)(A)-1 
and 37(o)(4)(ii)-1 to simplify the rounding and disclosure requirements 
under Sec.  1026.37(o)(4).
    The proposed revisions to Sec.  1026.37(o)(4)(i)(A) would have 
provided that the disclosure of the per-diem amount under Sec.  
1026.37(g)(2)(iii) and the monthly amounts under Sec.  1026.37(g)(3)(i) 
through (iii) and (g)(3)(v) are rounded to the nearest cent and 
disclosed to two decimal places. The proposed revision to comment 
37(o)(4)(i)(A)-1 would have added clarifying language and an 
illustrative example of the disclosure of per-diem interest.
    Proposed revisions to Sec.  1026.37(o)(4)(ii) would have simplified 
the rounding requirements for amounts described in Sec.  
1026.37(o)(4)(ii). Proposed Sec.  1026.37(o)(4)(ii) provides that the 
percentage amounts required to be disclosed under Sec.  1026.37(b)(2) 
and (6), (f)(1)(i), (g)(2)(iii), (j), (l)(2), and (l)(3) must be 
disclosed by rounding the exact amounts to three decimal places and 
then dropping any trailing zeros to the right of the decimal point. 
Proposed comment 37(o)(4)(ii)-1 illustrates the requirements of 
proposed Sec.  1026.37(o)(4)(ii) with examples.
Comments Received
    A mortgage company commenter and a software vendor commenter agreed

[[Page 37718]]

with the proposed revisions that would simplify rounding requirements. 
A trade association commenter stated that the Bureau should not revise 
Sec.  1026.37(o)(4)(i)(A). This commenter believes that Sec.  
1026.37(o)(4)(i)(A) and related commentary clearly provide that the per 
diem and monthly amounts are not rounded, but the creditor must 
disclose the amounts to two decimal places and truncate partial cents. 
This commenter indicated that its software is programmed to disclose 
these amounts to two decimal places, because it believes partial cents 
are not disclosed.
    A bank holding company commenter stated that rounding on the Loan 
Estimate in contrast to providing exact amounts on the Closing 
Disclosure is confusing to the consumer. The commenter suggested that 
the Bureau require the disclosure of exact unrounded amounts on the 
Loan Estimate and the Closing Disclosure. A mortgage company commenter 
supported the proposed revision, but asked that the Bureau reconsider 
the requirement to round certain amounts under Sec.  1026.37(f), (g), 
and (h). The commenter noted that the disclosures under these sections 
are subject to the good faith tolerance provisions under Sec.  
1026.19(e)(3) and that creditors are required to keep a separate record 
of the unrounded amounts for the estimates disclosed pursuant to Sec.  
1026.37(f), (g), and (h). The commenter further stated that providing 
unrounded numbers for these sections would help consumers, auditors and 
investors easily determine cost increases and reduce paperwork.
    Two software vendors believed that the proposed revisions to Sec.  
1026.37(o)(4)(i) would require the use of rounded numbers when 
calculating certain aggregated amounts. One of these commenters 
provided an example showing the range between calculations for per-diem 
interest using rounded amounts and unrounded amounts.
    A commenter representing a bank stated that the proposed revisions 
to Sec.  1026.37(o)(4)(ii) and comment 37(o)(4)(ii)-1 would impose 
significant burden. This commenter asserted that many in the industry 
would have to invest significant resources into reprogramming their 
systems for a change that would not benefit the consumer. The commenter 
asserts that disclosing ``8%'' instead of ``8.00%'' would not increase 
the consumers understanding of the disclosure, but it would require 
significant effort from the creditor to reprogram its systems.
The Final Rule
    The Bureau is adopting the proposed amendments to Sec.  
1026.37(o)(4)(i)(A) and (ii) and to comments 37(o)(4)(i)(A)-1 and 
37(o)(4)(ii)-1 with several revisions to Sec.  1026.37(o)(4)(i)(A) and 
comment 37(o)(4)(i)(A)-1 to clarify the requirements under these 
provisions. Section 1026.37(o)(4)(i)(A) is being revised to include the 
word ``dollar amounts'' instead of ``amounts'' and to require that the 
per-diem and monthly dollar amounts not be rounded. Comment 
37(o)(4)(i)(A)-1, as proposed, is being revised to explain that partial 
cents are not disclosed for dollar amounts and that partial cents shall 
be rounded or truncated to the nearest whole cent.
    Although one commenter asserted that Sec.  1026.37(o)(4)(i)(A) 
clearly provides that the per-diem and monthly amounts are disclosed to 
two decimal places, the Bureau notes that it received several inquiries 
from industry, namely software vendors, expressing uncertainty 
regarding whether it is permissible to disclose partial cents for 
certain dollar amounts under Sec.  1026.37(o)(4)(i)(A). As discussed 
above, the Bureau is adding the option to round or truncate partial 
cents which would not affect the commenter's current method for 
disclosing certain dollar amounts pursuant to Sec.  
1026.37(o)(4)(i)(A).
    As discussed above, two commenters asserted that the proposed 
revisions to Sec.  1026.37(o)(4)(i) would require the use of rounded 
numbers when calculating certain aggregate amounts. The Bureau notes 
that these final revisions discussed above would not change the method 
for calculating the total dollar amounts that are required to be 
rounded under Sec.  1026.37(o)(4)(i). The amendments in this final rule 
do not change what is provided under comment 37(o)(4)-2, which explains 
that if a dollar amount that is required to be rounded by Sec.  
1026.37(o)(4)(i) on the Loan Estimate is a total of one or more dollar 
amounts that are not required or permitted to be rounded, the total 
amount must be rounded consistent with Sec.  1026.37(o)(4)(i), but such 
component amounts used in the calculation must use such unrounded 
numbers. As discussed above, a commenter asserted that the proposed 
revision to Sec.  1026.37(o)(4)(ii) and comment 37(o)(4)(ii)-1 would be 
burdensome because it would require the reprogramming and testing of 
systems and that requiring the disclosure of ``8%'' instead of 
``8.00%'' would be a change that would not provide any benefit to 
consumers. Section 1026.37(o)(4)(ii) and comment 37(o)(4)(ii)-1 
currently provide that whole numbers are truncated at the decimal 
point, and this particular provision should, therefore, not require 
reprogramming. In addition, as noted above, the Bureau believes too 
many numbers on the Loan Estimate may lead to information overload for 
the consumer. Dropping trailing zeros reduces information overload and 
thereby increases a consumer's comprehension of the disclosures.
    As explained above, two commenters stated that rounding should not 
be permitted on the Loan Estimate for various reasons. As the Bureau 
explained in the TILA-RESPA Final Rule, consumer testing showed that it 
was easier for consumers to quickly identify and evaluate the rounded 
amounts as opposed to unrounded amounts described under Sec.  
1026.37(b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and (iii), (c)(4)(ii), 
(f), (g), (h), (i), and (l).\83\ Based on consumer testing, the Bureau 
determined that providing a large number of exact amounts for every 
disclosure could lead to information overload and thereby reduce the 
effectiveness of the disclosures.\84\ The Bureau continues to believe 
that rounding certain amounts described under Sec.  1026.37(o)(4) is 
more beneficial than the disclosure of exact amounts.\85\
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    \83\ See 78 FR 79730, 79995 (Dec. 31, 2013).
    \84\ See id.
    \85\ See id.
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Section 1026.38 Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure)

The Bureau's Proposal
    Section 1026.38 sets forth the content of the Closing Disclosure 
required by Sec.  1026.19(f) to be provided to the consumer. Comments 
38-1 to 38-3 are applicable generally to Sec.  1026.38. The Bureau 
proposed to add comment 38-4, which would have provided options for the 
disclosure of reductions in principal balance (principal curtailments) 
to satisfy the refund requirements of Sec.  1026.19(f)(2)(v), when 
contractual or other legal obligations of the creditor, such as the 
requirements of a government loan program or the purchase criteria of 
an investor, prevent the creditor from refunding cash to the consumer. 
The proposal would have provided creditors the option to disclose 
principal curtailments in the other costs table under Sec.  
1026.38(g)(4), in the summaries of transactions table under Sec.  
1026.38(j)(4)(i), in the payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B), or on an additional page (addendum) under Sec.  
1026.38(t)(5)(ix). The principal curtailment disclosure would have 
contained a statement that the principal

[[Page 37719]]

curtailment amount includes a refund for an amount that exceeds the 
limitations on increases in closing costs under Sec.  1026.19(e)(3) and 
the amount of such refund. The Bureau sought comment on whether there 
would be sufficient space in the corresponding rows on the Closing 
Disclosure for such a statement and whether the Bureau should prescribe 
a specific statement or permit creditors discretion in developing such 
statement. For the reasons discussed below, the Bureau is revising and 
broadening proposed comment 38-4 to address principal reductions 
(curtailments) that are and are not paid for from closing funds, to 
clarify that the disclosure of a principal reduction is permissible 
regardless of whether contractual or other legal obligations of the 
creditor prevent the creditor from refunding cash to the consumer, and 
to limit where principal reductions may be disclosed on the Closing 
Disclosure.
Comments Received
    The Bureau received comments on this proposal from a variety of 
commenters, including a law firm, a mortgage company, a title insurance 
company, a software vendor, a software vendor group, a bank, a 
financial holding company, a housing finance agency, GSEs, and other 
industry commenters. Commenters generally appreciated that the Bureau 
proposed to provide guidance on the disclosure of principal 
curtailments, but provided significant feedback and sought 
clarification on many aspects of the proposal.
    An industry group recommended that the Bureau use the phrase 
``principal reduction'' instead of ``principal curtailment,'' noting 
that consumers would be more familiar with the recommended phrase. The 
Bureau appreciates the suggestion to use the phrase ``principal 
reduction'' instead of ``principal curtailment,'' and is revising the 
commentary accordingly. As explained in final comment 38-4, when 
referring to principal reductions on the Closing Disclosure, creditors 
are permitted to use other similar phrases.
    Many industry commenters requested that the Bureau permit the use 
of principal curtailments for situations other than when a creditor is 
providing a credit for a tolerance refund or to meet loan program or 
investor requirements. An industry commenter and a law firm commenter 
expressed concern that proposed comment 38-4 could be interpreted to 
limit the use of principal curtailments to only those circumstances 
where contractual or other legal obligations of the creditor prevent 
the creditor from refunding cash to the consumer. Commenters stated 
that consumers benefit more from a principal curtailment than from a 
refund in the form of cash because it reduces the principal balance of 
the loan on which a consumer is charged interest, and pointed to the 
TILA-RESPA Final Rule in which the Bureau explicitly declined to 
prescribe how refunds are made to consumers.\86\
---------------------------------------------------------------------------

    \86\ Commenters appear to be referencing the TILA-RESPA Final 
Rule at 78 FR 79730, 79883 (Dec. 31, 2013).
---------------------------------------------------------------------------

    In the proposal, the Bureau sought to address the particular issue 
of how to disclose a principal reduction that is used to provide a 
tolerance refund, but did not intend to propose to limit the use of 
principal reductions to situations where a creditor is providing a 
tolerance refund under Sec.  1026.19(f)(2)(v). As noted above, the 
Bureau is revising and restructuring comment 38-4 to provide greater 
clarity regarding the disclosure of principal reductions, including the 
disclosure of principal reductions that are not used to provide 
tolerance refunds. Final comment 38-4 does not contain the language 
identified by commenters as potentially restricting the use of 
principal reductions to only those circumstances where contractual or 
other legal obligations of the creditor prevent the creditor from 
refunding cash to the consumer.
    Many commenters, including an industry group, mortgage company, 
title insurance company, and software vendor, noted a discrepancy 
between the commentary, which stated that the principal curtailment 
would be disclosed as a negative number, and the preamble, which stated 
that the principal curtailment would be marked as ``Paid Outside of 
Closing'' or ``P.O.C.'' The commenters asked the Bureau to clarify the 
disclosure requirements. Because whether a principal reduction is 
disclosed as a negative or positive number and with or without the 
label ``Paid Outside of Closing'' or ``P.O.C.'' is dependent upon the 
purpose of the principal reduction, the Bureau is revising comment 38-4 
and restructuring the comment according to the purpose for which the 
principal reduction is used. Final comment 38-4.i covers situations in 
which a principal reduction is not paid for with closing funds, whereas 
final comment 38-4.ii covers situations in which a principal reduction 
is paid for with closing funds. In addition, the Bureau is not 
prescribing whether the principal reduction is disclosed as a negative 
number or as a positive number. The Bureau is taking a similar approach 
in other sections of this final rule to provide for flexibility as to 
the disclosure of negative and positive numbers because the Bureau 
recognizes that mandating a negative number or mandating a positive 
number for a particular disclosure may not be suitable for all 
transaction types. See, for example, the section-by-section analyses of 
Sec.  1026.37(h)(1)(i), (1)(vii), and (2)(iii), and Sec.  
1026.38(e)(2)(ii) and (4)(ii).
    The proposal would have provided that a principal curtailment may 
be disclosed under Sec.  1026.38(j)(4)(i), which provides requirements 
for the disclosure of costs that are not paid from closing funds. A 
software vendor, industry group, and title insurance company requested 
additional clarity regarding the disclosure of a principal curtailment 
pursuant to Sec.  1026.38(j)(4)(i). Specifically, the commenters asked 
where in the summaries of transactions table to disclose the principal 
curtailment, since Sec.  1026.38(j)(4)(i) contains the requirement to 
disclose costs that are not paid from closing funds but would otherwise 
be disclosed pursuant to Sec.  1026.38(j) marked with the phrase ``Paid 
Outside of Closing'' or ``P.O.C.,'' but does not itself provide a 
specific location for the principal curtailment disclosure. The 
commenters suggested that the appropriate location within the summaries 
of transactions table is under Sec.  1026.38(j)(1)(v), as an amount due 
from the consumer. For principal reductions disclosed in the summaries 
of transactions table, the Bureau intended the disclosure to be made 
under Sec.  1026.38(j)(1)(v) and is revising comment 38-4 to, among 
other things, specifically reference Sec.  1026.38(j)(1)(v) instead of 
Sec.  1026.38(j)(4)(i). The Bureau will continue to reference Sec.  
1026.38(j)(4)(i) only for the requirement to mark costs that are not 
paid from closing funds but would otherwise be disclosed pursuant to 
Sec.  1026.38(j) with the phrase ``Paid Outside of Closing'' or 
``P.O.C.''
    A title insurance company, a bank, a financial holding company, a 
software vendor, and GSEs raised concerns with the various options for 
disclosing a principal curtailment proposed by the Bureau. One 
commenter supported the flexibility that the Bureau proposed to provide 
for the disclosure of principal curtailments under Sec.  1026.38(g)(4), 
(j)(4)(i), (t)(5)(vii)(B) and (t)(5)(ix), but cautioned that some 
lending programs may not permit the disclosure of principal 
curtailments on an addendum pursuant to Sec.  1026.38(t)(5)(ix). Some 
commenters asserted that a principal curtailment should not be 
disclosed as a closing cost under Sec.  1026.38(g)(4)

[[Page 37720]]

because closing costs should only include fees and charges that the 
consumer must pay to obtain and close the loan. Commenters also stated 
that disclosing a principal curtailment as a closing cost would limit 
the ability of consumers to compare the closing costs on the Loan 
Estimate to the closing costs on the Closing Disclosure and would cause 
consumer confusion. Commenters asserted that systems are not programmed 
to provide under Sec.  1026.38(g)(4) the label ``Paid Outside of 
Closing'' or ``P.O.C.,'' or lengthy text statements. Another commenter 
requested that the Bureau limit the disclosure of principal 
curtailments to Sec.  1026.38(g)(4) or (t)(5)(vii)(B), unless there is 
insufficient space, at which time disclosure under Sec.  
1026.38(t)(5)(ix) would be permissible. One commenter requested that 
the Bureau limit disclosure of principal curtailments to Sec.  
1026.38(j)(4)(i) or an addendum pursuant to Sec.  1026.38(t)(5)(ix), 
while another commenter asked the Bureau to limit the disclosure of 
principal curtailments to Sec.  1026.38(j)(1)(v) on the standard 
disclosure and to Sec.  1026.38(t)(5)(vii)(B) on the alternative 
disclosure. Finally, one commenter requested that the Bureau prescribe 
only one location for the disclosure of principal curtailments on the 
standard and alternative disclosures. Commenters who requested that the 
Bureau limit the disclosure options stated that a uniform disclosure 
method for principal curtailments would reduce compliance burden for 
the industry, aid consumer understanding of the transaction, and aid 
the utilization of a uniform data standard for the industry.
    While the Bureau intended for the proposal to provide the 
flexibility for the disclosure of principal reductions discussed in the 
Bureau staff's informal April 2016 webinar, the Bureau appreciates 
commenters' assertions that a uniform disclosure method for principal 
reductions would reduce compliance burden, aid consumer understanding, 
and aid the utilization of a uniform data standard. The Bureau is 
therefore revising proposed comment 38-4 to limit the disclosure of 
principal reductions to Sec.  1026.38(j)(1)(v) on the standard Closing 
Disclosure and Sec.  1026.38(t)(5)(vii)(B) on the alternative Closing 
Disclosure. The Bureau notes, however, that creditors are permitted to 
disclose principal reductions under any currently permissible provision 
prior to the mandatory compliance date of this provision, October 1, 
2018, as discussed in part VI, below. For an informal summary of the 
permissible disclosure options that are currently in effect and will 
remain in effect until the mandatory compliance date of this rule, 
please consult the Bureau staff's April 2016 webinar.
    Many commenters responded to the Bureau's request for comment on 
whether there is sufficient space in the corresponding rows on the 
Closing Disclosure for creditors to provide a statement explaining that 
the principal curtailment includes a tolerance refund for exceeding the 
limitations on increases in closing costs and whether the Bureau should 
prescribe a specific statement or permit creditors discretion in 
developing such statement. A title insurance company, housing finance 
agency, and financial holding company requested that the Bureau 
prescribe a specific statement for uniformity, and two of the 
commenters suggested statements that they asserted would have fit in 
all proposed disclosure locations. Other commenters requested that the 
Bureau permit creditors discretion in developing the statement but 
provide an example of a permissible statement or a model statement that 
would be deemed to be in compliance with the disclosure requirements. A 
creditor opposed the requirement to make a statement that the amount 
imposed exceeds the limitations on increases in closing costs, 
identifying concerns with space limitations. The creditor requested 
that if the requirement to disclose such a statement is finalized, the 
Bureau allow creditors discretion in developing the statement. One 
commenter stated that there is a moderate amount of space for such a 
statement under Sec.  1026.38(g)(4), limited space under Sec.  
1026.38(j)(1)(v), and sufficient space under Sec.  
1026.38(t)(5)(vii)(B) and (ix). The same commenter also requested that 
the Bureau permit the disclosure of the principal curtailment to refer 
the consumer to an addendum, which would provide the required statement 
concerning the tolerance refund for exceeding the limitations on 
increases in closing costs.
    While some commenters requested that the Bureau prescribe specific 
disclosure language, others appreciated the flexibility provided in the 
proposal to develop their own disclosure language. The commenters also 
were not consistent as to whether there is sufficient space in the 
corresponding rows on the Closing Disclosure for the required 
disclosure, particularly when the disclosure must convey that the 
principal reduction is being provided to offset charges that exceed the 
legal limits. Because of potential space constraints anticipated by the 
Bureau and raised by some commenters, the Bureau is permitting 
creditors to develop their own disclosure language that contains the 
required elements using any language that meets the clear and 
conspicuous standard under Sec.  1026.38(t)(1)(i). The revised 
commentary contains examples of disclosure statements that would meet 
the requirements of comment 38-4.
    A financial holding company stated that under Texas law, the 
principal curtailment disclosure requirements could trigger cash-out 
stipulations which would force creditors to provide principal 
reductions instead of providing cash refunds to borrowers. Absent 
additional information, the Bureau is unable to respond to this 
comment. However, the Bureau notes that creditors have always had the 
option of using a principal reduction to provide a tolerance refund or 
for other purposes. Comment 38-4 is being added merely to provide 
clarity on how to disclose a principal reduction.
    A software vendor group explained that implementing proposed 
comment 38-4 will require significant reprogramming and software 
changes that will take up to nine months to complete. As discussed in 
part VI, below, the final rule will be effective 60 days from 
publication in the Federal Register, but compliance will be optional 
until October 1, 2018, giving industry sufficient time to reprogram 
systems.
The Final Rule
    For the reasons discussed above, the Bureau is revising and 
broadening proposed comment 38-4 to address principal reductions that 
are and are not paid for from closing funds, to clarify that the 
disclosure of a principal reduction is permissible regardless of 
whether contractual or other legal obligations of the creditor prevent 
the creditor from refunding cash to the consumer, and to limit where 
principal reductions may be disclosed on the Closing Disclosure. The 
introductory paragraph to final comment 38-4 provides only for the 
disclosure of a principal reduction on the standard disclosure under 
Sec.  1026.38(j)(1)(v) or on the alternative disclosure under Sec.  
1026.38(t)(5)(vii)(B) and contains a list of the elements that must be 
provided in the principal reduction disclosure. Final comment 38-4.i 
covers situations in which a principal reduction is not paid from 
closing funds. Final comment 38-4.ii covers situations in which a 
principal reduction is paid from closing funds.
    Final comment 38-4 provides that the disclosure of a principal 
reduction must include the following elements: (1) The

[[Page 37721]]

amount of the principal reduction; (2) the phrase ``principal 
reduction'' or a similar phrase; (3) for a principal reduction 
disclosure under Sec.  1026.38(t)(5)(vii)(B) only, the name of the 
payee; (4) if applicable to the transaction, the phrase ``Paid Outside 
of Closing'' or ``P.O.C.'' and the name of the party making the 
payment; and (5) if the principal reduction is used to satisfy the 
requirements of Sec.  1026.19(f)(2)(v), a statement that the principal 
reduction is being provided to offset charges that exceed the legal 
limits.
    Final comment 38-4 also provides that if there is insufficient 
space under Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B) for the creditor 
to disclose certain elements of the principal reduction disclosure, the 
creditor may omit these elements from the Sec.  1026.38(j)(1)(v) or 
(t)(5)(vii)(B) disclosure and provide a complete disclosure, including 
these elements, under an appropriate heading on an addendum, in 
accordance with Sec.  1026.38(j) and (t)(5)(ix), as applicable, with a 
reference to the abbreviated principal reduction disclosure under Sec.  
1026.38(j)(1)(v) or (t)(5)(vii)(B). In this case, the elements that 
must be included in the abbreviated principal reduction disclosure 
under Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B) are the amount of the 
principal reduction, the phrase ``principal reduction'' or a similar 
phrase, the phrase ``Paid Outside of Closing'' or ``P.O.C.'' if 
applicable, and for the abbreviated principal reduction disclosure 
under Sec.  1026.38(t)(5)(vii)(B) only, the name of the payee. The 
elements that may be omitted from the abbreviated principal reduction 
disclosure under Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B) and included 
in the complete principal reduction disclosure on an addendum are, if 
applicable to the transaction, the name of the party making the payment 
and a statement that the principal reduction is being provided to 
offset charges that exceed the legal limits. The revised commentary 
contains examples of principal reduction disclosures that would meet 
the requirements of comment 38-4.
38(a) General Information
38(a)(3) Closing Information
38(a)(3)(iii) Disbursement Date
    Section 1026.38(a)(3)(iii) requires disclosure of the disbursement 
date. In a purchase transaction under Sec.  1026.37(a)(9)(i), the 
disbursement date is the date the amounts disclosed under Sec.  
1026.38(j)(3)(iii) (cash to close from or to borrower) and Sec.  
1026.38(k)(3)(iii) (cash from or to seller) are expected to be paid to 
the consumer and seller. In a non-purchase transaction, the 
disbursement date is the date the amounts disclosed under Sec.  
1026.38(j)(2)(iii) (loan amount) or Sec.  1026.38(t)(5)(vii)(B) 
(payoffs and payments) are expected to be paid to the consumer or a 
third party. The Bureau proposed to revise Sec.  1026.38(a)(3)(iii) to 
provide that the disbursement date in non-purchase transactions is the 
date some or all of the loan amount disclosed under Sec.  1026.38(b) is 
expected to be paid to the consumer or a third party, and to add 
comment 38(a)(3)(iii)-1 to clarify that the disbursement date for 
simultaneous subordinate financing is the date some or all of the loan 
amount disclosed under Sec.  1026.38(b) is expected to be paid to the 
consumer or a third party. For the reasons discussed below, the Bureau 
is adopting the amendments to Sec.  1026.38(a)(3)(iii) and new comment 
38(a)(3)(iii)-1 substantially as proposed, but is revising Sec.  
1026.38(a)(3)(iii) to accommodate purchase transactions where funds are 
disbursed to the borrower and seller on different dates, and revising 
Sec.  1026.38(a)(3)(iii) and comment 38(a)(3)(iii)-1 to provide 
additional clarity regarding disbursement to third parties in certain 
transactions.
    Commenters stated that the proposed amendments would provide needed 
clarity, but some requested additional revisions. A trade association, 
software vendor, and title insurance company requested that the Bureau 
clarify that the disbursement date in purchase transactions is the date 
funds are expected to be paid to either the consumer or the seller, 
because in some states disbursement to the consumer and seller may 
occur on different dates. A title insurance company and trade 
association requested that the Bureau clarify that in non-purchase 
transactions and for simultaneous subordinate financing transactions, 
the disbursement date is the date funds are disbursed from the 
settlement agent to the consumer or third party, and not the date funds 
are disbursed from the creditor to the settlement agent. Commenters 
were concerned that settlement agents are considered to be third 
parties. A software vendor noted that in construction transactions, the 
initial disbursement date may not be known at closing and asked the 
Bureau to provide additional clarity regarding how to disclose the 
disbursement date in these transactions.
    After considering the comments, the Bureau is adopting the 
amendments to Sec.  1026.38(a)(3)(iii) and new comment 38(a)(3)(iii)-1 
as proposed with revisions. The Bureau recognizes that in some states, 
funds may be disbursed to the borrower and seller on different dates. 
The Bureau is revising Sec.  1026.38(a)(3)(iii) to provide that in a 
purchase transaction where funds are disbursed to the borrower and 
seller on different dates, it is acceptable to disclose either date 
under Sec.  1026.38(a)(3)(iii). The Bureau is also adding a cross-
reference to comment 38(a)(3)(iii)-1 which contains a different 
standard for simultaneous subordinate financing transactions. Further, 
as it pertains to non-purchase transactions and simultaneous 
subordinate financing, the Bureau intended in the proposal for the 
disbursement date to reflect the date that some or all of the loan 
amount is paid to the consumer or a third party, but not the date some 
or all of the loan amount is paid to the settlement agent. Because a 
settlement agent is actually a third party to the credit transaction, 
the Bureau is revising Sec.  1026.38(a)(3)(iii) and comment 
38(a)(3)(iii)-1 to clarify that in a non-purchase or a simultaneous 
subordinate financing transaction, the disbursement date disclosure 
reflects the date funds are expected to be paid to the consumer or a 
third party other than a settlement agent.
    The Bureau declines to add commentary to explain how to disclose 
the disbursement date in construction transactions where the date of 
the initial disbursement is unknown to the creditor. Under final Sec.  
1026.38(a)(3)(iii), the disbursement date in a transaction with a 
construction purpose under Sec.  1026.37(a)(9)(iii) is the date that 
some or all of the loan amount is paid to the consumer or a third party 
other than the settlement agent. Depending on the facts and 
circumstances of the transaction, the disbursement date may be, for 
example, the date closing costs are paid with loan proceeds or the date 
of the first scheduled draw. If these dates are not known at the time 
the creditor provides the Closing Disclosure, the Bureau concludes that 
comment 19(f)(1)(i)-2 provides sufficient guidance to creditors 
regarding the disclosure of unknown information. Comment 19(f)(1)(i)-2 
provides that creditors may estimate disclosures using the best 
information reasonably available when the actual term is unknown to the 
creditor at the time disclosures are provided, consistent with Sec.  
1026.17(c)(2)(i).
38(a)(3)(vii) Sale Price
    In a transaction where there is no seller, Sec.  
1026.38(a)(3)(vii)(B) requires the creditor to disclose the appraised 
value of the property. Comment 38(a)(3)(vii)-1 explains that, to comply

[[Page 37722]]

with this requirement, the creditor discloses the value determined by 
the appraisal or valuation used to determine loan approval or, if none 
has been obtained, the estimated value of the property. In the latter 
case, the creditor may use the estimate provided by the consumer at 
application, or, if it has performed its own estimate of the property 
value by the time the disclosure is provided to the consumer, it may 
disclose that estimate. The Bureau proposed to revise comment 
38(a)(3)(vii)-1 to clarify that, if the creditor has performed its own 
estimate of the property value for purposes of approving the credit 
transaction by the time the disclosure is provided to the consumer, the 
creditor must disclose the estimate it used for purposes of approving 
the credit transaction.
    One industry commenter requested that with respect to a transaction 
involving construction where there is no seller, the Bureau clarify 
that the creditor must disclose under Sec.  1026.37(a)(7)(ii) the value 
of the underlying lot at the time of issuing the Loan Estimate, 
irrespective of what the projected value of the property may be after 
construction is finished, because the value of the land would be the 
value of the property at the time the Loan Estimate is given. This 
commenter also asked the Bureau to clarify the disclosure requirement 
on the Closing Disclosure under Sec.  1026.38(a)(3)(vii) for the 
appraised value for a transaction involving construction where there is 
no seller. The commenter asked for clarification on whether the 
creditor must disclose only the value of the underlying lot, or instead 
must disclose the projected value of the completed project after 
construction is finished that was used to determine approval of the 
credit transaction.
    The Bureau is adopting proposed comment 38(a)(3)(vii)-1 with 
revisions. As discussed in more detail below, the Bureau is adopting 
the proposed change to final comment 38(a)(3)(vii)-1. Also, in response 
to the comment discussed above, the Bureau is revising comment 
38(a)(3)(vii)-1 to provide an example of how the guidance in comment 
38(a)(3)(vii)-1 applies to transactions involving construction where 
there is no seller.
    Current comment 38(a)(3)(vii)-1 provides that in transactions where 
there is no seller, such as in a refinancing, Sec.  
1026.38(a)(3)(vii)(B) requires the creditor to disclose the appraised 
value of the property. To comply with this requirement, the creditor 
discloses the value determined by the appraisal or valuation used to 
determine approval of the credit transaction. If the creditor has not 
obtained an appraisal, the creditor may disclose the estimated value of 
the property. Where an estimate is disclosed, rather than an appraisal, 
the label for the disclosure is changed to ``Estimated Prop. Value.'' 
The creditor may use the estimate provided by the consumer at 
application, or if it has performed its own estimate of the property 
value by the time the disclosure is provided to the consumer, disclose 
that estimate provided that it was the estimate the creditor used to 
determine approval of the credit transaction. Consistent with the 
proposal, the Bureau is revising comment 38(a)(3)(vii)-1 to clarify 
that in circumstances where a creditor may use an estimate of the value 
of the property as discussed above, if the creditor has performed its 
own estimate of the property value for purposes of approving the credit 
transaction by the time the disclosure is provided to the consumer, the 
creditor must disclose its own estimate it used for purposes of 
approving the credit transaction, rather than disclose the estimate 
provided by the consumer at application.
    In response to a commenter's request for additional clarification 
on how the guidance in comment 38(a)(3)(vii)-1 applies to transactions 
involving construction where there is no seller, the Bureau is revising 
comment 38(a)(3)(vii)-1 to clarify that for those transactions, the 
creditor must disclose the value of the property that is used to 
determine the approval of the credit transaction, including 
improvements to be made on the property if those improvements are used 
to determine the approval of the credit transaction. As discussed 
above, current comment 38(a)(3)(vii)-1 provides that for transactions 
where there is no seller, a creditor must disclose under Sec.  
1026.38(a)(3)(vii)(B) the value of the property the creditor used to 
determine approval of the credit transaction. Consistent with the 
standard that is currently set forth in comment 38(a)(3)(vii)-1, for 
transactions involving construction where there is no seller, the value 
of the property disclosed under Sec.  1026.38(a)(3)(vii)(B) must 
include the improvements to be made on the property if those 
improvements are used in determining the approval of the credit 
transaction.
    Thus, if a creditor includes improvements to be made on a property 
in determining the approval of a credit transaction involving 
construction where there is no seller, the creditor must include the 
improvements in the disclosure of the value of the property on the 
Closing Disclosure under Sec.  1026.38(a)(3)(vii). As discussed in the 
section-by-section analysis of Sec.  1026.37(a)(7), final comment 
37(a)(7)-1 allows a creditor the flexibility to include the 
improvements into the estimated value of the property disclosed on the 
Loan Estimate under Sec.  1026.37(a)(7), which allows the creditor the 
option of maintaining consistency between the disclosure that is given 
on the Loan Estimate under Sec.  1026.37(a)(7) and the disclosure that 
will be given on the Closing Disclosure under Sec.  1026.38(a)(3)(vii) 
by including improvements to be made in both disclosures. On the other 
hand, if a creditor does not include improvements to be made on the 
property in determining the approval of a credit transaction involving 
construction where there is no seller, the creditor must not include 
the improvements in the disclosure of the value of the property on the 
Closing Disclosure under Sec.  1026.38(a)(3)(vii). Final comment 
37(a)(7)-1 allows a creditor the flexibility not to include the 
improvements into the estimated value of the property disclosed on the 
Loan Estimate under Sec.  1026.37(a)(7), which allows the creditor the 
option of maintaining consistency between the disclosure that is given 
on the Loan Estimate under Sec.  1026.37(a)(7) and the disclosure that 
will be given on the Closing Disclosure under Sec.  1026.38(a)(3)(vii) 
by not including improvements to be made in both disclosures.
38(a)(4) Transaction Information
The Bureau's Proposal
    Section 1026.38(a)(4) requires the disclosure of specific 
information about the transaction, including the name and address of 
the seller. Comment 38(a)(4)-2 clarifies that, in transactions where 
there is no seller, such as in a refinancing or home equity loan, the 
disclosure of the seller's name and address required by Sec.  
1026.38(a)(4)(ii) may be left blank. The Bureau proposed to revise 
comment 38(a)(4)-2 to include a simultaneous subordinate financing 
purchase transaction as a transaction for which a creditor may leave 
the Sec.  1026.38(a)(4)(ii) disclosure blank, but only if the first-
lien Closing Disclosure will record the entirety of the seller's 
transaction. The Bureau specifically sought comment on whether the 
consumer or seller would benefit if the Closing Disclosure for the 
simultaneous subordinate financing purchase transaction contains the 
seller's name and address even if the first-lien Closing Disclosure 
will record the entirety of the

[[Page 37723]]

seller's transaction, including the seller's name and address.
    Section 1026.38(a)(4)(i) also requires the consumer's name and 
mailing address, labeled ``Borrower.'' Section 1026.2(a)(11) defines 
``consumer'' as a natural person to whom consumer credit is offered or 
extended. The definition further provides that, for purposes of 
rescission under Sec. Sec.  1026.15 and 1026.23, the term also includes 
a natural person in whose principal dwelling a security interest is or 
will be retained or acquired, if that person's ownership interest in 
the dwelling is or will be subject to the security interest. Proposed 
comment 38(a)(4)-4 would have required that, in rescindable 
transactions, pursuant to Sec.  1026.38(a)(4)(i), creditors disclose 
the name and mailing address of each natural person in whose principal 
dwelling a security interest is or will be retained or acquired, 
labeled ``Borrower,'' if that person's ownership interest in the 
dwelling is or will be subject to the security interest and regardless 
of whether that person is an obligor.
Simultaneous Subordinate Financing
Comments Received
    A title insurance company and a compliance professional expressed 
support for the proposal. Commenters argued that there is no benefit to 
the borrower or seller in requiring the disclosure of the seller's name 
and address in the simultaneous subordinate financing purchase 
transaction Closing Disclosure because the first-lien Closing 
Disclosure will already have the seller's name and address. The first-
lien Closing Disclosure will be the document to which consumers and 
sellers will refer to find this information. One commenter also stated 
that because most simultaneous subordinate financing transactions are 
handled in files separate from the first-lien transaction, data entry 
on the part of creditors and settlement agents will be reduced.
The Final Rule
    The Bureau is finalizing the proposed amendments to comment 
38(a)(4)-2. The Bureau concludes that there is no substantial benefit 
to the borrower or seller in requiring the disclosure of the seller's 
name and address on the simultaneous subordinate financing purchase 
transaction Closing Disclosure if the first-lien Closing Disclosure 
will record the entirety of the seller's transaction. The Bureau also 
believes that the amendments to comment 38(a)(4)-2 will reduce industry 
burden.
Consumers Disclosed With the Label ``Borrower''
Comments Received
    Several industry commenters supported proposed comment 38(a)(4)-4, 
which would have required that creditors disclose, using the label 
``Borrower,'' the name and mailing address of each natural person in 
whose principal dwelling a security interest is or will be retained or 
acquired, regardless of whether that person is an obligor. Vendors and 
an individual compliance professional commented that the proposal 
provided helpful guidance for determining which names and addresses 
should be disclosed under current Sec.  1026.38(a)(4)(i). A vendor 
group stated that proposed comment 38(a)(4)-4 is consistent with 
informal guidance previously provided by the Bureau.
    However, other industry commenters opposed proposed comment 
38(a)(4)-4. Several creditors and trade associations asserted that it 
is contradictory to disclose non-obligors with the label ``Borrower'' 
and that doing so may result in consumer confusion. A creditor 
commented that the requirement would probably lead to a significant 
decline in the volume of rescindable transactions involving non-obligor 
property owners; current Federal regulations, including Regulation Z, 
do not require disclosing non-obligors as ``Borrowers''; and current 
Sec.  1026.37(a)(5) limits disclosure of ``Applicants'' on the Loan 
Estimate to only include the name and mailing address of consumers 
applying for the credit. A trade association and a secondary market 
investor stated that proposed comment 38(a)(4)-4 would require 
substantial reprogramming of many loan origination systems; the 
investor also expressed concern that the proposal may increase the 
likelihood of disclosure errors. Industry commenters suggested various 
alternatives to disclosing non-obligors with the label ``Borrower,'' 
including replacing the label ``Borrower'' on the Closing Disclosure 
form with another label such as ``consumer''; limiting the term 
``consumer'' in Sec.  1026.38(a)(4)(i) to exclude persons who are not 
contractually liable for repayment of the debt; or using an addendum, 
acknowledgement statement, or non-categorized signature line for 
disclosing non-obligors who have recession rights.
    An individual commenter requested clarification regarding how to 
document non-obligors' receipt of the Closing Disclosure. A secondary 
market investor requested clarification as to which disclosures must be 
provided to consumers who have recession rights.
The Final Rule
    For the reasons discussed below, the Bureau is not adopting comment 
38(a)(4)-4 as proposed and, instead, is revising comment 38(a)(4)-4 so 
that only the name and mailing address of persons to whom the credit is 
offered or extended are disclosed pursuant to Sec.  1026.38(a)(4)(i) 
and labeled ``Borrower.'' After considering commenters' concerns, the 
Bureau concludes that, for purposes of Sec.  1026.38(a)(4)(i), limiting 
the term ``consumer'' to persons to whom the credit is offered or 
extended will promote meaningful disclosure of credit terms and 
informed use of credit and will facilitate compliance. By disclosing 
the name and mailing address only of persons to whom the credit is 
offered or extended pursuant to Sec.  1026.38(a)(4)(i), the Bureau 
concludes that, as finalized, comment 38(a)(4)-4 yields a disclosure 
that is more consistent with the label ``Borrower'' and presents less 
potential for consumer confusion. As finalized, comment 38(a)(4)-4 is 
also consistent with current Sec.  1026.37(a)(5), which limits 
disclosure of ``Applicants'' on the Loan Estimate to only include the 
name and mailing address of consumers applying for the credit. With 
respect to a vendor group's statement that informal guidance previously 
provided by the Bureau was consistent with proposed comment 38(a)(4)-4, 
the Bureau understands that there has been uncertainty regarding 
rescindable transactions as to whether current Sec.  1026.38(a)(4)(i) 
requires disclosing, with the label ``Borrower,'' the name and mailing 
address of each natural person in whose principal dwelling a security 
interest is or will be retained or acquired, if that person's ownership 
interest in the dwelling is or will be subject to the security 
interest. As finalized in this rule, comment 38(a)(4)-4 will provide 
helpful guidance for determining which names and addresses should be 
disclosed under Sec.  1026.38(a)(4)(i). Comment 38(a)(4)-4 does not 
change the definition of ``consumer'' in Sec.  1026.2(a)(11) nor does 
it change the requirements of Sec.  1026.23, including disclosure 
delivery requirements.
    Regarding a commenter's request for clarification regarding how to 
document non-obligors' receipt of the Closing Disclosure, current Sec.  
1026.38(s) permits a creditor, at its option, to include a line for the 
signatures of the consumers in the transaction--and current Sec.  
1026.2(a)(11) provides that, for purposes of rescission under 
Sec. Sec.  1026.15 and 1026.23, the term ``consumer'' also includes a 
natural person in whose

[[Page 37724]]

principal dwelling a security interest is or will be retained or 
acquired, if that person's ownership interest in the dwelling is or 
will be subject to the security interest. If the creditor opts to 
provide a line for consumers' signatures, current Sec.  1026.38(s) 
requires that the creditor disclose, above the signature line, that 
consumers do not have to accept the loan because they signed or 
received the form. With respect to the comment requesting clarification 
as to which disclosures must be provided to consumers who have 
recession rights, guidance for closed-end credit can be found in 
current Sec.  1026.23 and its associated commentary.
    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.
38(d) Costs at Closing
38(d)(2) Alternative Table for Transactions Without a Seller or for 
Simultaneous Subordinate Financing
The Bureau's Proposal
    Section 1026.38(d)(2) permits creditors to use the alternative 
table on the Closing Disclosure in a transaction without a seller only 
where the creditor disclosed the optional alternative table under Sec.  
1026.37(d)(2) on the Loan Estimate. The Bureau has provided informal 
guidance that, in purchase transactions with simultaneous subordinate 
financing, the alternative table may be used for the simultaneous 
subordinate financing Closing Disclosure if the first-lien Closing 
Disclosure records the entirety of the seller's transaction and the 
seller did not contribute to the subordinate financing. The Bureau 
proposed to amend Sec.  1026.38(d)(2) and comment 38(d)(2)-1 to 
explicitly permit the use of the alternative table for simultaneous 
subordinate financing purchase transactions if the first-lien Closing 
Disclosure records the entirety of the seller's transaction. The Bureau 
specifically sought comment on whether it is appropriate to limit use 
of the alternative table for disclosure of simultaneous subordinate 
financing purchase transactions to situations in which the first-lien 
Closing Disclosure records the entirety of the seller's transaction.
Comments Received
    Commenters included a title insurance company, software vendors, 
and a bank. Generally commenters supported the Bureau's proposal to 
allow the use of the alternative table if the first-lien Closing 
Disclosure records the entirety of the seller's transaction. As 
discussed more fully in the section-by-section analysis of Sec.  
1026.37(d)(2), one commenter questioned what disclosures should be used 
when the alternative tables were initially used for the simultaneous 
subordinate financing, but a seller later agrees to contribute to the 
costs of the subordinate financing, making continued use of the 
alternative tables impermissible under the proposal. One commenter 
noted that the proposal could lead to variation among creditors and 
another commenter stated that the UCD may not allow the use of the 
alternative disclosures for any transactions with sellers.
The Final Rule
    For the reasons discussed below, the Bureau is finalizing the 
proposed amendments to Sec.  1026.38(d)(2) with minor technical 
revisions, and finalizing proposed amendments to comment 38(d)(2)-1 
with a minor technical revision and revisions to cross-reference 
related requirements, including those that pertain to first-lien 
disclosures. The Bureau appreciates the commenter's question regarding 
how to proceed under the proposal when the alternative table was 
properly used on the Loan Estimate, or even the Closing Disclosure, but 
a subsequent event causes the continued use of the alternative table to 
be impermissible. For the reasons discussed in the section-by-section 
analysis of Sec.  1026.37(d)(2), the Bureau is directly addressing this 
concern by adding new comment 38(k)(2)(vii)-1, amending comments 
38(d)(2)-1 and 38(j)-3, and amending proposed new comments 
38(t)(5)(vii)(B)-1 and -2 to require the disclosure of the seller's 
contributions to the subordinate financing, if any, in the payoffs and 
payments table on the simultaneous subordinate financing Closing 
Disclosure and the summaries of transactions table on the first-lien 
Closing Disclosure, when the alternative tables are used for the 
simultaneous subordinate financing. As discussed in more detail in the 
section-by-section analysis of Sec.  1026.38(k)(2), the first-lien 
Closing Disclosure must include, in the summaries of transactions table 
for the seller's transaction under Sec.  1026.38(k)(2)(vii), any 
contributions toward the simultaneous subordinate financing from the 
seller that are disclosed in the payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B), thereby recording the entirety of the seller's 
transaction on the first-lien Closing Disclosure. Final comment 
38(d)(2)-1 includes a cross-reference to comments 38(j)-3 and 
38(k)(2)(vii)-1 for related disclosure requirements applicable to the 
first-lien transaction when the alternative disclosures are used for a 
simultaneous subordinate financing purchase transaction and a seller 
contributes to the costs of the subordinate financing. Final comment 
38(d)(2)-1 also includes a cross-reference to comments 
38(t)(5)(vii)(B)-1 and -2 for the requirement to disclose the seller's 
contributions toward the subordinate financing in the payoffs and 
payments table on the simultaneous subordinate financing Closing 
Disclosure.
    The Bureau recognizes that allowing the use of the alternative 
disclosures for simultaneous subordinate financing purchase 
transactions may cause variability in disclosure among creditors, but 
concludes that consumers are unlikely to be harmed by such optionality. 
In addition, the Bureau understands that investor requirements may be 
more restrictive than the optionality provided by the Bureau. However, 
the Bureau believes flexibility is beneficial to some creditors, and 
the Bureau will continue to provide the option for creditors to use the 
alternative disclosures for simultaneous subordinate financing 
transactions with sellers.
38(e) Alternative Calculating Cash to Close Table for Transactions 
Without a Seller or for Simultaneous Subordinate Financing
The Bureau's Proposal
    Section 1026.38(e) provides for the disclosure of an alternative 
calculation of cash or other funds due from or due to the consumer at 
consummation for transactions without a seller, using the heading 
``Calculating Cash to Close.'' Specifically, Sec.  1026.38(e) only 
permits the use of the alternative calculating cash to close table for 
a transaction without a seller and requires a creditor to disclose the 
alternative calculating cash to close table when the creditor disclosed 
the optional alternative calculating cash to close table on the Loan 
Estimate under Sec.  1026.37(h)(2). As discussed in the section-by-
section analysis of Sec.  1026.37(h) above, the Bureau sought comment 
on the calculating cash to close table generally. The Bureau has 
provided informal guidance that, in simultaneous subordinate financing 
purchase transactions, the alternative calculating cash to close table 
may be used for the simultaneous subordinate financing Closing 
Disclosure if the first-lien Closing Disclosure records the entirety of 
the seller's transaction and the seller

[[Page 37725]]

did not contribute to the subordinate financing.
    The Bureau proposed to amend Sec.  1026.38(e) and comment 38(e)-1 
to explicitly permit the use of the alternative calculating cash to 
close table for simultaneous subordinate financing purchase 
transactions if the first-lien Closing Disclosure records the entirety 
of the seller's transaction. The Bureau also proposed to add comment 
38(e)-6 to specify which amounts are disclosed under the subheading 
``Loan Estimate'' on the Closing Disclosure's alternative calculating 
cash to close table. Proposed comment 38(e)-6 clarified that the 
amounts disclosed under the subheading ``Loan Estimate'' pursuant to 
Sec.  1026.38(e)(1)(i), (2)(i), (4)(i), and (5)(i) are the amounts 
disclosed on the most recent Loan Estimate provided to the consumer, 
regardless of whether those amounts reflected updated amounts provided 
for informational purposes only or the amounts used for purposes of 
determining good faith under Sec.  1026.19(e)(3). The Bureau sought 
comment on whether that approach provides a helpful comparison to 
consumers with the final amounts disclosed on the Closing Disclosure 
and sought comment on other alternatives to provide consumers a 
comparison of estimated and final amounts.
Comments Received
    As noted above and discussed more fully in the section-by-section 
analysis of Sec.  1026.37(h), the Bureau sought comment on the 
calculating cash to close tables generally. A commenter asserted that 
the alternative calculating cash to close tables function better, are 
less complicated, and present less information than the standard 
tables. Commenters also stated that the calculating cash to close 
tables provide important benefits to consumers and assist consumers in 
understanding their transactions by providing them with a high-level 
view of how their cash to close amounts are determined. See the 
section-by-section analysis of Sec.  1026.37(h) for a more detailed 
discussion of those comments that relate to Sec. Sec.  1026.37(h)(2) 
and 1026.38(e) generally.
    A mortgage banker and software vendor supported proposed revisions 
to Sec.  1026.38(e) and related commentary. The commenters stated that 
these proposed revisions, if implemented, will improve the ability of 
creditors to comply with the calculating cash to close table and 
provide a more accurate cash to close amount to consumers.
    Software vendors, a bank, and a state housing finance agency also 
commented on the Bureau's proposed amendments to Sec.  1026.38(e) and 
comment 38(e)-1. Most commenters supported the Bureau's proposal to 
allow the use of the alternative calculating cash to close table if the 
first-lien Closing Disclosure records the entirety of the seller's 
transaction. As discussed more fully in the section-by-section analysis 
of Sec.  1026.37(d)(2), one commenter questioned what disclosures 
should be used when the optional alternative tables were initially used 
for the simultaneous subordinate financing, but a seller later agrees 
to contribute to the costs of the subordinate financing, making 
continued use of the alternative tables impermissible under the 
proposal. One commenter noted that the proposal could lead to variation 
among creditors and another commenter stated that the UCD may not allow 
the use of the alternative disclosures for any transactions with 
sellers. Finally, a commenter suggested a technical revision to 
proposed Sec.  1026.38(e).
    A compliance professional and a financial holding company supported 
the proposal to clarify that the amounts disclosed under the subheading 
``Loan Estimate'' under Sec.  1026.38(e)(1)(i), (2)(i), (4)(i), and 
(5)(i) are the amounts disclosed on the most recent Loan Estimate 
provided to the consumer, regardless of whether those amounts reflect 
updated amounts provided for informational purposes only or the amounts 
to be used for purposes of determining good faith under Sec.  
1026.19(e)(3). One of the commenters stated that the comparison of 
amounts from the most recent Loan Estimate to the current Closing 
Disclosure is helpful to consumers and that there do not appear to be 
other viable alternatives. A software vendor and software vendor group 
noted that the proposal will help to settle industry differences of 
opinion, but raised concerns with the proposal, discussed below.
    A software vendor, a software vendor group, a credit union, and 
trade associations questioned the usefulness of the comparison. 
Commenters cited concerns that the table does not identify tolerance 
violations for consumers' awareness and does not record amounts on any 
Closing Disclosures provided to the consumer between the last provided 
Loan Estimate and the current corrected Closing Disclosure. One 
commenter asked the Bureau to clarify whether comparison between the 
``Loan Estimate'' and ``Final'' columns affects the tolerance 
provisions under Sec.  1026.19(e)(3). Another commenter stated that 
good faith was difficult to determine based on a comparison of the 
amounts disclosed on the last provided Loan Estimate and current 
Closing Disclosure. In the context of the Bureau's companion proposal 
in comment 38(i)-5, industry commenters offered alternative approaches 
to help consumers evaluate changes between disclosures. For a more 
detailed discussion of these related comments, please see the section-
by-section analysis of Sec.  1026.38(i).
    A trade association commenter stated that secondary market 
investors who purchase loans are requiring use of the alternative table 
for refinances and asked the Bureau to clarify that the standard 
disclosures may be used for refinance transactions. The commenter 
argued that it would be helpful if a single disclosure form could be 
utilized for all types of transactions.
The Final Rule
    For the reasons discussed below, the Bureau is finalizing with 
minor technical revisions the proposed amendments to Sec.  1026.38(e) 
and comment 38(e)-1 and proposed comment 38(e)-6. The Bureau is also 
amending comment 38(e)-3 for conformity with final comment 38(i)-2. 
Final Sec.  1026.38(e) provides that for transactions that do not 
involve a seller or for simultaneous subordinate financing, if the 
creditor disclosed the optional alternative calculating cash to close 
table under Sec.  1026.37(h)(2), the creditor is required also to 
disclose the alternative calculating cash to close table under Sec.  
1026.38(e). Final comment 38(e)-1 explains that the alternative 
calculating cash to close table may be provided by a creditor in a 
transaction without a seller, or for a simultaneous subordinate 
financing purchase transaction only if the first-lien Closing 
Disclosure records the entirety of the seller's transaction, and must 
be used in conjunction with the alternative disclosure under Sec.  
1026.38(d)(2).
    As discussed in the section-by-section analysis of Sec.  
1026.37(d)(2), the Bureau appreciates the commenter's question 
regarding how to proceed under the proposal when the optional 
alternative calculating cash to close table was initially used, but a 
subsequent event causes the continued use of the alternative 
calculating cash to close table to be impermissible. The Bureau is 
directly addressing this concern by adding new comment 38(k)(2)(vii)-1, 
amending comments 38(d)(2)-1 and 38(j)-3, and amending proposed new 
comments 38(t)(5)(vii)(B)-1 and -2 as discussed in the section-by-
section analysis of Sec.  1026.37(d)(2).
    The Bureau did not propose amendments to comment 38(e)-3, but is 
making non-substantive amendments

[[Page 37726]]

for conformity with final comment 38(i)-2. As discussed in the section-
by-section analysis of Sec.  1026.38(i) below, the Bureau proposed to 
revise comment 38(i)-2 to streamline the comment. Although comment 
38(i)-2 pertains to Sec.  1026.38(i) and comment 38(e)-3 pertains to 
Sec.  1026.38(e), the comments are otherwise identical. Therefore, for 
consistency, the Bureau is making the same revisions to comment 38(e)-3 
as it is making to comment 38(i)-2.
    The Bureau is finalizing comment 38(e)-6 as proposed with a minor 
technical revision. Final comment 38(e)-6 provides that the amounts 
disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(e)(1)(i), (2)(i), (4)(i), and (5)(i) are the amounts disclosed 
on the most recent Loan Estimate provided to the consumer. The Bureau 
believes that the comparison of amounts from the last provided Loan 
Estimate to the current Closing Disclosure, as required by final 
comment 38(e)-6, is helpful to consumers, and there are not viable 
alternatives absent completely restructuring the alternative 
calculating cash to close tables; at this time, restructuring the 
calculating cash to close tables would be inconsistent with the 
Bureau's focus in this rulemaking on providing additional clarity in an 
expeditious manner. The comparison, as part of the Closing Disclosure's 
alternative calculating cash to close table, illustrates how such 
amounts changed from the estimated amounts disclosed on the Loan 
Estimate, which helps to ensure that the features of the transaction 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits consumers to better understand the costs, benefits, 
and risks associated with the transaction, in light of the facts and 
circumstances, consistent with Dodd-Frank Act section 1032(a). The 
table is not intended to identify every single change over the course 
of the real estate transaction; it is intended to compare the most 
recent estimated amounts represented to the consumer with the amounts 
reflecting the actual terms of the transaction. As discussed in the 
proposal, the amounts disclosed on the Closing Disclosure's alternative 
calculating cash to close table under the subheadings ``Loan Estimate'' 
and ``Final'' are not, in and of themselves, subject to the Sec.  
1026.19(e)(3) good faith standard. These amounts are disclosed based on 
the best information reasonably available to the creditor at the time 
the disclosure is provided. Any increases or changes to the amounts, 
based on the best information reasonably available to the creditor at 
the time the disclosure is provided, do not result in any separate 
violation of any standard under Regulation Z. The amounts used for 
determining good faith may be disclosed over multiple Loan Estimates, 
or even corrected Closing Disclosures, depending upon the facts and 
circumstances of the transaction. Accordingly, good faith cannot be 
determined based on a comparison of the amounts disclosed under the 
subheadings ``Loan Estimate'' and ``Final'' on the Closing Disclosure's 
alternative calculating cash to close table.
    In disclosing amounts under Sec.  1026.38(e)(1)(i), (2)(i), (4)(i), 
and (5)(i), when there are multiple Loan Estimates provided to a 
consumer, the current regulatory provisions do not specify a particular 
Loan Estimate to use. Therefore, it is currently permissible to 
disclose amounts from any Loan Estimate provided to the consumer in the 
``Loan Estimate'' column of the Closing Disclosure's alternative 
calculating cash to close table, and will remain permissible until the 
mandatory compliance date of this final rule, October 1, 2018. For a 
discussion of the effective and mandatory compliance dates, see part 
VI, below.
    The trade association commenter is correct that, under the Bureau's 
regulations, the standard disclosures may be used for refinance 
transactions. A refinance transaction must be disclosed pursuant to 
Sec.  1026.38(e) if the creditor previously disclosed the optional 
alternative table under Sec.  1026.37(h)(2), but use of the optional 
alternative table under Sec.  1026.37(h)(2) is not required. At the 
same time, secondary market investors may decide, as a business 
practice, to impose additional requirements, such as requiring the use 
of the alternative disclosures for refinance transactions.
38(e)(2) Total Closing Costs
38(e)(2)(ii)
    For transactions using the alternative calculating cash to close 
table, Sec.  1026.38(e)(2)(ii) requires the creditor to disclose the 
amount of total closing costs disclosed under Sec.  1026.38(h)(1). The 
total amount of closing costs disclosed under Sec.  1026.38(e)(2)(ii) 
generally represents an amount owed by the consumer; therefore, the 
Bureau specified that the total closing costs be disclosed as a 
negative number. However, lender credits disclosed under Sec.  
1026.38(h)(3) may sometimes exceed the subtotal of closing costs under 
Sec.  1026.38(h)(2), resulting in a net credit to the consumer. In that 
case, the total closing costs disclosed under Sec.  1026.38(e)(2)(ii) 
should be disclosed as a positive number to reflect the expected credit 
to the consumer. Therefore, the Bureau proposed to revise Sec.  
1026.38(e)(2)(ii) to explain that the amount disclosed under that 
paragraph is disclosed as a negative number if the amount disclosed 
under Sec.  1026.38(h)(1) is a positive number and is disclosed as a 
positive number if the amount disclosed under Sec.  1026.38(h)(1) is a 
negative number.
    A software vendor, compliance professional, and trade association 
commenter praised the proposal. One commenter stated that eliminating 
the requirement to disclose amounts as positive or negative numbers 
throughout will go a long way in providing creditors with greater 
flexibility to complete the calculating cash to close table in a manner 
that can be explained to consumers and reflects the actual transaction. 
Another commenter stated that there are a minority of loans which are 
generated in the industry where total closing costs are actually 
negative (the consumer will not be paying any closing costs, but will 
also be receiving some cash back) and this change will enable accurate 
closing costs to be reflected in the calculating cash to close table. 
The commenter also requested that the Bureau make a similar change to 
Sec.  1026.37(h)(2)(ii). A credit union stated generally that there is 
confusion surrounding the use of negative values on the form, but did 
not provide specific concerns.
    The Bureau is finalizing as proposed the amendments to Sec.  
1026.38(e)(2)(ii). The Bureau concludes that this amendment is 
necessary for closing costs to be accurately reflected in the 
calculating cash to close table. In response to the comment about Sec.  
1026.37(h)(2)(ii), the Bureau notes that it is amending that provision, 
as discussed in the section-by-section analysis of Sec.  
1026.37(h)(2)(ii) above.
38(e)(2)(iii)
    Section 1026.38(e)(2)(iii)(A)(3) provides that if the amount of 
closing costs actually charged to the consumer exceeds the limitations 
on increases in closing costs under Sec.  1026.19(e)(3), the creditor 
must provide a statement that such increase exceeds the legal limits by 
the dollar amount of the excess and, if any refund is provided under 
Sec.  1026.19(f)(2)(v), a statement directing the consumer to the 
disclosure required under Sec.  1026.38(h)(3). The Bureau proposed to 
add comment 38-4, which explained how to disclose a principal 
curtailment to provide a refund under Sec.  1026.19(f)(2)(v). The 
comment would

[[Page 37727]]

have provided that a principal curtailment would be disclosed under 
Sec.  1026.38(g)(4) or (t)(5)(vii)(B) for transactions using the 
alternative calculating cash to close table under Sec.  1026.38(e). 
Accordingly, the Bureau proposed to revise Sec.  
1026.38(e)(2)(iii)(A)(3) and comment 38(e)(2)(iii)(A)-3 to allow a 
creditor to provide a statement directing the consumer to the 
disclosure of the principal curtailment under Sec.  1026.38(g)(4) or 
(t)(5)(vii)(B), rather than directing the consumer to the disclosure of 
a refund under Sec.  1026.38(h)(3).
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.38 pertaining to comment 38-4 above, some industry 
commenters raised concerns with the various options for disclosing 
principal curtailments proposed by the Bureau, including disclosure as 
a closing cost under Sec.  1026.38(g)(4). In addition, an industry 
group recommended that the Bureau use the phrase ``principal 
reduction'' instead of ``principal curtailment,'' noting that consumers 
would be more familiar with the recommended phrase.
    For the reasons discussed below, the Bureau is revising the 
proposed amendments to Sec.  1026.38(e)(2)(iii)(A)(3) and comment 
38(e)(2)(iii)(A)-3, and is making conforming amendments to comments 
38(e)(2)(iii)(A)-2.i and -2.iii. As discussed in the section-by-section 
analysis of Sec.  1026.38 pertaining to comment 38-4 above, the Bureau 
appreciates the suggestion to use the phrase ``principal reduction.'' 
The Bureau also explained that it is revising proposed comment 38-4 to 
limit the disclosure of principal reductions on the alternative 
disclosure to Sec.  1026.38(t)(5)(vii)(B). Therefore the Bureau is 
revising the proposed amendments to Sec.  1026.38(e)(2)(iii)(A)(3) and 
comment 38(e)(2)(iii)(A)-3 to reflect the phrase ``principal 
reduction'' and to remove the cross-reference to Sec.  1026.38(g)(4).
    As discussed in the section-by-section analysis of Sec.  
1026.19(e)(3)(i), the Bureau is amending comment 19(e)(3)(i)-1 to 
conform with final Sec.  1026.19(e)(3)(iii), which provides exceptions 
to the general rule that an estimated closing cost is in good faith if 
the charge paid by or imposed on the consumer does not exceed the 
estimate for the cost as disclosed on the Loan Estimate. As a result, 
the Bureau is making conforming amendments in final comments 
38(e)(2)(iii)(A)-2.i and -2.iii. Specifically, final comment 
38(e)(2)(iii)(A)-2.i clarifies that certain closing costs (e.g., fees 
paid to the creditor, transfer taxes, fees paid to an affiliate of the 
creditor) are generally subject to the limitations on increases in 
closing costs under Sec.  1026.19(e)(3)(i); however, Sec.  
1026.19(e)(3)(iii) provides exceptions to the general rule for certain 
charges. Final comment 38(e)(2)(iii)(A)-2.iii clarifies that, for a 
charge listed on the Loan Estimate under the subheading ``Services You 
Can Shop For,'' such charge would generally be subject to the 
limitations under Sec.  1026.19(e)(3)(i) if the consumer decided to use 
a provider affiliated with the creditor; however, Sec.  
1026.19(e)(3)(iii) provides exceptions to the general rule for certain 
charges.
38(e)(3) Closing Costs Paid Before Closing
38(e)(3)(iii)
38(e)(3)(iii)(B)
    Comment 38(e)(3)(iii)(B)-1 explains the circumstances under which 
the creditor gives a statement that the amount under the subheading 
``Final'' pursuant to Sec.  1026.38(e)(3)(ii) is equal to the amount 
disclosed under the subheading ``Loan Estimate'' pursuant to Sec.  
1026.38(e)(3)(i) and, in so doing, refers to an amount of ``$0'' under 
the subheading ``Final.'' The Bureau proposed two technical revisions 
in comment 38(e)(3)(iii)(B)-1. First, the Bureau proposed to change 
``$0'' to ``$0.00'' to reflect the disclosure of a dollar amount of 
zero to two decimal places. Second, the reference to ``settlement 
agent'' would be removed from comment 38(e)(3)(iii)(B)-1 because, as 
the introductory paragraph to Sec.  1026.38(e) makes clear, the 
responsibility to provide the Sec.  1026.38(e) disclosures lies with 
the creditor, not the settlement agent.
    The Bureau did not receive any specific comments on this proposal 
and is finalizing the amendment to remove the reference to ``settlement 
agent'' from comment 38(e)(3)(iii)(B)-1, but is not finalizing the 
amendment to change ``$0'' to ``$0.00.'' The Bureau's proposal would 
have changed ``$0'' to ``$0.00'' in many places in Sec.  1026.38(e) and 
(i), and the associated commentary, so that dollar amounts of zero 
would be disclosed consistently in the ``Final'' column of the Closing 
Disclosure's calculating cash to close table. Generally, unless amounts 
are required to be rounded by Sec.  1026.38(t)(4), amounts are 
disclosed on the Closing Disclosure as exact numerical amounts, using 
decimal places. Section 1026.38(t)(4) provides for exceptions to this 
general rule. Upon further consideration, the Bureau is not finalizing 
the proposed approach, and is instead changing the few instances of 
``$0.00'' to ``$0.'' The Bureau believes this approach will achieve the 
consistency intended by the proposal, but will be less burdensome to 
creditors because Sec.  1026.38(e) and (i), and the associated 
commentary, currently refer to dollar amounts of zero in the ``Final'' 
column of the calculating cash to close table as ``$0'' most of the 
time.
38(e)(4) Payoffs and Payments
38(e)(4)(ii)
    Section 1026.38(e)(4)(ii) provides that the total amount of payoffs 
and payments made to third parties disclosed under Sec.  
1026.38(t)(5)(vii)(B), to the extent known, is disclosed as a negative 
number. The requirement to disclose a negative number under Sec.  
1026.38(e)(4)(ii) supposes that the total amount disclosed under Sec.  
1026.38(t)(5)(vii)(B) will always be a positive number. The Bureau 
proposed to revise Sec.  1026.38(e)(4)(ii) such that the amount 
disclosed under Sec.  1026.38(e)(4)(ii) is disclosed as a negative 
number if the total amount disclosed under Sec.  1026.38(t)(5)(vii)(B) 
is a positive number, signifying amounts owed by the consumer, and is 
disclosed as a positive number if the total amount disclosed under 
Sec.  1026.38(t)(5)(vii)(B) is a negative number, signifying amounts 
due to the consumer.
    A trade association commented that permitting the disclosure of 
negative or positive amounts will go a long way in providing creditors 
with greater flexibility to complete the calculating cash to close 
table in a manner that reflects the actual transaction. A credit union 
stated generally that there is confusion surrounding the use of 
negative values on the form, but did not provide specific concerns.
    For the reasons discussed below, the Bureau is finalizing the 
proposed amendments to Sec.  1026.38(e)(4)(ii) with minor technical 
revisions. In response to the proposed revision of Sec.  
1026.38(e)(4)(ii) and other provisions of the proposal, the Bureau 
received positive feedback that being less prescriptive about whether 
amounts must be disclosed as negative or positive numbers will enable 
more accurate disclosure for different types of transactions. The 
Bureau believes this amendment will facilitate compliance with the 
Bureau's disclosure requirements.
38(f) Closing Cost Details; Loan Costs
    The Bureau proposed to add comment 38(f)-2. Consistent with 
proposed comments 37(f)-3 and 37(f)(6)-3, proposed comment 38(f)-2 
provided that construction loan inspection and handling fees are loan 
costs associated

[[Page 37728]]

with the transaction for purposes of the Closing Disclosure under Sec.  
1026.38(f). The proposed new comment also added a cross-reference to 
proposed comments 37(f)-3, 37(f)(6)-3, and app. D-7.viii, making those 
comments' discussions of inspection and handling fees for the staged 
disbursement of construction loan proceeds explicitly applicable to the 
disclosures required by Sec.  1026.38(f).
    The Bureau did not receive any comments on proposed comment 38(f)-
2. Having received no comments regarding this proposed revision, the 
Bureau is finalizing comment 38(f)-2 as proposed, except to make a 
conforming change to renumber comment app. D-7.viii as comment app. D-
7.vii.
38(g) Closing Cost Details; Other Costs
38(g)(1) Taxes and Other Government Fees
    Section 1026.38(g)(1) requires creditors to disclose an itemization 
of each amount that is expected to be paid to State and local 
governments for taxes and government fees, including recording fees. 
Closing Disclosure form H-25(A) of appendix H illustrates such 
disclosures on a line labeled ``Recording Fees,'' with the additional 
labels ``Deed'' and ``Mortgage,'' respectively. The Bureau proposed to 
revise Sec.  1026.38(g)(1) to clarify that the total amount of fees for 
recording deeds and the total amount of fees for recording security 
instruments must each be disclosed on the first line under the 
subheading ``Taxes and Other Government Fees'' before the columns 
described in Sec.  1026.38(g) and to clarify that the total amounts 
paid for recording fees (including but not limited to fees for 
recording deeds and security instruments) must be disclosed in the 
applicable column described in Sec.  1026.38(g). In addition, the 
Bureau proposed to add new comment 38(g)(1)-3 to clarify the labels for 
recording fees on form H-25(A) of appendix H.
    Commenters generally indicated support for the revision and new 
comment. Several industry commenters sought additional clarification on 
the use of the term ``itemization'' in the first paragraph of proposed 
revisions to Sec.  1026.38(g)(1). Other industry commenters submitted 
that Sec.  1026.38(g)(1) should be revised to allow for a full 
itemization of the recording fees charged to consumers in the 
transaction to obviate the need for a separate settlement statement 
that may be provided by settlement agents.
    For the reasons stated below, the Bureau is adopting as proposed 
the revisions to Sec.  1026.38(g)(1) and new comment 38(g)(1)-3. In 
response to commenters seeking clarification of the use of the term 
``itemization'' the first time it appears in Sec.  1026.38(g)(1), the 
Bureau notes that Sec.  1026.38(g)(1) requires disclosing recording 
fees separately from transfer taxes. Also, the Bureau notes that 
transfer taxes are required to be itemized separately pursuant to Sec.  
1026.38(g)(1)(ii). In contrast, Sec.  1026.38(g)(1)(i), relating to 
recording fees, does not include the term ``itemization.''
    As to some industry commenters' request to permit the full 
itemization of each document recorded in the transaction, the Bureau 
notes that permitting such a break out for the recording cost of each 
recordable document would, in some instances, require many more lines, 
potentially more than could be accommodated on a maximum of two pages, 
as limited by Sec.  1026.38(t)(5)(iv)(B) and is unlikely to improve 
consumer understanding of the Closing Disclosure.\87\ While not present 
in all residential mortgage transactions, the list of separate 
documents that could be required to be recorded depending on State law 
requirements can include, but is not limited to, certificates of 
satisfaction or partial satisfaction, contracts, deeds transferring 
ownership of various types, leases, modification agreements, mortgages 
or deeds of trust, easements, assumption agreements, covenants, 
declarations, liens, judgments, and powers of attorney. However, the 
Bureau notes that the creditor is permitted to provide a further 
listing of recording fees, at its discretion, as information used 
locally in real estate settlements pursuant to Sec.  1026.38(t)(5)(ix) 
in order to comprehensively describe the cost of each document included 
in the recording fees disclosed under Sec.  1026.38(g)(1)(i). Since 
commenters otherwise generally supported the this proposal, the Bureau 
is adopting the proposed revisions to Sec.  1026.38(g)(1) and new 
comment 38(g)(1)-3 as proposed.
---------------------------------------------------------------------------

    \87\ 78 FR 79730, 80011 (Dec. 31, 2013).
---------------------------------------------------------------------------

38(g)(2) Prepaids
    Current comment 38(g)(2)-3 provides that $0 must be disclosed if 
interest is not collected for a portion of a month or other period 
between closing and the date from which interest will be collected with 
the first monthly payment. The Bureau proposed to revise comment 
38(g)(2)-3 to require $0.00 to be disclosed if interest is not 
collected for a portion of a month or other period between closing and 
the date from which the interest will be collected with the first 
monthly payment. The Bureau explained that the amount required to be 
disclosed under Sec.  1026.38(g)(2) is disclosed to two decimal places 
in accordance with Sec.  1026.2(b)(4) and comment 38(t)(4)-1.
    The Bureau received two comments regarding the proposed revision to 
comment 38(g)(2)-3. A commenter representing a large bank asserted that 
the revision would impose significant burden to reprogram and test its 
systems. The commenter also asserted that the revision would realize 
little or no benefit to the consumer. A compliance professional 
asserted that prepaid interest should be left blank, like other 
amounts, when the value for prepaid interest is zero.
    The Bureau is finalizing comment 38(g)(2)-3 as proposed. To remain 
consistent with the other disclosed dollar amounts under the closing 
cost details column the Bureau is requiring the disclosure of $0.00 
under Sec.  1026.38(g)(2) when prepaid interest is not collected. This 
requirement is also consistent with Sec.  1026.2(b)(4) and comment 
38(t)(4)-1 which requires the disclosure of dollar amounts to include 
cents even when the value for cents is zero, unless otherwise provided.
    The Bureau believes that the reprogramming cost for this revision 
will not be significant given that creditors have until October 1, 
2018, to come into compliance with this provision and in light of other 
programming changes that creditors will be making in response to other 
provisions in this final rule. In response to the commenter that 
suggested that prepaid interest should be left blank, the label for 
prepaid interest on the Closing Disclosure form shows components of the 
prepaid interest equation, including the amount of prepaid interest to 
be paid per day, and thus the Bureau declines to offer an option to 
leave blank the amount required to be disclosed by Sec.  1026.38(g)(2).
38(g)(4) Other
The Bureau's Proposal
    Comment 38(g)(4)-1 clarifies that the charges for services 
disclosed under Sec.  1026.38(g)(4) include all real estate brokerage 
fees, homeowner's or condominium association charges paid at 
consummation, home warranties, inspection fees, and other fees that are 
part of the real estate transaction but not required by the creditor or 
disclosed elsewhere in Sec.  1026.38. Currently, amounts for 
construction costs, payoff of existing liens, or payoff of unsecured 
debt may be, but are not required to be, disclosed under Sec.  
1026.38(g)(4). As discussed in more detail below and in

[[Page 37729]]

the section-by-section analysis of Sec.  1026.37(g)(4), above, the 
Bureau proposed to revise comment 38(g)(4)-1 to require that 
construction costs in connection with the transaction that the consumer 
will be obligated to pay, payoff of existing liens secured by the 
property identified under Sec.  1026.38(a)(3)(vi), and payoff of 
unsecured debt be disclosed under Sec.  1026.38(g)(4), unless those 
items are disclosed under Sec.  1026.38(t)(5)(vii)(B) on the optional 
alternative calculating cash to close table. Proposed comment 38(g)(4)-
1.iii would also have included a reference to comment 38-4 for an 
explanation of how to disclose a reduction in principal balance 
(principal curtailment) under Sec.  1026.38(g)(4).
    In proposing to revise comment 38-4, the Bureau noted that it 
expected consumer understanding to be enhanced by the clear and 
conspicuous disclosure of these amounts in corresponding tables on the 
Loan Estimate and Closing Disclosure, which would have also created 
greater consistency between the Loan Estimate and Closing Disclosure.
    In the preamble to the proposal, the Bureau noted that it also had 
considered requiring the disclosure of construction costs, payoff of 
existing liens, and payoff of unsecured debt on the summaries of 
transactions table on the Closing Disclosure under Sec.  
1026.38(j)(1)(v) instead of as ``closing costs'' under Sec. Sec.  
1026.37(g)(4) and 1026.38(g)(4). The Bureau noted that disclosing these 
costs on the summaries of transactions table would not provide for 
comparability between the Loan Estimate and Closing Disclosure, 
however, because the Loan Estimate does not have a summaries of 
transactions table.
    The Bureau also noted in the preamble to the proposal that it had 
considered requiring the disclosure of construction costs only on an 
addendum, instead of under Sec.  1026.37(g)(4) on the Loan Estimate and 
Sec.  1026.38(g)(4) on the Closing Disclosure. The construction costs 
would then be factored into the calculating cash to close table 
calculations in conjunction with the sale price to yield an accurate 
cash to close amount. However, the Bureau believed this approach could 
add more complexity to the calculations required on the Closing 
Disclosure than disclosure under Sec.  1026.38(g)(4).
    The Bureau also proposed to revise comment 38(g)(4)-1 to cross-
reference proposed comment app. D-7.vii for an explanation of the 
disclosure of construction costs for a construction or construction-
permanent loan and proposed comment app. D-7.viii for an explanation of 
the disclosure of construction loan inspection and handling fees. The 
Bureau proposed to revise comment 38(g)(4)-1 to clarify that inspection 
fees disclosed under Sec.  1026.38(g)(4) are for pre-consummation 
inspection fees, not post-consummation inspection fees, such as those 
often associated with construction loans. As discussed in the section-
by-section analysis of Sec.  1026.38(f), post-consummation inspection 
fees are to be disclosed in an addendum attached as an additional page 
after the last page of the Closing Disclosure. Revised comment 
38(g)(4)-1 would have also clarified that, if amounts for construction 
costs are contracted to be paid at closing, even though they will be 
disbursed after closing, they are disclosed in the paid ``At Closing'' 
column.
Comments Received
    Comments on the proposed revision of comment 38(g)(4)-1 were 
generally made together with comments submitted on the proposed 
revision of comment 37(g)(4)-4 and, similarly, were generally 
unfavorable. Commenters believed that significant confusion would 
result from the proposed revision of comment 38(g)(4)-1, which the 
commenters said would make the closing costs in many loans, including 
construction loans, appear to be enormous. Commenters stated that 
consumers would be concerned that loans were prohibitively expensive 
upon seeing such high ``closing costs.'' Commenters also noted that 
consumer testing had not been conducted for the proposed required 
disclosures, and disagreed with what they perceived as giving a greater 
priority to comparability between the Loan Estimate and the Closing 
Disclosure than to consumer understanding. Significant staff training 
and systems reprogramming were also cited as concerns by commenters. A 
fuller presentation of these comments is in the discussion of comment 
37(g)(4)-4 above in the section-by-section analysis of Sec.  
1026.37(g)(4).
    However, some commenters also pointed out an issue that was 
specific to proposed comment 38(g)(4)-1. Comments from individual 
vendors, a group of vendors and a trade association focused on proposed 
comment 38(g)(4)-1.i, which would have provided that the amounts 
disclosed under Sec.  1026.38(g)(4) must be placed in either the paid 
``Before Closing'' or in the paid ``At Closing'' column under the 
subheading ``H. Other.'' These commenters noted that because proposed 
comment 38(g)(4)-1.i would have applied to all amounts disclosed under 
Sec.  1026.38(g)(4), all ``Section H'' fees would need to appear in 
these four columns and cannot appear in the ``Paid by Others'' column. 
The commenters asked if the result was that fees disclosed under Sec.  
1026.38(g)(4) cannot be paid for by anyone other than the borrower or 
the seller or that fees disclosed under Sec.  1026.38(g)(4) can be paid 
for by others, but the fee would have to be disclosed in an 
inappropriate column. One of the commenters contrasted proposed comment 
38(g)(4)-1.i with proposed comment 38(g)(4)-1.ii, which explicitly 
states that ``construction costs'' should be disclosed under the paid 
``At Closing'' column if such costs are contracted to be paid at 
closing.
    As noted in the discussion of comment 38-4, above, in the section-
by-section analysis of Sec.  1026.38 pertaining to comment 38-4, 
commenters raised concerns regarding the disclosure of principal 
reductions under Sec.  1026.38(g)(4).
The Final Rule
    Consistent with the amendments described in connection with the 
discussion of proposed comment 37(g)(4)-4, above, the Bureau is not 
adopting the revision of comment 38(g)(4)-1 as proposed but is instead 
providing for the disclosure of construction costs in connection with 
the transaction, payoff of existing liens secured by the property 
identified under Sec.  1026.37(a)(6), and payoff of other secured or 
unsecured debt under Sec.  1026.38(j)(1)(v). As noted below, the Bureau 
is amending comment 38(j)(1)(v)-2 to include construction costs in 
connection with the transaction that the consumer will be obligated to 
pay, payoff of existing liens secured by the property identified in 
Sec.  1026.37(a)(6), and payoff of other secured and unsecured debt as 
amounts disclosed under Sec.  1026.38(j)(1)(v). Such amounts are 
disclosed in the summaries of transactions table on the Closing 
Disclosure under Sec.  1026.38 (j)(1)(v) and factored into the 
calculating cash to close table calculations.
    The Bureau agrees with the commenters who noted that payoffs of 
other types of secured debt, such as a loan secured by an automobile or 
another property, should be treated consistently with other payoffs, 
and comment 38(j)(1)(v)-2 is further amended to cover such other 
secured debt.
    Proposed comment 38(g)(4)-1.iii, which referred to comment 38-4 for 
an explanation of how to disclose a reduction in principal balance

[[Page 37730]]

(principal curtailment) under Sec.  1026.38(g)(4), is also not included 
in this rule. As explained above in the section-by-section analysis of 
Sec.  1026.38 pertaining to comment 38-4, the Bureau is revising 
comment 38-4 to limit the disclosure of principal reductions to Sec.  
1026.38(j)(1)(v) and (t)(5)(vii)(B), making the reference to comment 
38-4 in comment 38(g)(4)-1 unnecessary.
38(h) Closing Cost Totals
38(h)(3)
    Current Sec.  1026.38(h)(3) uses a cross-reference to require 
disclosure of the amount described in Sec.  1026.37(g)(6)(ii) as a 
negative number, labeled ``Lender Credits.'' Current Sec.  
1026.37(g)(6)(ii) requires disclosure of the amount of any lender 
credits. As detailed in the section-by-section analysis of Sec.  
1026.37(g)(6)(ii), while current comment 37(g)(6)(ii)-1 describes 
lender credits as payments from the creditor to the consumer that do 
not pay for a particular fee on the disclosures, final comment 
37(g)(6)(ii)-1 provides that lender credits under Sec.  
1026.37(g)(6)(ii) include non-specific lender credits as well as 
specific lender credits. In contrast with final comment 37(g)(6)(ii)-1, 
current comment 38(h)(3)-1 provides that a credit from the creditor 
that is attributable to a specific loan cost or other cost is not 
disclosed under Sec.  1026.38(h)(3) (but rather is reflected in the 
Paid by Others column in the Closing Cost Details tables under Sec.  
1026.38(f) or (g)). To conform with the amendment to comment 
37(g)(6)(ii)-1, the Bureau is amending Sec.  1026.38(h)(3) to remove 
the cross-reference to Sec.  1026.37(g)(6)(ii).
38(i) Calculating Cash To Close
The Bureau's Proposal
    Section 1026.38(i) requires the disclosure of the calculation of 
cash needed from the consumer at consummation of the transaction, using 
the heading ``Calculating Cash to Close.'' The Bureau proposed 
amendments to Sec.  1026.38(i) and its commentary regarding the 
calculating cash to close table on the Closing Disclosure pursuant to 
its authority under TILA section 105(a) and Dodd-Frank Act section 
1032(a). The Bureau stated that it believed that the amendments would 
effectuate the purposes of TILA by facilitating the informed use of 
credit. Providing consumers with information about the cash to close 
amount, its critical components, and how such amounts changed from the 
estimated amounts disclosed on the Loan Estimate helps ensure that the 
features of the transaction are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to better 
understand the costs, benefits, and risks associated with the 
transaction, in light of the facts and circumstances, consistent with 
Dodd-Frank Act section 1032(a). As discussed more fully in the section-
by-section analysis of Sec.  1026.37(h) above, the Bureau sought 
comment on the calculating cash to close table generally.
    As discussed in more detail below, the Bureau proposed to revise 
comments 38(i)-2 and 38(i)-3, and to add comment 38(i)-5. Under Sec.  
1026.38(i), the calculating cash to close table sets forth three 
subheadings: ``Loan Estimate,'' ``Final,'' and ``Did this change?.'' 
Current comment 38(i)-2 provides guidance on comparing the amounts that 
are disclosed under the subheadings ``Loan Estimate'' and ``Final'' on 
the Closing Disclosure's calculating cash to close table. The Bureau 
proposed to revise comment 38(i)-2 to streamline the comment. Current 
comment 38(i)-3 provides that Sec.  1026.38(i)(4)(iii)(A), (5)(iii)(A), 
(7)(iii)(A), and (8)(iii)(A) each require a statement that the consumer 
should see certain details of the closing costs disclosed under Sec.  
1026.38(j) and provides examples of those statements in appendix H, 
including an example related to the seller credits disclosure on the 
calculating cash to close table. The Bureau proposed to revise comment 
38(i)-3 for consistency with proposed changes to Sec.  1026.38(i)(7), 
the seller credits disclosure in the calculating cash to close table.
    The Bureau proposed to add comment 38(i)-5 to clarify that the 
amounts disclosed under the subheading ``Loan Estimate'' pursuant to 
Sec.  1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), 
and (9)(i) are the amounts disclosed on the most recent Loan Estimate 
provided to the consumer, regardless of whether the amounts on the most 
recent Loan Estimate provided to the consumer reflect updated amounts 
provided for informational purposes only or the amounts to be used for 
purposes of determining good faith under Sec.  1026.19(e)(3). The 
Bureau explained that the disclosures on the Closing Disclosure's 
calculating cash to close table under the subheadings ``Loan Estimate'' 
and ``Final'' are not, in and of themselves, subject to the Sec.  
1026.19(e)(3) good faith standard. These amounts are disclosed based on 
the best information reasonably available to the creditor at the time 
the disclosure is provided and any increases or changes to the amounts 
based on the best information reasonably available to the creditor do 
not result in any separate violation of any standard under Regulation 
Z. For purposes of determining good faith under Sec.  1026.19(e)(3), 
the amounts used are the amounts disclosed under Sec.  1026.37, and may 
be disclosed over multiple Loan Estimates, or even corrected Closing 
Disclosures, depending upon the facts and circumstances of the 
transaction. Accordingly, good faith cannot be determined based on a 
comparison of the amounts disclosed under the subheadings ``Loan 
Estimate'' and ``Final'' on the Closing Disclosure's calculating cash 
to close table. The Bureau sought comment on this approach. In 
particular, the Bureau sought comment on whether the disclosure of the 
amounts on the most recent Loan Estimate on the calculating cash to 
close table provides a helpful comparison to consumers with the final 
amounts disclosed on the Closing Disclosure. The Bureau also sought 
comment on other alternatives to provide consumers with a comparison of 
estimated and final amounts.
Comments Received
    As noted above and discussed more fully in the section-by-section 
analysis of Sec.  1026.37(h), the Bureau sought comment on the 
calculating cash to close tables generally. A variety of commenters 
acknowledged that the calculating cash to close tables provide 
important benefits to consumers and that the proposed revisions would 
improve the ability of creditors to comply with the calculating cash to 
close requirements and provide to consumers a more accurate cash to 
close amount. Commenters stated that the calculating cash to close 
tables enable consumers to understand components of their cash to close 
amount without the need to wade through the detailed line items in the 
summaries of transactions table, and described the calculating cash to 
close tables as conducting many of the difficult calculations behind-
the-scenes so that consumers can review the high-level components of 
the calculations, which generally mirror how they think about the 
transaction. However, a number of other commenters stated that the 
standard calculating cash to close tables are confusing and 
complicated. Many commenters specifically identified the ``Closing 
Costs Financed (Paid from your Loan Amount)'' and ``Down Payment/Funds 
from Borrower'' labels and calculations as the main areas of concern, 
asserting that the mathematical formulas used to calculate the 
disclosures do not reflect how consumers understand those amounts in

[[Page 37731]]

the context of a residential real estate transaction. Commenters 
opposing the proposed amendments suggested a variety of solutions, 
including that the Bureau remove the standard calculating cash to close 
tables, ``fix'' the tables completely, or leave the tables alone. See 
the section-by-section analysis of Sec.  1026.37(h) for a more detailed 
discussion of those comments that relate to Sec. Sec.  1026.37(h) and 
1026.38(i) generally.
    The Bureau did not receive comments on its proposal related to 
comments 38(i)-2 and 38(i)-3, but received several comments on proposed 
comment 38(i)-5. In particular, a mortgage company supported the 
Bureau's proposal to add comment 38(i)-5 to clarify that the amounts 
disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), and 
(9)(i) are the amounts disclosed on the most recent Loan Estimate 
provided to the consumer, regardless of whether the amounts on the most 
recent Loan Estimate provided to the consumer reflect updated amounts 
provided for informational purposes only or the amounts to be used for 
purposes of determining good faith under Sec.  1026.19(e)(3). The 
commenter stated that it is beneficial for the consumer to be able to 
compare the amounts disclosed on the most recent Loan Estimate to the 
amounts disclosed on the Closing Disclosure, and that most creditors 
are likely following this practice already. However, the commenter also 
noted this clarification might require reprogramming for some 
creditors, and recommended that the Bureau provide creditors with six 
months to implement final comment 38(i)-5. A software vendor and 
software vendor group noted that the proposal will help to settle 
industry differences of opinion, but raised concerns with the proposal, 
discussed below.
    A software vendor, a software vendor group, a credit union, 
mortgage companies, and trade associations questioned the usefulness of 
the comparison. Commenters cited concerns that the table does not 
identify tolerance violations for consumers' awareness and does not 
record amounts on any Closing Disclosures provided to the consumer 
between the last provided Loan Estimate and the current corrected 
Closing Disclosure. One commenter asked the Bureau to clarify whether 
comparison between the ``Loan Estimate'' and ``Final'' columns affects 
the tolerance provisions under Sec.  1026.19(e)(3). Another commenter 
stated that good faith was difficult to determine based on a comparison 
of the amounts disclosed on the last provided Loan Estimate and current 
Closing Disclosure.
    Industry commenters offered alternative approaches to help 
consumers evaluate changes between disclosures. A mortgage company 
commented that the best alternative, for purposes of consumer 
comparisons between the Loan Estimate and the current Closing 
Disclosure, is for consumers to simply lay the most recent Loan 
Estimate next to the Closing Disclosure, and then compare the closing 
costs that are disclosed on each disclosure. The commenter asserted 
that the calculating cash to close tables were not necessary for this 
purpose, and that consumer testing and the Bureau's similar design for 
closing costs on the Loan Estimate and Closing Disclosure already 
supports this alternative. A trade association recommended that the 
Bureau remove the comparison aspect of the table and instead require a 
comparison of loan costs and lender credits that can be used to 
identify tolerance violations. A trade association, software vendor, 
and software vendor group suggested the comparison instead be between 
amounts disclosed on the last disclosure, whether it be a Loan Estimate 
or Closing Disclosure, and the current Closing Disclosure, which would 
provide the consumer with timely updates and information as to why 
costs increased or decreased between the two disclosures and a history 
of why things changed from one disclosure to the next.
The Final Rule
    After considering the comments, the Bureau is not in this final 
rule deviating significantly from the proposed amendments, which 
address many questions the Bureau has received from industry on the 
proper calculation of the various amounts disclosed on the calculating 
cash to close tables and the variation among creditors in how the 
calculating cash to close disclosures are determined. The Bureau 
believes that finalizing the proposed amendments to the calculating 
cash to close table, with some revisions as discussed in the applicable 
section-by-section analyses, is necessary in order to resolve issues 
that have arisen during the initial implementation of the TILA-RESPA 
Rule and on which industry has asked the Bureau for guidance. The 
Bureau has been, and remains, engaged in extensive efforts to support 
industry implementation, and finalizing proposed clarifications and 
amendments related to the calculating cash to close tables is one such 
effort. See the section-by-section analysis of Sec.  1026.37(h) for a 
discussion of the Bureau's rationale for not following some commenters' 
recommendations to remove the calculating cash to close tables, 
significantly revise the tables, or not finalize the proposed 
amendments to the tables.
    For the reasons discussed in this section, the Bureau is adopting 
comment 38(i)-2 as proposed to clarify how amounts are disclosed under 
the subheading ``Loan Estimate'' on the Closing Disclosure's 
calculating cash to close table, with minor technical revisions. The 
Bureau also is adopting comment 38(i)-3 as proposed with revisions to 
conform to final Sec.  1026.38(i)(7) and other minor technical 
revisions. The Bureau concludes these amendments to comments 38(i)-2 
and -3 are necessary and will aid in compliance.
    The Bureau is finalizing comment 38(i)-5 as proposed. Final comment 
38(i)-5 provides that the amounts disclosed in the ``Loan Estimate'' 
column of the calculating cash to close table under Sec.  
1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), and 
(9)(i) are the amounts disclosed on the most recent Loan Estimate 
provided to the consumer. The Bureau believes that the comparison of 
amounts from the last provided Loan Estimate to the current Closing 
Disclosure, as required by final comment 38(i)-5, is helpful to 
consumers, and there are not viable alternatives absent completely 
restructuring the calculating cash to close tables; at this time, 
restructuring the calculating cash to close tables would be 
inconsistent with the Bureau's focus in this rulemaking on providing 
additional clarity in an expeditious manner. The comparison, as part of 
the Closing Disclosure's calculating cash to close table, illustrates 
how such amounts changed from the estimated amounts disclosed on the 
Loan Estimate, which helps to ensure that the features of the 
transaction are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to better understand the 
costs, benefits, and risks associated with the transaction, in light of 
the facts and circumstances, consistent with Dodd-Frank Act section 
1032(a). The table is not intended to identify every single change over 
the course of the real estate transaction; it is intended to compare 
the most recent estimated amounts represented to the consumer with the 
amounts reflecting the actual terms of the transaction. As discussed in 
the proposal, the amounts disclosed on the Closing Disclosure's 
calculating cash to close table under the subheadings ``Loan Estimate'' 
and ``Final'' are not, in and of themselves, subject to the

[[Page 37732]]

Sec.  1026.19(e)(3) good faith standard. These amounts are disclosed 
based on the best information reasonably available to the creditor at 
the time the disclosure is provided. Any increases or changes to the 
amounts, based on the best information reasonably available to the 
creditor at the time the disclosure is provided, do not result in any 
separate violation of any standard under Regulation Z. The amounts used 
for determining good faith may be disclosed over multiple Loan 
Estimates, or even corrected Closing Disclosures, depending upon the 
facts and circumstances of the transaction. Accordingly, good faith 
cannot be determined based on a comparison of the amounts disclosed 
under the subheadings ``Loan Estimate'' and ``Final'' on the Closing 
Disclosure's calculating cash to close table.
    In disclosing amounts under Sec.  1026.38(i)(1)(i), (3)(i), (4)(i), 
(5)(i), (6)(i), (7)(i), (8)(i), and (9)(i), when there are multiple 
Loan Estimates provided to a consumer, the current regulatory 
provisions do not specify a particular Loan Estimate to use. Therefore, 
it is currently permissible to disclose amounts from any Loan Estimate 
provided to the consumer in the ``Loan Estimate'' column of the Closing 
Disclosure's calculating cash to close table, and will remain 
permissible until the mandatory compliance date of this final rule, 
October 1, 2018. For a discussion of the effective date and optional 
compliance period, see part VI, below.
38(i)(1) Total Closing Costs
38(i)(1)(iii)
The Bureau's Proposal
    Section 1026.38(i)(1)(iii)(A) specifies that, if the amount of 
closing costs disclosed under the subheading ``Final'' in the row 
labeled ``Total Closing Costs (J)'' is different than the estimated 
amount of such costs as shown on the Loan Estimate (unless the 
difference is due to rounding), the creditor must state, under the 
subheading ``Did this change?,'' that the consumer should see the total 
loan costs and total other costs subtotals disclosed on the Closing 
Disclosure under Sec.  1026.38(f)(4) and (g)(5) and include a reference 
to such disclosures, as applicable. Section 1026.38(i)(1)(iii)(A)(3) 
also requires a statement that an increase in closing costs exceeds 
legal limits (i.e., under Sec.  1026.19(e)(3)) 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). Comments 38(i)(1)(iii)(A)-2.i, -2.iii, and -3 
provide guidance regarding these statements. The Bureau proposed to 
revise Sec.  1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 to 
provide additional options for disclosing refunds to consumers. 
Specifically, the Bureau proposed to clarify that a reduction in 
principal balance (principal curtailment) may be disclosed under Sec.  
1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) to provide a tolerance refund 
under Sec.  1026.19(f)(2)(v). Proposed revisions to Sec.  
1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 would have 
allowed a creditor to provide a statement directing the consumer to the 
disclosure of a principal curtailment under Sec.  1026.38(g)(4), 
(j)(4)(i), or (t)(5)(ix) if a principal curtailment, instead of a 
lender credit, was used to provide such refund. As a result of these 
proposed amendments, the Bureau also proposed to revise comment 
38(i)(1)(iii)(A)-3 to clarify that the examples of statements provided 
by form H-25(F) of appendix H only relate to statements provided under 
Sec.  1026.38(h)(3).
Comments Received
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.38 pertaining to comment 38-4 above, some industry 
commenters raised concerns with the various options for disclosing 
principal curtailments proposed by the Bureau. Commenters also 
requested additional clarity regarding the disclosure of a principal 
curtailment pursuant to Sec.  1026.38(j)(4)(i). Specifically, the 
commenters questioned where in the summaries of transactions table the 
disclosure is to be made, since Sec.  1026.38(j)(4)(i) contains the 
requirement to disclose costs that are not paid from closing funds but 
would otherwise be disclosed pursuant to Sec.  1026.38(j) marked with 
the phrase ``Paid Outside of Closing'' or ``P.O.C.,'' but does not 
provide a specific location for the principal curtailment disclosure. 
In addition, an industry group recommended that the Bureau use the 
phrase ``principal reduction'' instead of ``principal curtailment,'' 
noting that consumers would be more familiar with the recommended 
phrase. A title insurance company requested that the Bureau update the 
sample forms to reflect the disclosure of principal curtailments, 
similar to how form H-25(F) of appendix H contains examples of the 
required statements under Sec.  1026.38(h)(3), which is referenced in 
comment 38(i)(1)(iii)(A)-3.
The Final Rule
    For the reasons discussed below, the Bureau is adopting amendments 
to Sec.  1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 as 
proposed with technical and conforming revisions, and amending comments 
38(i)(1)(iii)(A)-2.i and -2.iii. The Bureau is revising Sec.  
1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 to use the 
phrase ``principal reduction'' for clarity. As discussed in the 
section-by-section analysis of Sec.  1026.38 pertaining to comment 38-4 
above, the Bureau is revising comment 38-4 to clarify that principal 
reductions disclosed in the summaries of transactions table are 
disclosed under Sec.  1026.38(j)(1)(v), not Sec.  1026.38(j)(4)(i), and 
to limit the disclosure of principal reductions to Sec.  
1026.38(j)(1)(v) on the standard Closing Disclosure. As a result, the 
Bureau is making conforming amendments in final Sec.  
1026.38(i)(1)(iii)(A)(3) and final comment 38(i)(1)(iii)(A)-3 to remove 
the proposed references to Sec.  1026.38(g)(4), (j)(4)(i), and 
(t)(5)(ix) and to instead only refer to Sec.  1026.38(j)(1)(v). The 
Bureau declines to update the sample forms at this time as requested by 
a commenter. Doing so would be inconsistent with the Bureau's focus in 
this rulemaking on providing additional clarity in an expeditious 
manner.
    As discussed in the section-by-section analysis of Sec.  
1026.19(e)(3)(i), the Bureau is modifying comment 19(e)(3)(i)-1 to 
conform to final Sec.  1026.19(e)(3)(iii), which provides exceptions to 
the general rule that an estimated closing cost is in good faith (i.e., 
does not exceed legal limits) if the charge paid by or imposed on the 
consumer does not exceed the estimate for the cost as disclosed on the 
Loan Estimate. As a result, the Bureau is making conforming amendments 
in final comments 38(i)(1)(iii)(A)-2.i and -2.iii. Specifically, final 
comment 38(i)(1)(iii)(A)-2.i clarifies that certain closing costs 
(e.g., fees paid to the creditor, transfer taxes, fees paid to an 
affiliate of the creditor) are generally subject to the limitations on 
increases in closing costs under Sec.  1026.19(e)(3)(i); however, Sec.  
1026.19(e)(3)(iii) provides exceptions to the general rule for certain 
charges. Final comment 38(i)(1)(iii)(A)-2.iii clarifies that, for a 
charge listed on the Loan Estimate under the subheading ``Services You 
Can Shop For,'' such charge would generally be subject to the 
limitations under Sec.  1026.19(e)(3)(i) if the consumer decided to use 
a provider affiliated with the creditor; however, Sec.  
1026.19(e)(3)(iii) provides exceptions to the general rule for certain 
charges.

[[Page 37733]]

38(i)(2) Closing Costs Paid Before Closing
38(i)(2)(iii)
38(i)(2)(iii)(B)
    Comment 38(i)(2)(iii)(B)-1 discusses the circumstances under which 
the creditor gives a statement that the amount disclosed under the 
subheading ``Final'' under Sec.  1026.38(i)(2)(ii) is equal to the 
amount disclosed under the subheading ``Loan Estimate'' under Sec.  
1026.38(i)(2)(i) and, in so doing, refers to an amount of ``$0'' under 
the subheading ``Final.'' The Bureau proposed to change $0 to $0.00 to 
reflect the disclosure of a dollar amount of zero to two decimal 
places. The Bureau did not receive comments specific to this proposal. 
However, for the reasons discussed in the section-by-section analysis 
of Sec.  1026.38(e)(3)(iii)(B), the Bureau is not finalizing the 
proposed amendment to comment 38(i)(2)(iii)(B)-1.
38(i)(3) Closing Costs Financed
The Bureau's Proposal
    Section 1026.38(i)(3) requires the disclosure of the actual amount 
of the closing costs that are to be paid out of loan proceeds, as a 
negative number, and a comparison of the estimated and actual amounts 
of the closing costs that are to be paid out of loan proceeds. If the 
amount under the subheading ``Final'' in the row labeled ``Closing 
Costs Financed (Paid from your Loan Amount)'' is different than the 
estimated amount (unless the excess is due to rounding), the creditor 
must state under the subheading ``Did this change?'' that the consumer 
included these closing costs in the loan amount, which increased the 
loan amount.
    The Bureau proposed to add comment 38(i)(3)-1 to explain that the 
amount of closing costs financed disclosed under Sec.  1026.38(i)(3) is 
determined by subtracting the total amount of payments to third parties 
not otherwise disclosed under Sec.  1026.38(f) and (g) from the loan 
amount disclosed under Sec.  1026.38(b). The proposed comment explained 
that the total amount of payments to third parties includes the sale 
price of the property disclosed under Sec.  1026.38(j)(1)(ii). Proposed 
comment 38(i)(3)-1 also explained that if the result of the calculation 
is zero or negative, the amount of $0.00 would be disclosed under Sec.  
1026.38(i)(3); if the result of the calculation is positive, that 
amount would be disclosed as a negative number under Sec.  
1026.38(i)(3), but only to the extent that the absolute value of the 
amount disclosed under Sec.  1026.38(i)(3) does not exceed the total 
amount of closing costs disclosed under Sec.  1026.38(h)(1).
    Consistent with proposed comment 37(h)(1)(ii)-2, the Bureau 
proposed to add comment 38(i)(3)-2 to clarify that the loan amount 
disclosed under Sec.  1026.38(b) is the total amount the consumer will 
borrow, as reflected by the face amount of the note. The proposed 
comment explained that financed closing costs, such as mortgage 
insurance premiums payable at or before consummation, do not reduce the 
loan amount. The intent of this proposed comment was to clarify that 
regardless of how the term ``loan amount'' is used by creditors or in 
relation to programmatic requirements of specific loan programs, for 
purposes of the Closing Disclosure, the amount disclosed as the loan 
amount under Sec.  1026.38(b), and the basis for the calculating cash 
to close table calculations, is the total amount the consumer will 
borrow as reflected by the face amount of the note. This definition of 
loan amount under Sec.  1026.38(b) would not have affected how other 
agencies define or use similar terms for purposes of their own 
programmatic requirements. For example, the ``base loan amount'' and 
``total loan amount,'' as those terms are used for loans made under FHA 
programs, may not be the same as the loan amount required to be 
disclosed under Sec.  1026.38(b).
Comments Received
    The Bureau received several comments on proposed comment 38(i)(3)-
1. As discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(ii), two industry commenters noted a slight inconsistency 
between the language describing the closing costs financed calculations 
for the Loan Estimate in comment 37(h)(1)(ii)-1 and the Closing 
Disclosure in comment 38(i)(3)-1. Such inconsistency could permit 
creditors to use two different calculations for the closing costs 
financed disclosures.
    A title insurance company requested that the Bureau update the 
sample forms to reflect $0.00 instead of $0 because the proposed new 
commentary would require disclosure of $0.00 if the result of the 
closing costs financed calculation was zero or negative.
    A software vendor group stated that, in the absence of a method for 
calculating the closing costs financed on the Closing Disclosure, some 
lending platforms have been completing the closing costs financed 
disclosure on the Closing Disclosure by entering the amount of closing 
costs that have been added to the amount requested or subtracted from 
the loan proceeds under Sec.  1026.38(i)(3)(ii). The commenter stated 
that the approach yields a cash to close amount in the calculating cash 
to close table consistent with the cash to close amount in the 
summaries of transactions table. The commenter indicated that amending 
its current practice to be consistent with proposed comment 38(i)(3)-1 
would require a substantial reprogramming effort. A software vendor and 
software vendor group stated that using the calculation method in 
proposed comment 38(i)(3)-1 to determine the amount of closing costs 
financed potentially could be confusing to consumers. Another software 
vendor stated that the calculation method in proposed comment 38(i)(3)-
1 does not align with the language in Sec.  1026.38(i)(3). Finally, as 
discussed in the section-by-section analysis of Sec.  1026.37(h)(1), 
regarding the proposal to clarify that, on the simultaneous subordinate 
financing Loan Estimate, the sale price disclosed under Sec.  
1026.37(a)(7) would not be used in any of the Sec.  1026.37(h)(1) 
calculations, a title insurance company noted that the Bureau did not 
make a corresponding change for the Closing Disclosure.
    The Bureau received several comments on proposed comment 38(i)(3)-
2. As discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(ii), consistent with comments received on proposed 
comment 37(h)(1)(ii)-2, a software vendor expressed support for the 
Bureau's proposed comment 38(i)(3)-2 to clarify that financed mortgage 
insurance premiums do not reduce the loan amount used in the 
calculation. One trade association commenter did not support requiring 
the loan amount disclosed in Sec.  1026.38(b) to be used in the closing 
costs financed calculation; instead, the commenter indicated that 
creditors should be permitted to use the ``base loan amount.''
The Final Rule
    For the reasons discussed below, the Bureau is adopting proposed 
comment 38(i)(3)-1 in part with revisions and adopting proposed comment 
38(i)(3)-2 with revisions. To address the slight inconsistency between 
the language describing the closing costs financed calculation for the 
Loan Estimate and Closing Disclosure in the proposed amendments to 
comment 37(h)(1)(ii)-1 and proposed new comment 38(i)(3)-1, 
respectively, the Bureau is amending comment 37(h)(1)(ii)-1, as 
discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(ii), for consistency with comment 38(i)(3)-1. Therefore, 
the Bureau is adopting the relevant

[[Page 37734]]

proposed revisions to comment 38(i)(3)-1.
    For the reasons discussed in the section-by-section analysis of 
Sec.  1026.38(e)(3)(iii)(B), the Bureau is not finalizing the proposed 
amendment to comment 38(i)(3)-1 which would have changed ``$0'' to 
``$0.00.'' The Bureau is also not conducting a systematic review of 
sample forms at this time. As discussed in the section-by-section 
analysis of Appendix H--Closed-End Forms and Clauses below, doing so 
would be inconsistent with the Bureau's focus in this rulemaking on 
providing additional clarity in an expeditious manner.
    As discussed above, some commenters raised concerns with the 
Closing Disclosure's closing costs financed calculation set forth in 
proposed comment 38(i)(3)-1. In the TILA-RESPA Final Rule, the Bureau 
added comment 37(h)(1)(ii)-1 to specify a method to calculate the 
amount of closing costs to be paid from mortgage loan proceeds on the 
Loan Estimate, in response to comments asking how to conduct the 
calculation.\88\ However, the Bureau did not add a similar comment 
regarding the Closing Disclosure's closing costs financed disclosure. 
The Bureau recognizes that this omission has caused confusion in the 
industry and the industry has taken varying approaches to disclosing 
the amount of closing costs financed on the Closing Disclosure absent a 
formula. As discussed in part VI below, the Bureau is committed to 
giving industry sufficient time to reprogram its software to 
accommodate the formula. This final rule will be effective 60 days from 
publication in the Federal Register, but there will be an optional 
compliance period in effect until October 1, 2018.
---------------------------------------------------------------------------

    \88\ 78 FR 79730, 79967 (Dec. 31, 2013).
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.37(h), several commenters expressed concern that the closing 
costs financed disclosure may result in a disclosure that does not 
necessarily align with consumers' understanding of their transactions, 
and that consumers may not recognize that there is a calculation that 
determines this disclosure component. One solution raised by commenters 
is to include the formula in the calculating cash to close table. The 
Bureau does not adopt this recommendation because it does not believe 
that including the formula would be helpful to consumers. The table 
intentionally conducts the calculations behind-the-scenes so that 
consumers can review the high-level components of the calculation. 
Another solution raised by commenters is to create a new label for the 
closing costs financed disclosure so that consumers would not associate 
the amount disclosed on the currently labeled ``Closing Costs Financed 
(Paid from your Loan Amount)'' line of the calculating cash to close 
table with the amount of closing costs they understand to be financed 
in their transactions. The Bureau does not adopt this recommendation 
because the labels were developed through consumer testing processes, 
and it is not feasible, on the expedited schedule of this rulemaking, 
to reengage in consumer testing to validate revised labels. Although 
consumer testing of disclosures is not necessary in all instances, the 
Bureau considers that such testing is important in this context.
    As discussed above, one software vendor stated that the calculation 
method in proposed comment 38(i)(3)-1 does not align with the language 
in the regulatory text. The Bureau does not agree with this assertion. 
Section 1026.38(i)(3) requires disclosure of the actual amount of the 
closing costs that are to be paid out of loan proceeds. Because money 
is fungible, in order to create standardized disclosures that can be 
utilized in a wide variety of transaction types, the Bureau had to 
create formulas that earmarked loan funds for specific disclosures, 
including the closing costs financed disclosure; the closing costs 
financed disclosure formula in final comment 38(i)(3)-1 explains to 
creditors how to determine the amount of closing costs that are to be 
paid out of loan proceeds for all transaction types in a standardized 
manner. The Bureau concludes that it is important to specify a method 
to calculate the amount of closing costs to be paid from loan proceeds 
on the Closing Disclosure to create consistency and uniformity for this 
disclosure component, and to ensure that all of the calculating cash to 
close disclosure components work together to yield an accurate amount 
of cash due from or to the borrower at closing.
    The Bureau is revising comment 38(i)(3)-1 to explain that for some 
loans, such as simultaneous subordinate financing transactions, no sale 
price will be disclosed under Sec.  1026.38(j)(1)(ii) in accordance 
with comment 38(j)(1)(ii)-1. While this revision is not necessary, the 
Bureau believes the reference to comment 38(j)(1)(ii)-1 in comment 
38(i)(3)-1 may be helpful to creditors conducting the closing costs 
financed calculation for simultaneous subordinate financing.
    The Bureau is also amending comment 38(i)(3)-1 to include 
additional examples for consistency with comments 37(h)(1)(ii)-1 and 
38(g)(4)-1. As discussed in the section-by-section analysis of Sec.  
1026.38(g)(4), the Bureau is not finalizing the proposal that would 
have required construction costs, payoff of existing liens, and payoff 
of unsecured debt to be disclosed under Sec.  1026.38(g)(4). Because 
amounts for construction costs, payoff of existing liens, and payoff of 
unsecured debt are disclosed under Sec.  1026.38(j)(1)(v), they will be 
included in the closing costs financed calculation as payments to third 
parties not otherwise disclosed under Sec.  1026.38(f) and (g).
    The Bureau is finalizing comment 38(i)(3)-2 with revisions. The 
Bureau believes its statement in proposed new comment 38(i)(3)-2 that 
the loan amount is the total amount the consumer will borrow as 
reflected by the face amount of the note is sufficiently clear and is 
therefore streamlining the comment by removing the example. The Bureau 
is making minor technical revisions for greater consistency with 
comment 37(h)(1)(ii)-2, but is not otherwise amending proposed comment 
38(i)(3)-2 as requested by a commenter. The loan amount as disclosed 
under Sec.  1026.38(b) is an integral part of the closing costs 
financed calculation, and the calculating cash to close table 
generally. The Bureau emphasizes that this definition of loan amount in 
Sec.  1026.38(b) does not affect how other agencies may define or use 
similar terms for purposes of their own programmatic requirements. For 
example, the ``base loan amount'' and ``total loan amount,'' as those 
terms are used for loans made under FHA programs, may not be the same 
as the loan amount required to be disclosed under Sec.  1026.38(b).
38(i)(4) Down Payment/Funds From Borrower
The Bureau's Proposal
    Section 1026.38(i)(4)(ii)(A) requires the down payment and funds 
from borrower amount in a purchase transaction as defined in Sec.  
1026.37(a)(9)(i) to be disclosed as a positive number. In these 
transactions, the amount is calculated as the difference between the 
purchase price of the property and the principal amount of the credit 
extended. The calculation does not capture the amount of existing loans 
assumed or taken subject to that is disclosed under Sec.  
1026.38(j)(2)(iv). Section 1026.38(i)(4)(ii)(B) requires that, in all 
other transactions, the amount is determined in accordance with Sec.  
1026.38(i)(6)(iv). As discussed below, the Bureau proposed to revise

[[Page 37735]]

Sec.  1026.38(i)(4)(ii)(A) and comment 38(i)(4)(ii)(A)-1. The Bureau 
also proposed to add comment 38(i)(4)(ii)(A)-2.
    Specifically, the Bureau proposed to revise Sec.  
1026.38(i)(4)(ii)(A) to account for any amount disbursed to the 
consumer or used at the consumer's discretion at consummation of the 
transaction in purchase transactions. Proposed Sec.  
1026.38(i)(4)(ii)(A)(1) would have provided that, in a purchase 
transaction as defined in Sec.  1026.37(a)(9)(i), the creditor 
subtracts the sum of the loan amount and any amount for loans assumed 
or taken subject to that is disclosed under Sec.  1026.38(j)(2)(iv) 
from the sale price of the property, except when the sum of the loan 
amount and any amount for loans assumed or taken subject to exceed the 
sale price of the property. Proposed Sec.  1026.38(i)(4)(ii)(A)(2) 
would have provided that when the sum of the loan amount and any amount 
for existing loans assumed or taken subject to that is disclosed under 
Sec.  1026.38(j)(2)(iv) exceeds the sale price of the property, the 
creditor instead would have calculated the funds from the consumer in 
accordance with Sec.  1026.38(i)(6)(iv). Proposed comment 
38(i)(4)(ii)(A)-2 would have explained that the amount the creditor 
discloses under Sec.  1026.38(i)(4)(ii)(A)(2) is determined in 
accordance with the funds for borrower calculation under Sec.  
1026.38(i)(6)(iv).
    Proposed comment 38(i)(4)(ii)(A)-1 would have explained the 
calculation that must be followed for accurate disclosure of the down 
payment/funds from borrower amount on the Closing Disclosure. The 
proposed comment also would have explained that the minimum cash 
investments required of consumers and referred to as ``down payments'' 
under some loan programs would not necessarily be reflected in the 
disclosure, and disclosure of the calculated amount would not affect 
compliance or non-compliance with such loan programs' requirements.
    Section 1026.38(i)(4)(ii)(B) provides that in a transaction other 
than the type described in Sec.  1026.38(i)(4)(ii)(A), the creditor 
discloses the funds from the consumer in accordance with the formula in 
Sec.  1026.38(i)(6)(iv), labeled ``Down Payment/Funds from Borrower.'' 
Current comment 38(i)(4)(ii)(B)-1 provides that under Sec.  
1026.38(i)(6)(iv), the final amount of funds from the borrower 
disclosed under Sec.  1026.38(i)(4)(ii)(B) is determined by subtracting 
from the total amount of all existing debt being satisfied in the real 
estate closing and disclosed under Sec.  1026.38(j)(1)(v) (except to 
the extent the satisfaction of such existing debt is disclosed under 
Sec.  1026.38(g)) the principal amount of the credit extended. The 
Bureau proposed to revise Sec.  1026.38(i)(4)(ii)(B) for conformity 
with proposed amendments to Sec.  1026.38(i)(4)(ii)(A). The Bureau 
proposed to revise comment 38(i)(4)(ii)(B)-1 to clarify that the 
``total amount of all existing debt being satisfied'' means the sum of 
amounts disclosed under Sec.  1026.38(j)(1)(ii), (iii), and (v). The 
Bureau sought comment on whether defining the phrase ``total amount of 
all existing debt being satisfied'' to mean specifically amounts 
disclosed under Sec.  1026.38(j)(1)(ii), (iii), and (v) is too 
prescriptive and how else the Bureau might provide greater clarity 
around amounts that must be included in this calculation as part of the 
``total amount of all existing debt being satisfied.'' The Bureau also 
proposed to revise comment 38(i)(4)(ii)(B)-1 for conformity with 
proposed amendments to Sec.  1026.38(i)(4)(ii)(B). In addition, the 
Bureau proposed a technical revision in comment 38(i)(4)(ii)(B)-1 to 
change $0 in reference to the final amount to $0.00 to reflect the 
disclosure of a dollar amount of zero to two decimal places.
Comments Received
    In response to the Bureau's general solicitation of comment on the 
calculating cash to close table, many commenters raised concerns with 
the down payment/funds from borrower disclosure requirements. The 
Bureau discusses commenters' general concerns in the section-by-section 
analysis of Sec.  1026.37(h). The comments summarized below are related 
to the Bureau's specific proposals under Sec.  1026.38(i)(4) and its 
commentary.
    As discussed more fully in the section-by-section analysis of Sec.  
1026.37(h)(1)(iii), commenters supported the Bureau's proposal to 
account for the amount expected to be disbursed to the consumer or used 
at the consumer's discretion at consummation for purchase transactions. 
Some commenters raised concerns about the distinction between the 
Bureau's proposed down payment disclosure calculation and minimum cash 
investments required of consumers under some loan programs, which may 
also be called ``down payments'' under those loan programs.
    In response to the Bureau's request for comments on whether 
defining the phrase ``total amount of all existing debt being 
satisfied'' to mean specifically amounts disclosed under Sec.  
1026.38(j)(1)(ii), (iii), and (v) is too prescriptive, a title 
insurance company responded that it did not believe such a definition 
was too prescriptive. However, the commenter cautioned that the 
proposed amendments to the commentary of Sec.  1026.38(g)(4) regarding 
payoffs of amounts secured by real property would have unintended 
consequences because under the proposal, that debt would not have been 
disclosed under any of those paragraphs of Sec.  1026.38(j).
    A commenter raised a concern that the Bureau's requirement to label 
the amount of funds from the consumer disclosed under Sec.  
1026.38(i)(4)(ii) as ``Down Payment/Funds from Borrower'' when using 
the ``Funds for Borrower'' calculation under Sec.  1026.38(i)(6)(iv) 
conflicts with the ``Funds for Borrower'' disclosure requirements of 
Sec.  1026.38(i)(6)(ii). The commenter cited to Sec.  
1026.38(i)(4)(ii)(B)(2), which does not exist. The commenter may have 
been referring to comment 38(i)(4)(ii)(A)-2 or comment 38(i)(4)(ii)(B)-
1.
The Final Rule
    For the reasons discussed below and in the section-by-section 
analysis of Sec.  1026.37(h)(1)(iii), the Bureau is adopting the 
amendments to Sec.  1026.38(i)(4)(ii)(A) as proposed with several 
revisions. The Bureau also is adopting conforming revisions to Sec.  
1026.38(i)(4)(ii)(B). In addition, the Bureau generally is adopting, 
with revisions, the proposed amendments to comments 38(i)(4)(ii)(A)-1 
and 38(i)(4)(ii)(B)-1, and proposed comment 38(i)(4)(ii)(A)-2, and is 
making a conforming amendment to comment 38(i)(4)(iii)(A)-1. For the 
reasons discussed in the section-by-section analysis of Sec.  
1026.38(e)(3)(iii)(B), the Bureau is not finalizing the proposed 
amendment to comment 38(i)(4)(ii)(B)-1 which would have changed ``$0'' 
to ``$0.00,'' and is amending proposed comment 38(i)(4)(ii)(A)-2 to 
reflect ``$0'' instead of ``$0.00.''
    Consistent with final Sec.  1026.37(h)(1)(iii) and for the reasons 
discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(iii), the Bureau is adopting the amendments to Sec.  
1026.38(i)(4)(ii)(A) and (B), and adopting comment 38(i)(4)(ii)(A)-2, 
as proposed with revisions discussed above and revisions to clarify how 
Sec.  1026.38(i)(4)(ii) applies to simultaneous subordinate financing 
purchase transactions and purchase transactions with improvements to be 
made on the property. Specifically, final Sec.  1026.38(i)(4)(ii)(A)(2) 
provides that for a purchase transaction that is a simultaneous 
subordinate financing transaction or that involves improvements to be 
made on the

[[Page 37736]]

property, the amount of funds from the consumer is determined in 
accordance with Sec.  1026.38(i)(6)(iv). Because simultaneous 
subordinate financing is specifically covered by final Sec.  
1026.38(i)(4)(ii)(A)(2), it is no longer necessary to reference in 
Sec.  1026.38(i)(4)(ii)(A)(1) the sale price disclosed under Sec.  
1026.38(j)(1)(ii) instead of the sale price disclosed under Sec.  
1026.38(a)(3)(vii)(A). The Bureau notes that for transactions that use 
the down payment/funds from borrower calculation under Sec.  
1026.38(i)(4)(ii)(A)(1), the sale price disclosed on page 1 of the 
Closing Disclosure under Sec.  1026.38(a)(3)(vii)(A) will be the same 
as the sale price disclosed in the summaries of transactions table on 
page 3 of the Closing Disclosure pursuant to Sec.  1026.38(j)(1)(ii). 
Therefore, in final Sec.  1026.38(i)(4)(ii)(A)(1) the Bureau is 
referencing the sale price disclosed under Sec.  1026.38(a)(3)(vii)(A), 
consistent with the corresponding provision for the Loan Estimate, and 
is making conforming amendments to final Sec.  1026.38(i)(4)(ii)(A)(2).
    The Bureau is also making several technical revisions to comments 
38(i)(4)(ii)(A)-1 and -2, and 38(i)(4)(ii)(B)-1. Specifically, the 
Bureau is revising comments 38(i)(4)(ii)(A)-2 and 38(i)(4)(ii)(B)-1 to 
make technical revisions to reflect the phrase ``total amount of all 
existing debt being satisfied in the transaction'' instead of ``total 
amount of all existing debt being satisfied in the real estate 
closing'' for consistency with the terminology used in Sec.  1026.37. 
Similar amendments are discussed in the section-by-section analysis of 
Sec.  1026.38(i)(6)(iv).
    As discussed above, a commenter cautioned that the proposed 
amendments to the commentary of Sec.  1026.38(g)(4) regarding the 
payoffs of amounts secured by real property would have unintended 
consequences to the proposal to define existing debt being satisfied in 
the transaction as the amounts that are disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(ii), (iii), and (v). As discussed 
in the section-by-section analysis of Sec.  1026.38(g)(4), the Bureau 
is not finalizing the proposal that would have required construction 
costs, payoff of existing liens, and payoff of unsecured debt to be 
disclosed under Sec.  1026.38(g)(4).
    The Bureau also is amending comments 38(i)(4)(ii)(A)-1 and -2, 
38(i)(4)(ii)(B)-1, and 38(i)(4)(iii)(A)-1 to make clear that the 
disclosure required under Sec.  1026.38(i)(4)(ii)(A) or (B), 
respectively, represents both the down payment and the funds from the 
borrower. For the reasons discussed in the section-by-section analysis 
of Sec.  1026.37(h)(1)(iii), the Bureau is not making other amendments 
to comment 38(i)(4)(ii)(A)-1 in response to the comments that raised 
concerns with the Bureau's distinction between the down payment 
disclosure calculation and minimum cash investments required of 
consumers under some loan programs, except to explain that the down 
payment and funds from borrower calculation is independent of any loan 
program or investor requirements.
    Although the Bureau is not able to determine the commenter's 
precise concern regarding the potentially conflicting labeling 
requirements in Sec.  1026.38(i)(4)(ii) and (6)(ii), the Bureau is 
revising Sec.  1026.38(i)(4)(ii)(B) and comments 38(i)(4)(ii)(A)-2 and 
38(i)(4)(ii)(B)-1 to provide greater clarity regarding the calculations 
and labeling requirements in Sec.  1026.38(i)(4)(ii) and (6)(ii).
38(i)(5) Deposit
    The Bureau proposed a technical revision in comment 38(i)(5)-1 to 
specify that, when no deposit is paid in connection with a purchase 
transaction, the amount disclosed on the Closing Disclosure under Sec.  
1026.38(i)(5)(ii) is $0.00 to reflect the disclosure of a dollar amount 
of zero to two decimal places. The Bureau did not receive comments on 
this proposal. For the reasons discussed in the section-by-section 
analysis of Sec.  1026.38(e)(3)(iii)(B), the Bureau is not finalizing 
the proposed amendment to comment 38(i)(5)-1 which would have changed 
``$0'' to ``$0.00.'' The Bureau is, however, finalizing other proposed 
minor technical revisions to comment 38(i)(5)-1.
38(i)(6) Funds for Borrower
38(i)(6)(ii)
    Comment 38(i)(6)(ii)-1 provides clarification about how the funds 
for borrower amount is determined under Sec.  1026.38(i)(6)(iv) and to 
whom such amount is disbursed. The Bureau proposed to revise comment 
38(i)(6)(ii)-1 to conform to proposed revisions and clarifications to 
Sec.  1026.38(i)(6)(iv). The Bureau proposed to add comment 
38(i)(6)(ii)-2 to conform to proposed revisions to comment 37(h)(1)(v)-
1.
    As discussed more fully in the section-by-section analysis of Sec.  
1026.37(h)(1)(v), commenters supported the Bureau's proposed amendments 
and clarifications to the funds for borrower disclosure in Sec. Sec.  
1026.37(h)(1)(v) and 1026.38(i)(6) and the associated commentary. 
Commenters stated that the amendments will allow the accurate 
reflection of proceeds due to the borrower at closing and urged the 
Bureau to adopt the proposed amendments. One commenter supported the 
clarification in the proposed revisions to comment 38(i)(6)(ii)-1 that 
the ``total amount of all existing debt being satisfied'' is the total 
of the amounts disclosed under Sec.  1026.38(j)(1)(ii), (iii), and (v). 
A commenter noted a slight wording difference between proposed comment 
37(h)(1)(v)-2 and proposed amendments to comment 38(i)(6)(ii)-1 
regarding the Loan Estimate and Closing Disclosure, respectively. 
Specifically, proposed comment 37(h)(1)(v)-2 provided that the total 
amount of all existing debt being satisfied in the transaction includes 
the amounts that will be disclosed on the Closing Disclosure in the 
summaries of transactions table under Sec.  1026.38(j)(1)(ii), (iii), 
and (v). This commenter interpreted the word ``includes'' to mean 
``includes, but is not limited to,'' whereas the proposed amendments to 
comment 38(i)(6)(ii)-1 make clear that for the Closing Disclosure the 
total amount of all existing debt being satisfied is the sum of the 
amounts that are disclosed on the Closing Disclosure in the summaries 
of transactions table under Sec.  1026.38(j)(1)(ii), (iii), and (v). 
The commenter requested that the Bureau revise the comments for better 
consistency and alignment.
    For the reasons discussed below, the Bureau is finalizing with 
revisions the proposed amendments to comments 38(i)(6)(ii)-1 and 
proposed comment 38(i)(6)(ii)-2. The Bureau's amendments to comment 
38(i)(6)(ii)-1 and proposed comment 38(i)(6)(ii)-2 are necessary to 
conform to the amendments made to Sec.  1026.38(i)(6)(iv) and for 
clarity. As discussed above and in the section-by-section analysis of 
Sec.  1026.37(h)(1)(v), a commenter noted a slight wording difference 
between proposed comment 37(h)(1)(v)-2 pertaining to the Loan Estimate 
and the proposed amendments to comment 38(i)(6)(ii)-1 pertaining to the 
Closing Disclosure. The Bureau is revising comment 37(h)(1)(v)-2 to 
replace the word ``includes'' with the phrase ``is the sum of'' for 
consistency and alignment with final comment 38(i)(6)(ii)-1.
    As discussed in the section-by-section analyses of Sec.  
1026.37(h)(1)(iii) and (v), the Bureau is amending comments 
37(h)(1)(iii)-1 and 37(h)(1)(v)-1 to make clear that the disclosure 
required under Sec.  1026.37(h)(1)(iii) represents both the down 
payment and other funds from the borrower. The Bureau is similarly

[[Page 37737]]

amending proposed comment 38(i)(6)(ii)-2 to make clear that the 
disclosure required under Sec.  1026.38(i)(4)(ii)(A)(1) represents both 
the down payment and funds from the borrower. In addition, the Bureau 
is streamlining the comment for greater clarity.
    As discussed in the section-by-section analysis of Sec.  
1026.38(e)(3)(iii)(B), the Bureau's proposal would have changed ``$0'' 
to ``$0.00'' in many places in Sec.  1026.38(e) and (i), and the 
associated commentary, so that dollar amounts of zero would be 
disclosed consistently in the ``Final'' column of the Closing 
Disclosure's calculating cash to close table. Generally, unless amounts 
are required to be rounded by Sec.  1026.38(t)(4), amounts are 
disclosed on the Closing Disclosure as exact numerical amounts, using 
decimal places. Section 1026.38(t)(4) provides for exceptions to this 
general rule. Upon further consideration, the Bureau is not finalizing 
the proposed approach, and is instead changing the few instances of 
``$0.00'' to ``$0.'' The Bureau believes this approach will achieve the 
consistency intended by the proposal, but will be less burdensome to 
creditors because Sec.  1026.38(e) and (i), and the associated 
commentary, currently refer to dollar amounts of zero in the ``Final'' 
column of the calculating cash to close table as ``$0'' most of the 
time. Therefore, the Bureau is making conforming amendments to comment 
38(i)(6)(ii)-1 and proposed comment 38(i)(6)(ii)-2 to change ``$0.00'' 
to ``$0.''
38(i)(6)(iv)
    Section 1026.38(i)(6)(iv) provides that the funds from borrower 
disclosed under Sec.  1026.38(i)(4)(ii)(B) and funds for borrower 
disclosed under Sec.  1026.38(i)(6)(ii) are determined by subtracting 
the principal amount of the credit extended (excluding closing costs 
financed disclosed under Sec.  1026.38(i)(3)(ii)) from the total amount 
of all existing debt being satisfied in the real estate closing and 
disclosed under Sec.  1026.38(j)(1)(v) (except to the extent the 
satisfaction of such existing debt is disclosed under Sec.  
1026.38(g)). This calculation does not capture the amount of existing 
loans assumed or taken subject to that is disclosed under Sec.  
1026.38(j)(2)(iv). The Bureau proposed to revise Sec.  
1026.38(i)(6)(iv) to account for the amount expected to be disbursed to 
the consumer or used at the consumer's discretion at consummation of 
the transaction in purchase transactions and loans assumed or taken 
subject to, and to clarify that the phrase ``total amount of all 
existing debt being satisfied'' means amounts that are disclosed in the 
summaries of transactions table under Sec.  1026.38(j)(1)(ii), (iii), 
and (v). The Bureau sought comment on whether defining the phrase 
``total amount of all existing debt being satisfied'' to mean amounts 
disclosed under Sec.  1026.38(j)(1)(ii), (iii), and (v) is too 
prescriptive and how else the Bureau might provide greater clarity 
around amounts that must be included in this calculation as part of the 
``total amount of all existing debt being satisfied.'' The Bureau also 
proposed technical revisions to Sec.  1026.38(i)(6)(iv)(A), (B), and 
(C) which explain the amounts to disclose under Sec.  1026.38(i)(4)(ii) 
and (6)(ii). Specifically, in paragraphs (A), (B), and (C), the Bureau 
proposed to change ``$0'' to ``$0.00'' to reflect the disclosure of a 
dollar amount of zero to two decimal places.
    As discussed in the section-by-section analysis of Sec.  
1026.37(h)(1)(v), a number of commenters supported the Bureau's 
proposed amendments to account for the amount expected to be disbursed 
to the consumer or used at the consumer's discretion at consummation in 
purchase transactions. Two commenters stated that the proposed 
amendments would allow the accurate reflection of proceeds due to the 
borrower and urged the Bureau to adopt the proposed amendments.
    In response to the Bureau's request for comments on whether 
defining the phrase ``total amount of all existing debt being 
satisfied'' to mean specifically amounts disclosed under Sec.  
1026.38(j)(1)(ii), (iii), and (v) is too prescriptive, a title 
insurance company responded that it did not believe such a definition 
was too prescriptive. However, the commenter cautioned that the 
proposed amendments to the commentary of Sec.  1026.38(g)(4) regarding 
payoffs of amounts secured by real property would have unintended 
consequences because that debt would not be disclosed under Sec.  
1026.38(j)(1)(ii), (iii), or (v).
    A title insurance company also noted that the integrated disclosure 
sample form H-25(B) displays $0, not $0.00. The commenter requested 
that the Bureau revise sample form H-25(B) to illustrate $0.00 instead 
of $0.
    For the reasons discussed below, the Bureau is generally adopting 
Sec.  1026.38(i)(6)(iv) as proposed with technical revisions, but, for 
the reasons discussed in the section-by-section analysis of Sec.  
1026.38(e)(3)(iii)(B), the Bureau is not finalizing the proposed 
amendment to Sec.  1026.38(i)(6)(iv) which would have changed ``$0'' to 
``$0.00.'' The amendments the Bureau proposed to make to Sec.  
1026.38(i)(6)(iv) and which the Bureau is finalizing are necessary to 
conform to final Sec.  1026.38(i)(4). The Bureau is making technical 
revisions to Sec.  1026.38(i)(6)(iv) to reflect the full label ``Down 
Payment/Funds from Borrower'' instead of only ``Funds from Borrower'' 
for greater clarity. The Bureau is also revising Sec.  
1026.38(i)(6)(iv) to use the phrase ``total amount of all existing debt 
being satisfied in the transaction'' instead of ``total amount of all 
existing debt being satisfied in the real estate closing'' for 
consistency with the terminology used in Sec.  1026.37.
    As discussed above, a commenter cautioned that the proposed 
amendments to the commentary of Sec.  1026.38(g)(4) regarding the 
payoffs of amounts secured by real property would have unintended 
consequences to the proposal to define existing debt being satisfied in 
the transaction as the amounts that are disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(ii), (iii), and (v). As discussed 
in the section-by-section analysis of Sec.  1026.38(g)(4), the Bureau 
is not finalizing the proposal that would have required construction 
costs, payoff of existing liens, and payoff of unsecured debt to be 
disclosed under Sec.  1026.38(g)(4).
    The Bureau is not conducting a systematic review of sample forms at 
this time. As discussed in the section-by-section analysis of Appendix 
H--Closed-End Forms and Clauses below, doing so would be inconsistent 
with the Bureau's focus in this rulemaking on providing additional 
clarity in an expeditious manner.
38(i)(7) Seller Credits
The Bureau's Proposal
    Section 1026.38(i)(7) requires creditors to compare the amount of 
seller credits disclosed on the Loan Estimate under Sec.  
1026.37(h)(1)(vi) to the amount disclosed on the Closing Disclosure 
under Sec.  1026.38(j)(2)(v). If there is a difference (for reasons 
other than rounding), Sec.  1026.38(i)(7)(iii)(A) requires the creditor 
to disclose a statement that the consumer should see the seller credits 
disclosed under Sec.  1026.38(j)(2)(v). The amount of seller credits 
disclosed on the Loan Estimate under Sec.  1026.37(h)(1)(vi) may 
include only general (i.e., lump sum) seller credits or general credits 
and specific seller credits. However, Sec.  1026.38(j)(2)(v) and 
comment 38(j)(2)(v)-1 state that only general seller credits are 
disclosed under Sec.  1026.38(j)(2)(v), whereas seller credits 
attributable to a specific cost should be reflected in the seller-paid 
column in

[[Page 37738]]

the closing cost details table under Sec.  1026.38(f) or (g).
    Consistent with Sec.  1026.38(j)(2)(v) and comment 38(j)(2)(v)-1, 
the Bureau proposed to amend to Sec.  1026.38(i)(7)(iii)(A) to provide 
that, if there is a difference between the amount of seller credits 
disclosed under Sec. Sec.  1026.37(h)(1)(vi) and 1026.38(j)(2)(v) that 
is not attributed to rounding of the amount disclosed under Sec.  
1026.37(h)(1)(vi), the creditor must disclose a statement that the 
consumer should see the details disclosed under Sec.  1026.38(j)(2)(v) 
and, as applicable, in the seller-paid column under Sec.  1026.38(f) or 
(g). The Bureau also proposed new comment 38(i)(7)(iii)(A)-1 with 
examples of the required statement.
Comments Received
    The Bureau received comments on these proposed changes from various 
industry commenters, including a title insurance company, a group of 
software vendors, and a non-bank. Some commenters supported the change, 
other commenters requested different requirements from what the Bureau 
proposed, and some requested additional clarity.
    An industry commenter noted that if creditors are given discretion 
to disclose a statement that the consumer should see the details 
disclosed in both the seller-paid column on page 2 and Section L under 
form H-25(B) in appendix H, when the seller credit only appears in one 
of those locations (i.e., is only general or only specific), this 
creates consumer confusion. Instead, the commenter stated that the 
Bureau should require a statement that consumer should only see the 
details disclosed under Sec.  1026.38(j)(2)(v) in the summaries of 
transactions table if the credit is general, or only be directed to the 
seller-paid column of Sec.  1026.38(f) and (g) if the credit is 
specific. Conversely, industry software vendor commenters stated that 
the Bureau should require a statement that the consumer should see the 
details in the seller-paid column under Sec.  1026.38(f) or (g) and in 
Sec.  1026.38(j)(2)(v) for every transaction, as the proposed 
amendments to Sec.  1026.38(i)(7)(iii)(A) would be burdensome and 
challenging for software vendors to implement. An industry individual 
commenter requested that the Bureau change the ``Seller Credits'' line 
in the calculating cash to close table to distinguish between general 
seller credits and specific seller credits, to ease consumer confusion.
The Final Rule
    Based on comments received, the Bureau is finalizing Sec.  
1026.38(i)(7)(iii)(A) and comment 38(i)(7)(iii)(A)-1 with revisions. In 
response to the commenter who requested that the Bureau require a 
statement that consumer should only see the details disclosed under 
Sec.  1026.38(j)(2)(v) in the summaries of transactions table if the 
credit is general, or only be directed to the seller-paid column of 
Sec.  1026.38(f) and (g) if the credit is specific, the Bureau is 
providing this option in the final rule. However, the Bureau does not 
believe that requiring all creditors to provide a statement that 
consumers should only see the details disclosed under Sec.  
1026.38(j)(2)(v) in the summaries of transactions table if the credit 
is general, or only be directed to the seller-paid column of Sec.  
1026.38(f) and (g) if the credit is specific, would substantially aid 
in consumer understanding and is concerned that doing so may be 
burdensome. In response to the commenters who requested that the Bureau 
require a statement that the consumer should see the details in the 
seller-paid column under Sec.  1026.38(f) or (g) and Sec.  
1026.38(j)(2)(v) for every transaction in order to reduce 
implementation burden, the Bureau is providing this option in the final 
rule. However, the Bureau declines to require creditors to provide a 
statement that the consumer should see the details in the seller-paid 
column under Sec.  1026.38(f) or (g) and Sec.  1026.38(j)(2)(v) for 
every transaction because doing so would eliminate the option for a 
creditor to provide more clarity for consumers by specifying which 
section the change in seller credits is located, if it is only located 
in the closing cost details table under Sec.  1026.38(f) or (g) or the 
summaries of transactions table under Sec.  1026.38(j)(2)(v). As 
finalized, Sec.  1026.38(i)(7) will provide more accurate information 
to consumers, while providing optionality to ease compliance for 
industry. The Bureau declines to revisit major policy decisions in this 
rulemaking, such as the commenter request to change the ``Seller 
Credits'' line in the calculating cash to close table to distinguish 
between general seller credits and specific seller credits.
    Pursuant to commenter requests for additional clarity, the Bureau 
provides the following discussion. Creditors will now have options for 
the text under the subheading ``Did this change,'' when disclosing a 
difference in the amount of seller credits from the Loan Estimate to 
the Closing Disclosure, depending on whether the seller credits are 
either entirely general, entirely specific, or both. A creditor may, 
under the subheading ``Did this change?,'' either disclose a statement 
that the consumer should see the details disclosed under Sec.  
1026.38(j)(2)(v) in the summaries of transactions table and the seller-
paid column of Sec.  1026.38(f) and (g), or disclose a statement that 
the consumer should see the details disclosed under Sec.  
1026.38(j)(2)(v) in the summaries of transactions table if the credit 
is general, or the seller-paid column of Sec.  1026.38(f) and (g) if 
the credit is specific. If the difference in ``Seller Credits'' in the 
calculating cash to close table is attributable to general and specific 
seller credits, the creditor must disclose a statement that the 
consumer should see the details disclosed under Sec.  1026.38(j)(2)(v) 
in the summaries of transactions table and the seller-paid column of 
Sec.  1026.38(f) and (g).
38(i)(8) Adjustments and Other Credits
38(i)(8)(i)
    Section 1026.38(i)(8)(i) requires disclosure under the subheading 
``Loan Estimate'' of the amount disclosed on the Loan Estimate under 
Sec.  1026.37(h)(1)(vii) rounded to the nearest whole dollar, labeled 
``Adjustments and Other Credits.'' The Bureau proposed a technical 
revision in Sec.  1026.38(i)(8)(i) to remove the phrase ``rounded to 
the nearest whole dollar.'' The amount disclosed on the Loan Estimate 
under Sec.  1026.37(h)(1)(vii) that is required to be disclosed under 
Sec.  1026.38(i)(8)(i) is already rounded to the nearest whole dollar 
in accordance with Sec.  1026.37(o)(4)(i)(A).
    The Bureau did not receive any comments on this proposal. However, 
a trade association commenter stated that sample form H-25(B) contains 
a final value of -$1,035.04, which the commenter asserted was in 
violation of Sec.  1026.38(i)(8)(i) because the amount is not rounded 
to the nearest whole dollar, and requested that the Bureau amend the 
sample form to correctly reflect the disclosure requirements.
    For the reasons discussed below, the Bureau is finalizing the 
technical revision to Sec.  1026.38(i)(8)(i) as proposed. The Bureau 
concludes that this technical revision is necessary. In response to the 
commenter's assertion that the disclosure of -$1,035.04 in sample form 
H-25(B) is in violation of Sec.  1026.38(i)(8)(i), the Bureau 
disagrees. On sample form H-25(B), -$1,035.04 is disclosed under the 
subheading ``Final'' pursuant to Sec.  1026.38(i)(8)(ii), not Sec.  
1026.38(i)(8)(i). The amount disclosed under Sec.  1026.38(i)(8)(i) is 
the amount

[[Page 37739]]

disclosed on the Loan Estimate under Sec.  1026.37(h)(1)(vii), and that 
amount is the amount required to be rounded to the nearest whole dollar 
in accordance with Sec.  1026.37(o)(4)(i)(A).
38(i)(8)(ii)
    Section 1026.38(i)(8)(ii) provides that the amount disclosed under 
the subheading ``Final'' is the total of the amounts due from the 
borrower disclosed on the Closing Disclosure under Sec.  
1026.38(j)(1)(iii) and (v) through (x), reduced by the amounts already 
paid by or on behalf of the borrower disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(2)(vi) through (xi). However, because 
amounts disclosed under Sec.  1026.38(j)(1)(iii) and (v) may have 
already been factored into calculations for prior components of the 
calculating cash to close table, thereby being counted twice, the 
Bureau proposed to revise Sec.  1026.38(i)(8)(ii) to clarify that, when 
amounts disclosed on the Closing Disclosure under Sec.  
1026.38(j)(1)(iii) or adjustments disclosed on the Closing Disclosure 
under Sec.  1026.38(j)(1)(v) are accounted for in the calculations for 
Sec.  1026.38(i)(4) or (6) as existing debt being satisfied in the 
transaction, as provided by proposed revisions to those paragraphs, 
they are not also counted in the adjustments and other credits 
calculation. The Bureau also proposed a technical revision to comment 
38(i)(8)(ii)-1, which incorrectly references Sec.  1026.37(h)(7) 
instead of Sec.  1026.37(h)(1)(vii). The Bureau did not receive 
comments on these proposals. The Bureau is finalizing the amendments to 
Sec.  1026.38(i)(8)(ii) with a minor technical revision and finalizing 
comment 38(i)(8)(ii)-1 as proposed. The Bureau continues to believe 
that, in order to arrive at a more accurate cash to close amount, it is 
necessary to prevent amounts disclosed under Sec.  1026.38(j)(1)(iii) 
and (v) from being counted twice in the calculating cash to close table 
calculations.
38(i)(8)(iii)
    The Bureau proposed to revise Sec.  1026.38(i)(8)(iii)(A) to 
conform to proposed revisions to Sec.  1026.38(i)(8)(ii). As discussed 
in the section-by-section analysis of Sec.  1026.38(i)(8)(ii) above, 
the Bureau is finalizing the exclusion of the amounts disclosed under 
Sec.  1026.38(j)(1)(iii) or (v) that are accounted for in the 
calculations for Sec.  1026.38(i)(4) or (6) as existing debt being 
satisfied in the transaction from the calculation of adjustments and 
other credits under Sec.  1026.38(i)(8)(ii). The Bureau did not receive 
comments on this proposed amendment. Because the proposed amendment to 
Sec.  1026.38(i)(8)(iii)(A) is necessary to conform to final Sec.  
1026.38(i)(8)(ii), the Bureau is adopting the amendment to Sec.  
1026.38(i)(8)(iii)(A) as proposed.
38(j) Summary of Borrower's Transaction
    Comment 38(j)-3 clarifies that certain amounts disclosed under 
Sec.  1026.38(j) are the same as the amounts disclosed under 
corresponding provisions identified in Sec.  1026.38(k). The Bureau 
proposed to revise comment 38(j)-3 to conform to the proposed revisions 
to Sec.  1026.38(j)(2)(vi).
    The Bureau did not receive any comments on its proposed amendments 
to comment 38(j)-3. However, the Bureau has decided not to finalize the 
proposed revision to comment 38(j)-3 that certain amounts disclosed 
under Sec.  1026.38(j)(2)(vi) and (k)(2)(viii) are identical if the 
amount disclosed under Sec.  1026.38(j)(2)(vi) is attributable to 
contractual adjustments between the consumer and the seller. Instead 
the Bureau finalizing comment 38(j)(2)(vi)-6 to cross-reference Sec.  
1026.38(k)(2)(viii), which requires disclosure of a description and 
amount of any and all other obligations required to be paid by the 
seller at the real estate closing.
    For the reasons discussed in this section, the Bureau is revising 
comment 38(j)-3 for consistency with new comment 38(k)(2)(vii)-1. As 
discussed in the section-by-section analysis of Sec.  1026.38(k)(2), 
the Bureau is adding comment 38(k)(2)(vii)-1 to explain that if the 
simultaneous subordinate financing purchase transaction is disclosed 
using the alternative tables pursuant to Sec.  1026.38(d)(2) and (e), 
the first-lien Closing Disclosure must include, in the summaries of 
transactions table for the seller's transaction under Sec.  
1026.38(k)(2)(vii), any contributions toward the simultaneous 
subordinate financing from the seller that are disclosed in the payoffs 
and payments table under Sec.  1026.38(t)(5)(vii)(B) on the 
simultaneous subordinate financing Closing Disclosure. As a result, 
amounts disclosed under Sec.  1026.38(j)(2)(v) and (k)(2)(vii) will not 
be identical. The amount disclosed under Sec.  1026.38(j)(2)(v) will 
reflect the lump sum seller credit on the first-lien Closing 
Disclosure, whereas the amount disclosed under Sec.  1026.38(k)(2)(vii) 
will reflect the lump sum seller credits on the first-lien Closing 
Disclosure and the simultaneous subordinate financing Closing 
Disclosure, when the alternative tables are used for the simultaneous 
subordinate financing. Therefore, the Bureau is amending comment 38(j)-
3 to provide that the amounts disclosed under Sec.  1026.38(j)(2)(v) 
and (k)(2)(vii) will be identical unless seller contributions toward a 
simultaneous subordinate financing transaction are disclosed under 
Sec.  1026.38(t)(5)(vii)(B) on the simultaneous subordinate financing 
Closing Disclosure and Sec.  1026.38(k)(2)(vii) on the first-lien 
Closing Disclosure.
38(j)(1) Itemization of Amounts Due From Borrower
38(j)(1)(ii)
    In purchase transactions where there is a seller, the contract 
sales price is disclosed under Sec.  1026.38(j)(1)(ii), in addition to 
Sec.  1026.38(a)(3)(vii)(A). To conform with proposed amendments to the 
commentary of Sec.  1026.37(h)(1) regarding the use of the sale price 
in the calculating cash to close table calculations on the simultaneous 
subordinate financing Loan Estimate as discussed above, the Bureau 
proposed to revise comment 38(j)(1)(ii)-1. As revised, comment 
38(j)(1)(ii)-1 would have clarified that the sale price would not be 
disclosed under Sec.  1026.38(j)(1)(ii) on the simultaneous subordinate 
financing Closing Disclosure.
    The Bureau did not receive comments specific to the proposed 
conforming amendments to comment 38(j)(1)(ii)-1. As discussed in the 
section-by-section analysis of Sec.  1026.37(h)(1), the Bureau is 
finalizing the proposal regarding the use of the sale price in the 
calculating cash to close table calculations on the simultaneous 
subordinate financing Loan Estimate. For these reasons, the Bureau is 
finalizing the corresponding amendments to comment 38(j)(1)(ii)-1 as 
proposed.
38(j)(1)(v)
    Section 1026.38(j)(1)(v) requires the creditor to provide a 
description and the amount of any additional seller-paid items that are 
reimbursed by the consumer at the real estate closing. It also requires 
a description and the amount of any other items owed by the consumer 
not otherwise disclosed under Sec.  1026.38(f), (g), or (j). Comment 
38(j)(1)(v)-1 provides examples of amounts disclosed under Sec.  
1026.38(j)(1)(v), which include contractual adjustments not disclosed 
elsewhere under Sec.  1026.38(j). The Bureau proposed to revise comment 
38(j)(1)(v)-1 to clarify that the amounts disclosed under this 
provision can include amounts owed to the seller but payable to the 
consumer after the real estate closing, providing the following as 
examples: Any balance in the seller's reserve account held in 
connection with

[[Page 37740]]

an existing loan, if assigned to the consumer in a loan assumption; any 
rent the consumer would collect after closing for a time period prior 
to closing; and any tenant security deposit. Proposed comment 
38(j)(1)(v)-1 also provides that the amounts owed to the seller but 
payable to the consumer after the real estate closing would be listed 
under the heading ``Adjustments.'' In addition, the Bureau proposed to 
revise comment 38(j)(1)(v)-2 to conform to the proposed revisions to 
comment 38(g)(4)-1. As discussed in the section-by-section analysis of 
Sec.  1026.38(g)(4) above, the Bureau proposed to require the 
disclosure of the payoff of existing liens secured by the property 
identified in Sec.  1026.38(a)(3)(vi) under the heading ``H. Other'' of 
the other costs table on the Closing Disclosure. The Bureau therefore 
proposed to revise comment 38(j)(1)(v)-2 to conform to the proposed 
amendments to comment 38(g)(4)-1.
    For the reasons discussed in this section, the Bureau is adopting 
comment 38(j)(1)(v)-1 as proposed, is not adopting the proposed 
amendments to comment 38(j)(1)(v)-2 but is otherwise revising the 
comment, and is adding comment 38(j)(1)(v)-3. The Bureau did not 
receive comments regarding proposed amendments to comment 38(j)(1)(v)-1 
or -2.
    The Bureau is not adopting the proposed amendments to comment 
38(j)(1)(v)-2. As discussed in the section-by-section analyses of 
Sec. Sec.  1026.37(g)(4) and 1026.38(g)(4), the Bureau is not 
finalizing the proposal that would have required certain costs and 
payoffs, including construction costs, the payoff of existing liens 
secured by the property and other secured or unsecured debt, to be 
disclosed on the Loan Estimate and Closing Disclosure as closing costs. 
That proposal, if finalized, would have made the disclosure of these 
costs and payoffs under Sec.  1026.38(j)(1)(v) impermissible. Because 
the Bureau is not finalizing the proposed amendments to comment 
38(g)(4)-1, the Bureau is also not finalizing the proposed conforming 
revision in comment 38(j)(1)(v)-2.
    Because the Loan Estimate does not have a disclosure comparable to 
that in the summaries of transactions table under Sec.  
1026.38(j)(1)(v), amounts that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(v) will be disclosed on the Loan 
Estimate in one of two ways. In transactions subject to Sec.  
1026.37(h)(1)(iii)(A)(2) and (B), a creditor factors amounts that will 
be disclosed under Sec.  1026.38(j)(1)(v), such as those paid to any 
holders of existing liens on the property in a refinance transaction, 
construction costs in connection with the transaction that the consumer 
will be obligated to pay, and payoffs of other secured or unsecured 
debt, into the funds for borrower calculations under Sec.  
1026.37(h)(1)(v) on the Loan Estimate. Because these amounts will be 
disclosed under Sec.  1026.38(j)(1)(v) on the Closing Disclosure, they 
are included in existing debt that is factored into the funds for 
borrower calculation under Sec.  [deg]1026.37(h)(1)(v). Comment 
37(h)(1)(v)-2 explains that the total amount of all existing debt being 
satisfied in the transaction that is used in the funds for borrower 
calculation is the sum of the amounts that will be disclosed on the 
Closing Disclosure in the summaries of transactions table under Sec.  
1026.38(j)(1)(ii), (iii), and (v), as applicable. However, in 
transactions subject to Sec.  1026.37(h)(1)(iii)(A)(1), payoffs of 
other secured or unsecured debt that will be disclosed under Sec.  
1026.38(j)(1)(v) are factored into the adjustments and other credits 
calculation under Sec.  [deg]1026.37(h)(1)(vii) on the Loan Estimate.
    The Bureau is, however, revising current comment 38(j)(1)(v)-2 to 
add construction costs in connection with the transaction that the 
consumer will be obligated to pay, payoff of other secured or unsecured 
debt, and principal reductions as examples of amounts that will not 
have a corresponding credit in the summary of the seller's transaction 
under Sec.  1026.38(k)(1)(iv) and to cross-reference to comment 38-4 
for an explanation of how to disclose a principal reduction under Sec.  
1026.38(j)(1)(v). As discussed in the section-by-section analysis of 
Sec.  1026.38 pertaining to comment 38-4 above, industry commenters 
requested additional clarity regarding where in the summaries of 
transactions table the principal reduction disclosure is to be made, 
since Sec.  1026.38(j)(4)(i) contains the requirement to disclose costs 
that are not paid from closing funds but would otherwise be disclosed 
pursuant to Sec.  1026.38(j) marked with the phrase ``Paid Outside of 
Closing'' or ``P.O.C.,'' but does not provide a specific location for 
the principal reduction disclosure. The commenters suggested that the 
appropriate location within the summaries of transactions table is 
under Sec.  1026.38(j)(1)(v). The Bureau intended for a principal 
reduction to be disclosed under Sec.  1026.38(j)(1)(v) in the summaries 
of transactions table and is revising comment 38-4 to, among other 
things, specifically reference Sec.  1026.38(j)(1)(v). As a result, the 
Bureau is including a corresponding amendment to comment 38(j)(1)(v)-2. 
Final comment 38(j)(1)(v)-2 cross-references comment 38-4 for an 
explanation of how to disclose a principal reduction under Sec.  
1026.38(j)(1)(v).
    The Bureau is adding comment 38(j)(1)(v)-3 to permit creditors to 
include the proceeds of the subordinate financing applied to the first-
lien transaction in the summaries of transactions table on the 
simultaneous subordinate financing Closing Disclosure. Commenters 
asked, in the context of the alternative disclosures, how creditors 
would show the proceeds being applied to the first-lien on the 
alternative disclosures. The commenters asserted that most creditors 
prefer that the simultaneous subordinate financing Loan Estimate and 
Closing Disclosure include a disclosure of the amount of loan proceeds 
that will be applied to the first-lien loan, and asked the Bureau to 
permit this common practice. In the proposal, the Bureau noted that the 
funds that are provided to the consumer from the proceeds of 
subordinate financing and that will be applied to the first-lien 
transaction would not be included on the simultaneous subordinate 
financing Loan Estimate or Closing Disclosure. As a result, the cash to 
close amount disclosed under Sec. Sec.  1026.37(h)(1)(viii) and 
1026.38(i)(9) would have represented the loan proceeds as ``cash out'' 
to the borrower. The Bureau understands from the comments that a common 
industry practice may be instead to include the loan proceeds from the 
simultaneous subordinate financing as an adjustment on the Loan 
Estimate and Closing Disclosure for the simultaneous subordinate 
financing transaction, which is inconsistent with the Bureau's 
proposal. The Bureau is addressing these comments related to the 
alternative disclosures in the section-by-section analyses of 
Sec. Sec.  1026.37(h)(2)(iii) and 1026.38(t)(5)(v), but also finds it 
appropriate to address these comments in the context of the standard 
disclosures because simultaneous subordinate financing may be disclosed 
using the standard disclosures.
    The Bureau believes that consumers may benefit from allowing 
creditors to continue this apparently common practice. This practice 
may help consumers better understand the simultaneous subordinate 
financing transaction and its relation to the first-lien loan. It 
provides a way for the simultaneous subordinate financing Loan Estimate 
and Closing Disclosure to include a disclosure of the amount of 
proceeds that will be applied to the first-lien loan. Because, under 
this practice, the cash to close amount

[[Page 37741]]

disclosed under Sec. Sec.  1026.37(h)(1)(viii) and 1026.38(i)(9) would 
not include the subordinate loan proceeds, the cash to close amount may 
better represent to consumers the cash, if any, they will owe or 
receive from the subordinate-lien loan that will not be applied 
directly to the first-lien loan.
    Therefore, the Bureau is adding new comment 38(j)(1)(v)-3 to permit 
creditors to include the proceeds of the subordinate financing applied 
to the first-lien transaction in the summaries of transactions table on 
the simultaneous subordinate financing Closing Disclosure. As explained 
in the discussion of comment 38(j)(1)(v)-2 above, amounts that will be 
disclosed under Sec.  1026.38(j)(1)(v) on the Closing Disclosure are 
factored into the Loan Estimate in one of two ways. In transactions 
subject to Sec.  1026.37(h)(1)(iii)(A)(2) and (B), a creditor factors 
amounts that will be disclosed under Sec.  1026.38(j)(1)(v) into the 
funds for borrower calculations under Sec.  1026.37(h)(1)(v). Comment 
37(h)(1)(v)-2 explains that the total amount of all existing debt being 
satisfied in the transaction that is used in the funds for borrower 
calculation is the sum of the amounts that will be disclosed on the 
Closing Disclosure in the summaries of transactions table under Sec.  
1026.38(j)(1)(ii), (iii), and (v), as applicable. However, in 
transactions subject to Sec.  1026.37(h)(1)(iii)(A)(1), a creditor 
factors amounts that will be disclosed under Sec.  1026.38(j)(1)(v) 
into the adjustments and other credits calculation under Sec.  
1026.37(h)(1)(vii). The Bureau is making related amendments in 
commentary to Sec. Sec.  1026.37(h)(2)(iii) and 1026.38(t)(5)(vii)(B).
38(j)(2) Itemization of Amounts Already Paid by or on Behalf of 
Borrower
38(j)(2)(vi)
    Section 1026.38(j)(2)(vi) provides for the disclosure of ``Other 
Credits'' and ``Adjustments'' in the summary of the borrower's 
transaction table. Comment 38(j)(2)(vi)-2 clarifies that any 
subordinate financing proceeds not otherwise disclosed under Sec.  
1026.38(j)(2)(iii) or (iv) must be disclosed under Sec.  
1026.38(j)(2)(vi). Comment 38(j)(2)(vi)-5 clarifies that under Sec.  
1026.38(j)(2)(vi), a credit must be disclosed for any money or other 
payments made by family members or third parties, not otherwise 
associated with the transaction, along with a description of the nature 
of the funds. The Bureau proposed to revise Sec.  1026.38(j)(2)(vi) to 
explain what items should be disclosed under the heading 
``Adjustments.'' Amounts due from the seller to the consumer, under the 
purchase and sale agreement, would be disclosed under the 
``Adjustments'' heading. The Bureau proposed to revise comment 
38(j)(2)(vi)-2 to clarify that subordinate financing proceeds are 
disclosed pursuant to Sec.  1026.38(j)(2)(vi) on the first-lien 
transaction Closing Disclosure and to revise comment 38(j)(2)(vi)-5 to 
clarify that amounts provided in advance of the real estate closing to 
consumers by third parties, including family members, not otherwise 
associated with the transaction, are not required to be disclosed under 
Sec.  1026.38(j)(2)(vi). The Bureau also proposed to add new comment 
38(j)(2)(vi)-6 to provide an example of an amount that would be 
disclosed under the heading ``Adjustments.'' Having received no 
comments on the proposed revision to Sec.  1026.38(j)(2)(vi) or the 
proposal to add new comment 38(j)(2)(vi)-6, the Bureau is finalizing 
Sec.  1026.38(j)(2)(vi) as proposed and finalizing new comment 
38(j)(2)(vi)-6 as proposed with a revision that adds a cross-reference 
to Sec.  1026.38(k)(2)(viii), which requires disclosure of a 
description and amount of any and all other obligations required to be 
paid by the seller at the real estate closing. For the reasons 
discussed below, the Bureau is adopting as proposed the amendments to 
comments 38(j)(2)(vi)-2 and -5.
    A mortgage company supported the proposed amendments to comment 
38(j)(2)(vi)-2 to clarify that the proceeds of simultaneous subordinate 
financing are disclosed on the first-lien Closing Disclosure. The 
commenter asserted that this, accompanied by other proposed revisions, 
will enable creditors to provide a more accurate cash to close amount 
to consumers. The Bureau concludes that this clarification is necessary 
for accurate disclosure on the first-lien Closing Disclosure, and is 
therefore adopting the revisions to comment 38(j)(2)(vi)-2 as proposed.
    One compliance professional supported the proposed amendments to 
comment 38(j)(2)(vi)-5 to clarify that amounts provided in advance of 
the real estate closing to consumers by third parties, including family 
members, not otherwise associated with the transaction, are not 
required to be disclosed under Sec.  1026.38(j)(2)(vi). One industry 
commenter raised concerns about the proposed change because at the time 
of disclosure, it is typically not evident if the borrower will receive 
gift funds before or at consummation.
    The Bureau is adopting the amendments to comment 38(j)(2)(vi)-5 as 
proposed. The Bureau does not believe that additional clarification is 
needed for a scenario in which the creditor does not know at the time 
disclosures are given whether a borrower will receive gift funds before 
or at consummation. The Bureau notes that current comment 19(f)(1)(i)-2 
provides that creditors may estimate disclosures provided under Sec.  
1026.19(f)(1)(ii)(A) and (2)(ii) using the best information reasonably 
available when the actual term is unknown to the creditor at the time 
disclosures are made, consistent with Sec.  1026.17(c)(2)(i).
38(j)(2)(xi)
    Comment 38(j)(2)(xi)-1 clarifies that the amounts disclosed under 
Sec.  1026.38(j)(2)(xi) are for other items not paid by the seller, 
such as utilities used by the seller, rent collected in advance by the 
seller from a tenant for a period extending beyond the closing date, 
and interest on loan assumptions. The Bureau is proposing to remove the 
example of rent collected in advance by the seller from a tenant for a 
period extending beyond the closing date from comment 38(j)(2)(xi)-1. 
Proposed comment 38(j)(2)(vi)-6 adds that example as an item to be 
disclosed under the heading ``Adjustments.'' The Bureau did not receive 
comments regarding the proposed change to comment 38(j)(2)(xi)-1. For 
the reasons stated above the Bureau is finalizing as proposed comment 
38(j)(2)(xi)-1.
38(j)(4) Items Paid Outside of Closing Funds
38(j)(4)(i)
    Section 1026.38(j)(4)(i) requires that any charges not paid from 
closing funds but that otherwise are disclosed under Sec.  1026.38(j) 
be marked as ``Paid Outside of Closing'' or ``P.O.C.'' Comment 
38(j)(4)(i)-1 explains that the disclosure must include a statement of 
the party making the payment, such as the consumer, seller, loan 
originator, real estate agent, or any other person and cites to an 
example on form H-25(D) of appendix H of part 1026. The Bureau proposed 
to add comment 38-4 which would have provided that when contractual or 
other legal obligations of the creditor, such as the requirements of a 
government loan program or the purchase criteria of an investor, 
prevent the creditor from refunding cash to the consumer as lender 
credits, a principal curtailment may be used to provide a refund under 
Sec.  1026.19(f)(2)(v). The Bureau proposed to revise comment 
38(j)(4)(i)-1 to provide a cross-reference to comment 38-4 for an 
explanation of how to disclose a principal curtailment to provide a 
refund under

[[Page 37742]]

Sec.  1026.19(f)(2)(v). The Bureau also proposed to clarify that ``a 
statement of the party making the payment'' means the disclosure must 
identify the party making the payment.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.38 pertaining to comment 38-4 above, industry commenters 
requested that the Bureau permit the use of principal curtailments for 
situations other than when a creditor is providing a credit for a 
tolerance refund and requested additional clarity regarding where in 
the summaries of transactions table the principal curtailment 
disclosure is to be made, since Sec.  1026.38(j)(4)(i) contains the 
requirement to disclose costs that are not paid from closing funds but 
would otherwise be disclosed pursuant to Sec.  1026.38(j) marked with 
the phrase ``Paid Outside of Closing'' or ``P.O.C.,'' but does not 
provide a specific location for the principal curtailment disclosure. 
In addition, an industry group recommended that the Bureau use the 
phrase ``principal reduction'' instead of ``principal curtailment,'' 
noting that consumers would be more familiar with the recommended 
phrase.
    For the reasons discussed below, the Bureau is adopting as proposed 
the modifications to comment 38(j)(4)(i)-1, with additional revisions 
for conformity with final comment 38-4. The Bureau appreciates the 
suggestion to use the phrase ``principal reduction'' and is revising 
final comment 38(j)(4)(i)-1 accordingly. As discussed in the section-
by-section analysis of Sec.  1026.38 pertaining to comment 38-4 above, 
the Bureau sought to address the particular issue of how to disclose a 
principal reduction that is used to provide a tolerance refund, but did 
not intend to propose to limit the use of principal reductions to 
situations where creditors were required to provide a tolerance refund 
under Sec.  1026.19(f)(2)(v). The Bureau is revising and restructuring 
proposed comment 38-4 to provide clarity on the disclosure of principal 
reductions that are and are not used to provide tolerance refunds. 
Final comment 38-4 discusses the requirement to mark a principal 
reduction with the phrase ``Paid Outside of Closing,'' or the 
abbreviation ``P.O.C.'' pursuant to Sec.  1026.38(j)(4)(i) if it is not 
paid with closing funds. Therefore, the Bureau is amending comment 
38(j)(4)(i)-1 to cross-reference to final comment 38-4 for an 
explanation of how to disclose a principal reduction that is not paid 
from closing funds. The Bureau also explains, in the section-by-section 
analysis of Sec.  1026.38 pertaining to comment 38-4 above, that the 
Bureau intended for a principal reduction to be disclosed in the 
summaries of transactions table under Sec.  1026.38(j)(1)(v). Final 
comment 38-4, among other things, specifically references Sec.  
1026.38(j)(1)(v) instead of Sec.  1026.38(j)(4)(i) for this 
requirement.
38(k) Summary of Seller's Transaction
    Comment 38(k)-1 explains that Sec.  1026.38(k) does not apply in 
transactions where there is no seller, such as a refinance transaction. 
The Bureau proposed to add additional examples of transactions for 
which Sec.  1026.38(k) does not apply in revised comment 38(k)-1, such 
as loans with a construction purpose as defined in Sec.  
1026.37(a)(9)(iii) which also do not have a seller, or for simultaneous 
subordinate financing transactions if the first-lien Closing Disclosure 
records the entirety of the seller's transaction. The Bureau did not 
receive any comments on this specific proposal. The Bureau concludes 
that the additional examples will aid in compliance with the disclosure 
requirements and is therefore finalizing the proposed amendments to 
comment 38(k)-1 with additional revisions to specify that the example 
of simultaneous subordinate financing applies to simultaneous 
subordinate financing transactions with a purchase purpose as defined 
in Sec.  1026.37(a)(9)(i).
38(k)(1) Itemization of Amounts Due to Seller
    Section 1026.38(k)(1) requires a disclosure in the summaries of 
transactions table of the amounts due to the seller at consummation. 
Section 1026.38(k)(1)(ii) requires a disclosure of the amount of the 
contract sales price of the property being sold, excluding the price of 
any tangible personal property if the consumer and seller have agreed 
to a separate price for such items, labeled ``Sale Price of Property.'' 
The Bureau did not propose to amend Sec.  1026.38(k)(1)(ii) or its 
commentary.
    For the reasons discussed below, the Bureau is adding final comment 
38(k)(1)-1 to explain what amounts are disclosed under Sec.  
1026.38(k)(1)(ii) for a simultaneous subordinate financing transaction 
if the first-lien Closing Disclosure does not record the entirety of 
the seller's transaction. As discussed in the section-by-section 
analysis of Sec.  1026.38(k) above, Sec.  1026.38(k) does not apply in 
a simultaneous subordinate financing purchase transaction as defined in 
Sec.  1026.37(a)(9)(i) if the first-lien Closing Disclosure records the 
entirety of the seller's transaction. In addition, when the alternative 
tables are used, the table required to be disclosed by Sec.  1026.38(k) 
may be deleted pursuant to Sec.  1026.38(t)(5)(vii)(C); the alternative 
tables may only be used for the disclosure of simultaneous subordinate 
financing if the first-lien Closing Disclosure records the entirety of 
the seller's transaction.
    The Bureau expects that in most transactions with simultaneous 
subordinate financing for which the alternative tables are not used, 
the first-lien Closing Disclosure will also record the entirety of the 
seller's transaction, and therefore Sec.  1026.38(k) will not apply to 
the simultaneous subordinate financing transaction. However, there may 
be circumstances in which the first-lien Closing Disclosure will not 
record the entirety of the seller's transaction, and therefore Sec.  
1026.38(k) will apply to the simultaneous subordinate financing 
transaction. Therefore, the Bureau is adding comment 38(k)(1)-1 to 
explain that if Sec.  1026.38(k) applies to a simultaneous subordinate 
financing transaction because the first-lien Closing Disclosure does 
not record the entirety of the seller's transaction, Sec.  1026.38(k) 
must be completed based only on the terms and conditions of the 
simultaneous subordinate financing transaction. Comment 38(k)(1)-1 
explains that no contract sales price is disclosed under Sec.  
1026.38(k)(1)(ii) on the Closing Disclosure for the simultaneous 
subordinate financing. This is consistent with the amendment to comment 
38(j)(1)(ii)-1 which explains that on the simultaneous subordinate 
financing Closing Disclosure, no contract sales price is disclosed in 
the summaries of transactions table for the borrower's transaction 
under Sec.  1026.38(j)(1)(ii), and comment 38(j)-3 which provides that 
amounts disclosed under Sec.  1026.38(j)(1)(ii) and (k)(1)(ii) are the 
same.
38(k)(2) Itemization of Amounts Due From Seller
    Section 1026.38(k)(2)(vii) requires a disclosure in the summaries 
of transactions table, under the seller's transaction, of the total 
amount of money that the seller will provide at the real estate closing 
as a lump sum not otherwise itemized to pay for loan costs as 
determined by Sec.  1026.38(f) and other costs as determined by Sec.  
1026.38(g), and any other obligations of the seller to be paid directly 
to the consumer, labeled ``Seller Credit.'' The Bureau did not propose 
to amend Sec.  1026.38(k)(2)(vii) or its commentary.
    For the reasons discussed below, the Bureau is adding final comment 
38(k)(2)(vii)-1. Final comment 38(k)(2)(vii)-1 explains that if a 
simultaneous subordinate financing transaction is disclosed using the

[[Page 37743]]

alternative tables pursuant to Sec.  1026.38(d)(2) and (e), the first-
lien Closing Disclosure must include any contributions from the seller 
toward the simultaneous subordinate financing that are disclosed in the 
payoffs and payments table under Sec.  1026.38(t)(5)(vii)(B) on the 
simultaneous subordinate financing Closing Disclosure. This amendment 
enables the first-lien Closing Disclosure to record the entirety of the 
seller's transaction, which is a requirement of providing the 
alternative disclosures for simultaneous subordinate financing purchase 
transactions. Specifically, final comments 37(d)(2)-1, 37(h)(2)-1, 
38(d)(2)-1, and 38(e)-1, taken together, permit creditors of 
simultaneous subordinate financing purchase transactions to use the 
alternative disclosures only if the first-lien Closing Disclosure will 
record the entirety of the seller's transaction.
    As discussed more fully in the section-by-section analysis of Sec.  
1026.37(d)(2), in response to the proposals to permit the disclosure of 
simultaneous subordinate financing purchase transactions using the 
alternative tables, one commenter questioned which disclosures should 
be used when the optional alternative tables were initially used for 
the simultaneous subordinate financing, but a seller later agrees to 
contribute to the costs of the subordinate financing, making continued 
use of the alternative tables impermissible under the proposal. For the 
reasons discussed in the section-by-section analysis of Sec.  
1026.37(d)(2), the Bureau is directly addressing the commenter's 
concern by adding new comment 38(k)(2)(vii)-1, amending comments 
38(d)(2)-1 and 38(j)-3, and amending proposed new comments 
38(t)(5)(vii)(B)-1 and -2, to require the disclosure of the seller's 
contributions to the subordinate financing, if any, in the payoffs and 
payments table on the simultaneous subordinate financing Closing 
Disclosure and the summaries of transactions table on the first-lien 
Closing Disclosure, when the alternative disclosures are used for the 
simultaneous subordinate financing. As discussed in the section-by-
section analysis of Sec.  1026.38(t)(5)(vii), final comments 
38(t)(5)(vii)(B)-1 and -2.iii explain that if a simultaneous 
subordinate financing transaction is disclosed using the alternative 
tables pursuant to Sec.  1026.38(d)(2) and (e), any contributions from 
the seller toward the simultaneous subordinate financing must be 
disclosed in the payoffs and payments table on the simultaneous 
subordinate financing Closing Disclosure. Final comment 38(k)(2)(vii)-1 
explains that if a simultaneous subordinate financing transaction is 
disclosed with the alternative tables pursuant to Sec.  1026.38(d)(2) 
and (e), the first-lien Closing Disclosure must include, in the 
summaries of transactions table for the seller's transaction under 
Sec.  1026.38(k)(2)(vii), any contributions from the seller toward the 
simultaneous subordinate financing that are disclosed in the payoffs 
and payments table under Sec.  1026.38(t)(5)(vii)(B) on the 
simultaneous subordinate financing Closing Disclosure. The result of 
these amendments, coupled with the amendments to comment 38(j)-3, is 
that the first-lien Closing Disclosure will be able to record the 
entirety of the seller's transaction.
    For example, assume the alternative tables are provided for the 
simultaneous subordinate financing transaction pursuant to Sec.  
1026.38(d)(2) and (e) and the seller contributes $200.00 toward the 
closing costs of the simultaneous subordinate financing. The 
simultaneous subordinate financing Closing Disclosure must include the 
$200.00 contribution in the payoffs and payments table in accordance 
with Sec.  1026.38(t)(5)(vii)(B). The first-lien Closing Disclosure 
must include the $200.00 contribution in the summaries of transactions 
table for the seller's transaction under Sec.  1026.38(k)(2)(vii), 
thereby recording the entirety of the seller's transaction on the 
first-lien Closing Disclosure. For a more detailed discussion of these 
new and revised comments, see the section-by-section analyses of Sec.  
1026.38(d)(2), (j), and (t)(5)(vii).
38(l) Loan Disclosures
38(l)(7) Escrow Account
Mortgage Insurance Premiums
The Bureau's Proposal
    If an escrow account is or will be established, Sec.  
1026.38(l)(7)(i)(A)(1), (2), and (4) require certain disclosures based 
on the tax, insurance, and assessment amounts described in Sec.  
1026.37(c)(4)(ii). Section 1026.37(c)(4)(ii), in turn, includes the 
mortgage-related obligations identified in Sec.  1026.43(b)(8). 
However, Sec.  1026.37(c)(4)(ii) specifically excludes amounts for 
mortgage insurance identified in Sec.  1026.4(b)(5) (because amounts 
for mortgage insurance are already disclosed in the projected payments 
table under Sec.  1026.37(c)(2)(ii)). The Bureau proposed to amend 
Sec.  1026.38(l)(7)(i) and comments 38(l)(7)(i)(A)(2)-1 and 
38(l)(7)(i)(A)(4)-1 to permit disclosure of amounts for ongoing 
mortgage insurance premiums.
Comments Received
    Several commenters, including creditors and vendors, supported the 
proposed amendments to Sec.  1026.38(l)(7)(i) and associated commentary 
to permit disclosure of amounts for ongoing mortgage insurance 
premiums. Vendors stated that such amendments are necessary both for 
consumer understanding and for facilitating industry compliance. A 
creditor noted that, by permitting disclosure of amounts for ongoing 
mortgage insurance premiums, the proposed amendments to Sec.  
1026.38(l)(7)(i) and associated commentary are consistent with current 
Sec.  1026.38(g)(3), which cross-references Sec.  1026.37(g)(3) and 
requires disclosure of the amount to be paid into the escrow account 
for mortgage insurance premiums at consummation.
    However, some industry commenters opposed the proposed amendments 
to Sec.  1026.38(l)(7)(i) and associated commentary to permit 
disclosure of amounts for ongoing mortgage insurance premiums. Trade 
association commenters stated that such amendments regarding the 
disclosures on page 4 of the Closing Disclosure are inconsistent with 
the estimated escrow payment disclosed on page 1 of the Closing 
Disclosure, which excludes amounts for mortgage insurance. A trade 
association and a vendor asserted that, while various labels on page 4 
of the Closing Disclosure use the phrase ``property costs,'' mortgage 
insurance premiums are not a property cost and the Bureau should not 
finalize the proposed amendments without testing for potential consumer 
confusion.
    A trade association requested that, if the Bureau finalizes the 
proposed amendments to permit disclosure of amounts for ongoing 
mortgage insurance premiums, such disclosure should include only 
mortgage insurance premiums that are included in the escrow account 
analysis prescribed under Regulation X, 12 CFR 1024.17. A vendor group 
requested clarification regarding escrow account disclosures and space 
limitations on page 4 of the Closing Disclosure form. Vendors also 
requested that the Bureau amend Sec.  1026.38(l)(7)(i) to require 
disclosure of all amounts paid into an escrow account, regardless of 
whether the consumer is required to make such payment or, rather, opts 
to do so.
    Regarding implementation costs, a vendor commented that the 
proposed amendments to permit disclosure of

[[Page 37744]]

amounts for ongoing mortgage insurance premiums would require 
significant reprogramming. A vendor group noted that the amendments are 
consistent with informal guidance previously provided by the Bureau to 
some vendors but the amendments would require substantial changes for 
others. The vendor group stated that the proposed amendments would 
eliminate industry uncertainty. Regarding an implementation period for 
the various amendments to Sec.  1026.38(l)(7) and associated 
commentary, including new comments 38(l)(7)(i)(A)(2)-2 and 
38(l)(7)(i)(A)(5)-1 discussed below, the vendor group stated that 
reprogramming could take up to nine months for some vendors and a 
creditor recommended a six-month implementation period.
The Final Rule
    For the reasons discussed below, the Bureau is adopting Sec.  
1026.38(l)(7)(i) and comments 38(l)(7)(i)(A)(2)-1 and 
38(l)(7)(i)(A)(4)-1 as proposed and, in part in response to commenters' 
concerns, is also adding new comments 38(l)(7)-1 and -2. After 
considering the commenter's concern that the amendments should align 
with Regulation X, 12 CFR 1024.17, and consistent with current comment 
38(g)(3)-5, new comment 38(l)(7)-1 cross-references the definition of 
``escrow account'' in 12 CFR 1024.17(b) to provide a description of an 
escrow account for purposes of the escrow account disclosure under 
Sec.  1026.38(l)(7). After considering the commenter's concern 
regarding space limitations on page 4 of the Closing Disclosure form, 
and consistent with current comment 38(j)-2, new comment 38(l)(7)-2 
cross-references Sec.  1026.38(t)(5)(ix) and provides that additional 
pages may be attached to the Closing Disclosure to add lines, as 
necessary, to accommodate the complete listing of all items required to 
be shown on the Closing Disclosure under Sec.  1026.38(l)(7), with a 
reference such as ``See attached page for additional information'' 
placed in the applicable section of the Closing Disclosure.
    As to commenters' concerns regarding potential consumer confusion 
as a result of the amendments permitting disclosure of amounts for 
ongoing mortgage insurance premiums, the Bureau notes that such 
disclosure is consistent with current Sec.  1026.38(l)(7)(i)(A)(3), 
which cross-references current Sec.  1026.38(g)(3) and requires 
disclosure of the amount to be paid into the escrow account for 
mortgage insurance premiums at consummation. Regarding commenters' 
concern that permitting disclosure of amounts for ongoing mortgage 
insurance premiums on page 4 of the Closing Disclosure is inconsistent 
with the estimated escrow payment disclosed on page 1 of the Closing 
Disclosure, the Bureau concludes that such disclosures are not 
inconsistent because the estimated escrow payment on page 1 is 
disclosed adjacent to the mortgage insurance premium. Regarding 
commenters' assertion that mortgage insurance premiums should not be 
labeled ``property costs'' without testing for potential consumer 
confusion, the Bureau notes that current Sec.  1026.38(l)(7)(i) already 
requires certain disclosures, labeled ``property costs,'' based on the 
amounts described in Sec.  1026.37(c)(4)(ii). Section 
1026.37(c)(4)(ii), in turn, cross-references the mortgage-related 
obligations identified in Sec.  1026.43(b)(8) and includes, among other 
costs, premiums for credit life, accident, health, or loss-of-income 
insurance that are written in connection with a credit transaction if 
such premiums are required by the creditor. Similarly, the Bureau 
concludes it is appropriate to include mortgage insurance premiums as 
part of such ``property costs'' disclosures and additional consumer 
testing is not necessary in this instance. With respect to the comments 
requesting that the Bureau amend Sec.  1026.38(l)(7)(i) to disclose 
amounts that a consumer optionally pays into an escrow account, the 
Bureau notes that, consistent with the model language on page 4 of the 
Closing Disclosure form and TILA section 129D(h)(2), (3), and (4), 
creditors may disclose amounts a consumer pays into an escrow account 
if consistent with the terms of the legal obligation between the 
creditor and consumer.
    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.
The First Year
The Bureau's Proposal
    Section 1026.38(l)(7) provides for various disclosures based on 
payments during the first year after consummation. Specifically, Sec.  
1026.38(l)(7)(i)(A)(4) requires disclosure of the amount the consumer 
will be required to pay into the escrow account with each periodic 
payment during the first year after consummation. Section 
1026.38(l)(7)(i)(A)(1) requires a disclosure, labeled ``Escrowed 
Property Costs over Year 1,'' calculated as the amount disclosed under 
Sec.  1026.38(l)(7)(i)(A)(4) multiplied by the number of periodic 
payments scheduled to be made to the escrow account during the first 
year after consummation. Depending on the payment schedule dictated by 
the legal obligation, sometimes fewer than 12 periodic payments will be 
made to the escrow account during the first year after consummation--in 
which case creditors may comply with Sec.  1026.38(l)(7)(i)(A)(1) and 
(4) by basing such disclosures on less than 12 periodic payments. 
Alternatively, Sec.  1026.38(l)(7)(i)(A)(5) provides that a creditor 
may comply with Sec.  1026.38(l)(7)(i)(A)(1) and (4) by basing the 
disclosures on amounts derived from the escrow account analysis 
required under Regulation X, 12 CFR 1024.17. To clarify the alternative 
means by which creditors may comply with Sec.  1026.38(l)(7)(i)(A)(1) 
and (4), the Bureau proposed to add new comment 38(l)(7)(i)(A)(5)-1.
    Current Sec.  1026.38(l)(7)(i)(A)(2) requires a disclosure of 
certain charges, labeled ``Non-Escrowed Property Costs over Year 1,'' 
that the consumer is likely to pay during the first year after 
consummation but without using escrow account funds. The Bureau 
proposed to add new comment 38(l)(7)(i)(A)(2)-2 so that, if the 
creditor elects to make the disclosures required by Sec.  
[thinsp]1026.38(l)(7)(i)(A)(1) and (l)(7)(i)(A)(4) based on amounts 
derived from the escrow account analysis required under Regulation X, 
12 CFR 1024.17, the creditor may make the disclosures required by Sec.  
1026.38(l)(7)(i)(A)(2) based on a 12-month period beginning with the 
borrower's initial payment date (rather than beginning with 
consummation).
Comments Received
    Several commenters, including vendors, a creditor, a trade 
association, and an individual compliance consultant, generally 
supported proposed comments 38(l)(7)(i)(A)(2)-2 and 38(l)(7)(i)(A)(5)-1 
to provide creditors with flexibility as to the means by which they may 
comply with Sec.  1026.38(l)(7)(i)(A)(1), (2), and (4). However, 
several commenters, including creditors, trade associations, and a 
vendor, requested that the Bureau require such disclosures to be based 
on a 12-month period beginning with the borrower's initial payment date 
(and not permit creditors the alternative option of a 12-month period 
beginning with consummation). Another vendor did not specify a 
preference between either disclosure timeframe, but nonetheless

[[Page 37745]]

requested that the Bureau adopt a single, mandatory timeframe, rather 
than allowing creditors flexibility to choose among the alternatives. A 
vendor, a creditor, and a trade association asserted that disclosing on 
a 12-month period beginning with the borrower's initial payment date is 
better for consumer understanding. The vendor also stated that allowing 
creditors to choose among alternative options could conflict with 
secondary market investors' preferences.
The Final Rule
    For the reasons discussed below, the Bureau is adopting comments 
38(l)(7)(i)(A)(2)-2 and 38(l)(7)(i)(A)(5)-1 as proposed. The Bureau 
concludes that allowing creditors the flexibility of choosing among 
alternative disclosure options will facilitate compliance. As to 
commenters' assertion that disclosing on a 12-month period beginning 
with the borrower's initial payment date is better for consumer 
understanding than a 12-month period beginning with consummation, the 
Bureau notes that the model language on page 4 of the Closing 
Disclosure form simply uses the phrase ``over Year 1'' and the Bureau 
believes either option supports consumer understanding. The Bureau does 
not believe any benefits to disclosing on a 12-month period beginning 
with the borrower's initial payment date would warrant limiting 
flexibility for facilitating compliance here. Regarding commenters' 
concern that allowing creditors to choose among alternative options 
could conflict with secondary market investors' preferences, among the 
alternative options provided by comments 38(l)(7)(i)(A)(2)-2 and 
38(l)(7)(i)(A)(5)-1, nothing in the rule prohibits a creditor from 
choosing the option that an investor prefers or requires.
    In response to comments regarding the effective date and 
implementation period, as discussed in part VI below, the rule will be 
effective 60 days from publication in the Federal Register, but there 
will be an optional compliance period in effect until October 1, 2018.
38(l)(7)(i)
38(l)(7)(i)(B)
38(l)(7)(i)(B)(1)
    If an escrow account will not be established, Sec.  
1026.38(l)(7)(i)(B)(1) requires disclosure of the estimated total 
amount, labeled ``Property Costs over Year 1,'' that the consumer will 
pay directly for charges described in Sec.  1026.37(c)(4)(ii) during 
the first year after consummation. As discussed above, Sec.  
1026.37(c)(4)(ii) specifically excludes amounts for mortgage insurance 
identified in Sec.  1026.4(b)(5) (because amounts for mortgage 
insurance are already disclosed in the projected payments table under 
Sec.  1026.37(c)(2)(ii)). The Bureau proposed to amend Sec.  
1026.38(l)(7)(i)(B)(1) and comment 38(l)(7)(i)(B)(1)-1 to permit 
disclosure of amounts for ongoing mortgage insurance premiums.
    In addition to the comments received regarding Sec.  1026.38(l)(7) 
and associated commentary discussed above, a vendor requested an 
additional revision to proposed Sec.  1026.38(l)(7)(i)(B)(1) or its 
associated commentary that, similar to proposed 38(l)(7)(i)(A)(2)-2, 
would permit creditors to disclose based on a 12-month period beginning 
with the borrower's initial payment date (rather than beginning with 
consummation).
    For the reasons discussed below, the Bureau is adopting Sec.  
1026.38(l)(7)(i)(B)(1) and comment 38(l)(7)(i)(B)(1)-1 as proposed and, 
in part in response to commenters' feedback, is also adding new comment 
38(l)(7)(i)(B)(1)-2. Specifically, new comment 38(l)(7)(i)(B)(1)-2 
provides creditors with an option to make the disclosures required by 
Sec.  1026.38(l)(7)(i)(B)(1) based on a 12-month period beginning with 
the borrower's initial payment date or beginning with consummation. The 
Bureau concludes that allowing creditors the flexibility of choosing 
among alternative disclosure options is consistent with comment 
38(l)(7)(i)(A)(2)-2, as finalized, and will facilitate compliance. 
Moreover, for the reasons discussed above, both as proposed and as 
finalized, Sec.  1026.38(l)(7)(i)(B)(1) and comment 38(l)(7)(i)(B)(1)-1 
permit disclosure of amounts for ongoing mortgage insurance premiums, 
which is consistent with current Sec.  1026.38(l)(7)(i)(A)(3).
38(o) Loan Calculations
38(o)(1) Total of Payments
The Bureau's Proposal
    TILA section 128(a)(5) and (8) requires a creditor to disclose the 
sum of the amount financed and the finance charge, using the term 
``Total of Payments,'' and a descriptive explanation of that term.\89\ 
In the TILA-RESPA Final Rule, to promote consumer understanding, the 
Bureau adopted a modified definition of total of payments that differs 
from the statutory definition under TILA section 128(a)(5). Section 
1026.38(o)(1) defines the total of payments, for purposes of the 
Closing Disclosure, as the total the consumer will have paid after 
making all payments of principal, interest, mortgage insurance, and 
loan costs, as scheduled. The Bureau proposed to adopt tolerances for 
the total of payments that parallel the statutory tolerances for the 
finance charge and disclosures affected by the finance charge because, 
historically, the total of payments has been understood to be a 
disclosure affected by the finance charge and therefore subject to its 
tolerances. The Bureau also proposed conforming revisions to Sec.  
1026.23(g) and (h)(2) as discussed in the section-by-section analyses 
of those provisions above. For the reasons discussed below, the Bureau 
adopts the revisions to Sec.  1026.38(o)(1) as proposed.
---------------------------------------------------------------------------

    \89\ 15 U.S.C. 1638(a)(5), (8). For transactions subject to 
Sec.  1026.19(e) and (f), Sec.  1026.38(o)(1) implements this 
disclosure requirement.
---------------------------------------------------------------------------

Comments Received
    The Bureau received several comments from industry that were 
generally supportive of the proposal to adopt tolerances for the total 
of payments that parallel the statutory tolerances for the finance 
charge and disclosures affected by the finance charge. A number of 
creditors stated that they support the proposed change and believe that 
it would provide clarity to both consumers and creditors. Several trade 
groups similarly supported the addition of tolerances for the total of 
payments, with one stating that it believes the approach proposed will 
positively impact secondary market execution by affording investors 
comfort that minor inaccuracies do not raise liability concerns. One 
commenter stated that this proposed change by the Bureau represented a 
good example of a flexible approach that balances consumer protection 
and accurate disclosure of loan terms and costs with the practical 
challenges faced by creditors and investors. A group of vendor 
commenters agreed that the addition of tolerances for the total of 
payments is a necessary and desirable change. One specific vendor 
commented that these clarifications would assist industry in complying 
with the rule, provide for more uniform data for transactions subject 
to the rule, and reduce legal risk for creditors and investors.
    Among commenters that generally supported the proposal to adopt 
tolerances for the total of payments, some encouraged the Bureau to go 
further. Two trade groups requested that the Bureau increase the 
tolerance beyond $100. With respect to implementation, a number of 
industry commenters requested that the

[[Page 37746]]

tolerances for the total of payments be effective immediately and, in 
some cases, commenters requested that the tolerances apply 
retroactively to the effective date of the TILA-RESPA Final Rule 
(October 3, 2015).
    Commenters generally supported the proposal to adopt tolerances for 
the total of payments that parallel the statutory tolerances for the 
finance charge and disclosures affected by the finance charge. In 
response to those industry commenters who requested that the Bureau go 
further by adopting a tolerance greater than $100, the Bureau declines 
to do so. The Bureau believes that applying the same tolerances for 
accuracy of the disclosed finance charge and other disclosures affected 
by the disclosed finance charge to the total of payments for purposes 
of the Closing Disclosure promotes consistency with the tolerances in 
effect before the TILA-RESPA Final Rule. The Bureau has determined that 
the tolerances are narrow enough to prevent misleading disclosures or 
disclosures that circumvent the purposes of TILA and are thus 
appropriate pursuant to the Bureau's authority under TILA section 
121(d) to adopt tolerances necessary to facilitate compliance with the 
statute. And with respect to commenters' request that the new tolerance 
for the total of payments be effective immediately or retroactively, 
the Bureau similarly declines this request for the reasons discussed in 
part VI, below, regarding the rule's effective date.
    The Bureau also received comments from industry that questioned the 
proposal to adopt tolerances for the total of payments. One trade group 
stated that there would be significant cost and a lengthy reprogramming 
process for compliance. Another trade group stated that the Bureau's 
proposal to extend a tolerance for the total of payments applies only 
to the extent that the finance charge is accurate and that, therefore, 
the Bureau should extend an additional tolerance to the total of 
payments for errors in loan costs when the finance charge is not 
correct. One industry commenter stated that the proposed amendment 
would be confusing and overly burdensome because it would expand the 
current finance charge tolerance to all components of the total of 
payments. One creditor stated that it considers the proposed tolerance 
limitations for the total of payments redundant and overlapping with 
the APR tolerance limitations and encouraged the Bureau to abandon the 
APR tolerance limitations if the proposed tolerances for the total of 
payments were adopted. An individual commenter opposed the proposal on 
the basis that finance charges are already subject to tolerance and 
adding non-finance charge loan costs to the tolerance test would 
increase creditor liability.
    The existing finance charge tolerance extends to any disclosure 
affected by the finance charge, including the total of payments as long 
as a misdisclosure of the total of payments resulted from a 
misdisclosure of the finance charge. Conversely, under the current 
rule, a misdisclosure of the total of payments that does not result 
from a misdisclosure of the finance charge is not subject to the 
finance charge tolerances. Because the current rule does not provide 
for a tolerance for the total of payments, other than to the extent a 
total of payments misdisclosure results from a misdisclosure of the 
finance charge, under the current rule, any misdisclosure of the total 
of payments that does not result from a misdisclosure of the finance 
charge could potentially subject a creditor to liability.
    Those industry comments that did not support the proposal to adopt 
tolerances for the total of payments seemed to imply that the total of 
payments currently may vary by any amount and that therefore the 
proposal to adopt a tolerance for the total of payments would impose a 
new and undue restriction. To the contrary, however, the adoption of 
tolerances for the total of payments offers a new tolerance that 
applies to the components of the total of payments that were previously 
not permitted to vary by any amount, even if those components are not 
finance charges and therefore would not benefit from the existing 
finance charge tolerance. The adopted tolerances for the total of 
payments apply independently, whether the disclosed finance charge is 
accurate or not. And in neither the TILA-RESPA Final Rule nor the 
proposal did the Bureau make changes or propose to make changes that 
impact the APR tolerance.
    Some industry commenters offered alternatives to the proposal to 
adopt tolerances for the total of payments. One creditor suggested that 
the Bureau either make clear that the new total of payments calculation 
is no longer tied to the finance charge and therefore not subject to 
tolerance; or revert to TILA's definition of the total of payments. 
Another creditor suggested that the Bureau clarify that the amount by 
which the total of payments is understated may be corrected when the 
finance charge understatement is made whole. One trade group suggested 
that when good faith tolerances under Sec.  1026.19(e)(3)(i) and (ii) 
are met for components, including loan costs, of the total of payments 
that the new total of payments tolerance should also be satisfied.
    None of those suggested alternatives would achieve the Bureau's 
goal of adopting tolerances for the total of payments necessary to 
facilitate compliance with TILA. In response to the first creditor's 
set of alternatives, although in the TILA-RESPA Final Rule the Bureau 
modified the total of payments calculation, it is still a disclosure 
affected by any finance charge in that certain loan costs may also be 
finance charges. Additionally, the Bureau did not propose to revise the 
definition of the total of payments in the proposal and continues to 
believe, as stated in the TILA-RESPA Final Rule, that the revised 
definition of the total of payments enhances consumer 
understanding.\90\ The second creditor's suggestion does not recognize 
that the total of payments may be understated for reasons unrelated to 
the finance charge. And the final alternative offered does not 
distinguish between the Sec.  1026.19(e)(3) good faith analysis adopted 
in the TILA-RESPA Final Rule and the separate and independent statutory 
tolerances afforded under TILA.
---------------------------------------------------------------------------

    \90\ See 78 FR 79730, 80038 (Dec. 31, 2013).
---------------------------------------------------------------------------

    A few industry commenters sought clarification of issues related to 
the proposal to adopt tolerances for the total of payments. One trade 
group requested clarification as to whether the proposed tolerances for 
the total of payments change the existing finance charge tolerances. 
Two industry commenters expressed uncertainty about the remedy or cure 
required if the tolerance for the total of payments were exceeded and 
the interaction between the proposed tolerances for the total of 
payments and the existing tolerances for the finance charge and APR. 
One trade group specifically expressed concern that the proposed rule 
does not clearly state that when a violation occurs it can be cured 
with a reimbursement to the consumer. Other industry commenters 
requested information specifically about how to account for financed 
loan costs, stating that including financed loan costs in the total of 
payments calculation would be redundant to the extent such loan costs 
are accounted for in the principal and interest payments.
    To clarify, the new tolerances for the total of payments do not 
change the existing finance charge tolerances or those tolerances that 
apply to the APR. The tolerances for each of these disclosures operates 
independently as explained in new comment 38(o)-1. As to the question 
of the rule addressing

[[Page 37747]]

how a violation may be cured, nothing in the TILA-RESPA Final Rule 
altered the remedies available to creditors for the correction of 
errors under TILA section 130(b). Creditors may employ the statutory 
provisions for correction of errors with respect to the total of 
payments to the same extent today as they could prior to the adoption 
of the TILA-RESPA Final Rule and to the same extent as they will be 
able to after the effective date of this final rule. Section 
1026.38(o)(1) likewise remains that same as to the calculation of the 
total of payments: The total the consumer will have paid after making 
all payments of principal, interest, mortgage insurance, and loan costs 
as scheduled through the end of the loan term. The rule does not offer 
an alternative calculation if the consumer elects to finance loan 
costs. The Bureau declines to adopt commenters' request that the Bureau 
amend the total of payments calculation in the event that loan costs 
are financed because the Bureau did not propose to change and did not 
request comment on amending the underlying calculation for the total of 
payments.
    The Bureau received comments from consumer groups opposing the 
proposal to adopt tolerances for the total of payments that parallel 
the statutory tolerances for the finance charge and disclosures 
affected by the finance charge. The consumer groups stated that the 
proposal would not promote consistency or avoid misleading disclosures 
and that it would dramatically change the tolerance rules by applying 
them to errors in the total of payments that are not caused by an 
understatement of the finance charge. The consumer groups stated that 
the total of payments calculation is straightforward for creditors and 
that errors should be rare in light of computer programming. The 
commenters stated that creditors wishing to make the total of payments 
appear smaller could intentionally and improperly disclose loan costs 
under the other costs table on the Closing Disclosure or incorrectly 
amortize the principal. Additionally, the commenters urged the Bureau 
to require creditors to use an addendum for variable rate loans to 
disclose the projected actual monthly payment at each change listed 
under the projected payments table, not just the maximum and minimum, 
and to require creditors to disclose the total of each component of the 
total of payments in an addendum.
    The Bureau considered the comments submitted by the consumer 
groups. The commenters expressed concern that a creditor could 
intentionally make the total of payments appear smaller by improperly 
disclosing loan costs under the other costs table on the Closing 
Disclosure or by incorrectly amortizing the principal. However, the 
adoption of tolerances for the total of payments does not give 
creditors license to violate the rule by, for example, improperly 
disclosing costs or incorrectly calculating required disclosures, nor 
does it permit creditors to overstate intentionally the total of 
payments by ``padding'' fees. Additionally, the Bureau declines to 
require an addendum for variable rate loans to disclose the projected 
actual monthly payment at each change listed under the projected 
payments table or to disclose the total of each component of the total 
of payments, as requiring such an addendum would impose additional 
regulatory implementation costs and the Bureau believes that the 
disclosures required by the TILA-RESPA Rule already promote the 
meaningful disclosure of credit terms and informed use of credit.
The Final Rule
    For the reasons discussed in this section-by-section analysis, the 
Bureau adopts the revisions to Sec.  1026.38(o)(1) as proposed. 
Specifically, the Bureau revises Sec.  1026.38(o)(1) to provide that 
the disclosed total of payments shall be treated as accurate if the 
amount disclosed as the total of payments: (i) Is understated by no 
more than $100; or (ii) is greater than the amount required to be 
disclosed. The Bureau also finalizes conforming revisions to Sec.  
1026.23(g) and (h)(2) as discussed in the section-by-section analyses 
of each of those provisions above.
    As the Bureau explained in the proposal, TILA section 128(a)(3) and 
(8) requires a creditor to disclose the finance charge, using that 
term.\91\ As amended by Congress in 1995,\92\ TILA section 106(f)(1) 
sets forth the tolerances for accuracy of the finance charge and other 
disclosures affected by any finance charge and states that, in 
connection with credit transactions (not under an open end credit plan) 
that are secured by real property or a dwelling, the disclosure of the 
finance charge and other disclosures affected by any finance charge 
shall be treated as being accurate, except for purposes of rescission 
under TILA section 125, if the amount disclosed as the finance charge 
(A) does not vary from the actual finance charge by more than $100; or 
(B) is greater than the amount required to be disclosed.\93\ For 
transactions subject to Sec.  1026.19(e) and (f), Sec.  1026.38(o)(2) 
implements the finance charge disclosure requirement in TILA section 
128(a)(3) and the statutory tolerance provision for the finance charge 
in TILA section 106(f)(1).
---------------------------------------------------------------------------

    \91\ 15 U.S.C. 1638(a)(3).
    \92\ Truth in Lending Act Amendments of 1995, Public Law 104-29, 
3(a), 109 Stat 271 (1995).
    \93\ 15 U.S.C. 1605(f)(1). As discussed in the section-by-
section analysis of Sec.  1026.23(g), 15 U.S.C. 1605(f)(2) sets 
forth specific treatment for the disclosure of the finance charge 
and other disclosures affected by any finance charge for purposes of 
rescission under TILA section 125.
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    In the TILA-RESPA Final Rule, the Bureau modified the requirement 
under TILA section 128(a)(5) to disclose the total of payments as the 
sum of the amount financed and the finance charge to require that a 
creditor instead disclose the total of payments on the Closing 
Disclosure as the sum of principal, interest, mortgage insurance, and 
loan costs. Accordingly, Sec.  1026.38(o)(1) requires the disclosure of 
the ``Total of Payments,'' using that term and expressed as a dollar 
amount, and a statement that the disclosure is the total the consumer 
will have paid after making all payments of principal, interest, 
mortgage insurance, and loan costs, as scheduled. This modification of 
the total of payments calculation for purposes of the Closing 
Disclosure results in loan costs that are not components of the finance 
charge being included in the total of payments. In addition, the 
modification of the total of payments calculation also results in 
components of the finance charge being excluded from the total of 
payments if such components are not interest, mortgage insurance, loan 
costs, or included in the principal amount of the loan. This in turn 
may have introduced ambiguity as to whether the total of payments as 
modified by the Bureau for purposes of the Closing Disclosure is a 
disclosure affected by the disclosed finance charge and therefore 
subject to the same tolerances. In modifying the total of payments 
calculation in the TILA-RESPA Final Rule, the Bureau did not intend to 
alter the tolerances for accuracy applicable to the total of payments. 
To apply the same tolerances for accuracy of the disclosed finance 
charge and other disclosures affected by the disclosed finance charge 
unambiguously to the total of payments on the Closing Disclosure, the 
Bureau proposed to revise Sec.  1026.38(o)(1).
    The Bureau modified the total of payments in the TILA-RESPA Final 
Rule because it understood that this disclosure had been unclear to 
consumers historically. As the Bureau explained in the 2012 TILA-RESPA 
Proposal and TILA-RESPA Final Rule, a Board-HUD Joint Report analyzing 
the

[[Page 37748]]

TILA and RESPA disclosures recommended changes to several disclosures, 
including the total of payments.\94\ The Board's consumer testing found 
that many consumers did not understand the total of payments and that, 
even when consumers understood its meaning, most did not consider it 
important in their decision-making process.\95\
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    \94\ 77 FR 51116, 51124 (Aug. 23, 2012), 78 FR 79730, 79976 
(Dec. 31, 2013).
    \95\ 77 FR 51116, 51222 (Aug. 23, 2012), 78 FR 79730, 79976 
(Dec. 31, 2013).
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    To enhance consumer understanding, in the TILA-RESPA Final Rule, 
the Bureau modified the requirement of TILA section 128(a)(5) that the 
total of payments disclose the sum of the amount financed and the 
finance charge in two ways.\96\ First, the Bureau adopted Sec.  
1026.37(l)(1)(i) to require that a creditor disclose on the Loan 
Estimate the total payments over five years, rather than the life of 
the loan, using the label ``In 5 Years.'' \97\ Second, the Bureau 
adopted Sec.  1026.38(o)(1) to require that a creditor disclose on the 
Closing Disclosure the total of payments to reflect the total the 
consumer will have paid after making all payments of principal, 
interest, mortgage insurance, and loan costs, as scheduled.\98\ 
Including mortgage insurance and loan costs rather than the finance 
charge in the ``In 5 Years'' and the total of payments disclosures was 
intended to enhance consumer understanding of mortgage transactions and 
allow consumers to compare loans more easily and usefully. Loan costs 
are those costs disclosed under Sec.  1026.38(f) and include 
origination charges as well as the costs of services required by the 
creditor but provided by persons other than the creditor, including 
services that the borrower did and did not shop for.\99\ These services 
commonly include fees for appraisal, credit reporting, survey, title 
search, and lender's title insurance. Under Sec.  1026.4, these 
services may or may not be included in the finance charge, and whether 
they are included in the finance charge is a fact-specific 
determination.\100\
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    \96\ The Bureau modified the requirement of TILA section 
128(a)(5) pursuant to its authority under TILA section 105(a) (15 
U.S.C. 1604(a)), Dodd-Frank Act 1032(a) (12 U.S.C. 5532(a)), and, 
for residential mortgage loans, Dodd-Frank Act section 1405(b) (15 
U.S.C. 1601 note). 78 FR 79730, 80038 (Dec. 31, 2013).
    \97\ 77 FR 51116, 51223 (Aug. 23, 2012), 78 FR 79730, 79977 
(Dec. 31, 2013).
    \98\ 78 FR 79730, 80038 (Dec. 31, 2013).
    \99\ See 78 FR 79730, 80010 (Dec. 31, 2013).
    \100\ Finance charge is defined in TILA section 106(a) (15 
U.S.C. 1605(a)). Section 1026.4 implements this definition, provides 
examples, and excludes certain charges from the finance charge.
---------------------------------------------------------------------------

    The Bureau believes that applying the same tolerances for accuracy 
of the disclosed finance charge and other disclosures affected by the 
disclosed finance charge to the total of payments for purposes of the 
Closing Disclosure is appropriate. The TILA-RESPA Final Rule adopted 
its own good faith analysis and requires a creditor to refund any 
excess paid by the consumer, when necessary, to promote accurate 
disclosure. Additionally, since Congress amended TILA in 1995, the 
tolerances for accuracy of the finance charge have been understood to 
apply to the total of payments. Congress was clear that, to the extent 
other disclosures with statutory liability were affected by a 
misdisclosure of the finance charge within the tolerance limits, the 
same protections should apply. At the time Congress adopted the finance 
charge tolerance rules, assuming that no errors or clerical mistakes 
were made in the total of payments calculation, the total of payments 
was by definition determined by the finance charge calculation. 
Congress did not alter the statutory tolerances in adopting the Dodd-
Frank Act and in requiring the Bureau to integrate the TILA and RESPA 
disclosures. Therefore, to promote consistency with the tolerances in 
effect before the TILA-RESPA Final Rule, the Bureau now applies the 
same tolerances for accuracy of the finance charge to the total of 
payments for purposes of the Closing Disclosure.
    The Bureau understands that clarity regarding the applicable 
tolerances for accuracy of the total of payments is especially 
important because of the statutory consequences of misdisclosure of the 
total of payments. The total of payments is one of the disclosures that 
may give rise to civil liability as set forth in TILA section 130 for a 
creditor's failure to comply, including actual damages, statutory 
damages (individual and class action), costs, and attorney's fees.\101\ 
The total of payments is also one of the even more limited set of 
material disclosures where a misdisclosure can give rise to TILA's 
extended right of rescission for certain transactions as set forth in 
TILA section 125, which generally is available for three years after 
the date of consummation of the transaction, serves to void the 
creditor's security interest in the property, and eliminates the 
consumer's obligation to pay any finance charge (even if accrued) or 
any other costs incident to the loan.\102\ Nothing in the TILA-RESPA 
Final Rule altered this defined statutory liability for the total of 
payments or any other disclosure.
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    \101\ 15 U.S.C. 1640(a).
    \102\ 15 U.S.C. 1635. Section 1026.23 implements TILA's 
rescission provision and defines material disclosures to mean the 
required disclosures of the annual percentage rate, the finance 
charge, the amount financed, the total of payments, the payment 
schedule, and the disclosures and limitations referred to in 
Sec. Sec.  1026.32(c) and (d) and 1026.43(g). See Sec.  
1026.23(a)(3)(ii).
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    The Bureau also adopts as proposed new comment 38(o)-1 to provide 
two examples illustrating the interaction of the finance charge and 
total of payments accuracy requirements for each transaction subject to 
Sec.  1026.19(e) and (f). A number of industry commenters stated that 
they support the application of tolerances for the total of payments 
that operate independently from the finance charge tolerances.
    Further, the Bureau adopts the revisions to comment 38(o)(1)-1 
substantially as proposed, but with changes to clarify that the total 
of payments calculation excludes any amount of principal, interest, 
mortgage insurance, or loan costs that is not paid by the consumer and 
offset by another party through a specific credit. As proposed, the 
revisions to comment 38(o)(1)-1 would have explained that the total of 
payments is calculated in the same manner as the ``In 5 Years'' 
disclosure under Sec.  1026.37(l)(1)(i), except that the disclosed 
amount reflects the total payments through the end of the loan term and 
excludes charges for loan costs disclosed under Sec.  1026.38(f) that 
are designated on the Closing Disclosure as paid by seller or paid by 
others. However, some industry commenters stated that an agreement 
between the consumer and the seller or other party to offset a cost 
through a specific credit does not only apply to loan costs, but may 
also be used to offset other components of the total of payments 
including, for example, prepaid interest. Therefore, the Bureau revises 
comment 38(o)(1)-1 to clarify that the total of payments calculation on 
the Closing Disclosure excludes any component of the total of payments 
that is not paid by the consumer and offset by the seller or other 
party through a specific credit.
    A seller or other party, such as the creditor, may agree to offset 
payments of principal, interest, mortgage insurance, or loan costs, 
whether in whole or in part, through a specific credit, for example 
through a specific seller or lender credit. The revision to the comment 
clarifies that, because these amounts are not paid by the consumer, 
they are excluded from the total of payments calculation. The revision 
to comment 38(o)(1)-1 references only amounts offset by specific 
credits as

[[Page 37749]]

being excluded from the total of payments calculation. A few industry 
commenters stated that the Bureau should permit creditors to exclude 
from the total of payments any credit offered by the seller or other 
party, including general credits. Non-specific credits, however, are 
generalized payments to the consumer that do not represent an agreement 
to pay for a particular fee or amount and therefore do not serve to 
offset payments of principal, interest, mortgage insurance, or loans 
costs for purposes of the total of payments calculation.
    One industry commenter stated that the Bureau should also permit 
creditors to calculate the ``In 5 Years'' disclosure to reflect any 
amount of principal, interest, mortgage insurance, or loan costs that 
is offset by the seller or other party. However, as the Bureau 
explained in the proposal, the Bureau believes that the distinct 
treatment of specific credits from a seller or other party between the 
``In 5 Years'' disclosure and the total of payments disclosure is 
appropriate given the difference between the information available to 
the creditor when it provides the Loan Estimate and when it provides 
the Closing Disclosure. At the Loan Estimate stage, a creditor may not 
know whether a specific credit will be applied to offset a component of 
the total of payments, whether in whole or in part. Further, unlike the 
Closing Disclosure, the Loan Estimate does not allow for the itemized 
disclosure of amounts paid by the seller or others.
Legal Authority
    The Bureau revises Sec.  1026.38(o)(1) and its commentary, and 
makes conforming revisions to Sec.  1026.23(g) and (h)(2), to apply the 
same tolerances for accuracy of the disclosed finance charge and other 
disclosures affected by the disclosed finance charge to the total of 
payments for each transaction subject to Sec.  1026.19(e) and (f) 
pursuant to its authority to set tolerances for numerical disclosures 
under TILA section 121(d).\103\ 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). As noted 
above, the Bureau has concluded that the tolerances for the total of 
payments promote consistency with the tolerances in effect before the 
TILA-RESPA Final Rule. The Bureau therefore believes that the 
tolerances facilitate compliance with the statute. Additionally, the 
Bureau believes that the tolerances in revised Sec.  1026.38(o)(1), 
which are identical to the finance charge tolerances provided by 
Congress in TILA section 106(f), are sufficiently narrow to prevent 
these tolerances from resulting in misleading disclosures or 
disclosures that circumvent the purposes of TILA.
---------------------------------------------------------------------------

    \103\ 15 U.S.C. 1631(d).
---------------------------------------------------------------------------

38(t) Form of Disclosures
38(t)(3) Form
    The Bureau proposed to make technical amendments to comment 
38(t)(3)-1 to insert two missing words and make a non-substantive 
stylistic edit. Specifically, in the first sentence of the comment, the 
Bureau proposed to add the words ``is not'' and delete the prefix 
``non'' that precedes the word ``federally.'' The Bureau noted that the 
proposed technical amendment would not alter the substance of comment 
38(t)(3)-1. The Bureau did not receive comments on the proposed changes 
and is finalizing comment 38(t)(3)-1 as proposed.
38(t)(4) Rounding
38(t)(4)(ii) Percentages
    Section 1026.38(t)(4)(ii) provides rounding rules for the 
percentage amounts disclosed under Sec.  1026.38(b), (f)(1), (n), 
(o)(4), and (o)(5). As explained in the TILA-RESPA Final Rule the 
Bureau required rounding for certain amounts to reduce information 
overload, aid in consumer understanding of the transaction, prevent 
misconceptions regarding the accuracy of certain estimated amounts 
(e.g., estimated property costs over the life of the loan), and ensure 
a meaningful disclosure of credit terms. Section 1026.38(t)(4)(ii) 
provides that the percentage amounts disclosed for loan terms, 
origination charges, the adjustable interest rate table, and the TIP 
shall not be rounded and shall be disclosed up to two or three decimal 
places and the percentage amount required to be disclosed for the 
annual percentage rate shall not be rounded and shall be disclosed up 
to three decimal places. If the amount is a whole number, then the 
amount disclosed shall be truncated at the decimal point.
    In its proposal the Bureau noted that it understands that there is 
uncertainty about the rounding requirements under Sec.  
1026.38(t)(4)(ii). In an effort to eschew uncertainty about rounding 
requirements under Sec.  1026.38(t)(4)(ii) the Bureau proposed to 
revise Sec.  1026.38(t)(4)(ii) to simplify the rounding requirements 
for the percentages disclosed pursuant to the requirements of Sec.  
1026.38(t)(4)(ii). Proposed Sec.  1026.38(t)(4)(ii) provided that the 
percentage amounts disclosed under Sec.  1026.38(b), (f)(1), (n), 
(o)(4), and (o)(5) must be disclosed by rounding the exact amounts to 
three decimal places and then dropping any trailing zeros to the right 
of the decimal point. The Bureau did not receive comment regarding the 
proposed revision to Sec.  1026.38(t)(4)(ii). The Bureau is finalizing 
the revisions to Sec.  1026.38(t)(4)(ii) as proposed.
38(t)(5) Exceptions
38(t)(5)(v) Separation of Consumer and Seller Information
The Bureau's Proposal
    Regulation Z requires the use of the Closing Disclosure by the 
creditor to provide the required disclosures concerning the transaction 
to the consumer under Sec.  1026.19(f)(1)(i) and requires the 
settlement agent to provide a copy of the Closing Disclosure to the 
seller under Sec.  1026.19(f)(4)(i). Under Sec.  1026.38(t)(5)(vi), the 
creditor or settlement agent is permitted to provide a separate Closing 
Disclosure to the seller that contains limited consumer information. 
The settlement agent must provide to the seller either a copy of the 
Closing Disclosure or a permissible separate Closing Disclosure, under 
Sec.  1026.19(f)(4)(iv). The Bureau proposed to add comment 
38(t)(5)(v)-1 to clarify that, at its discretion, the creditor may make 
modifications to the Closing Disclosure form to accommodate the 
provision of separate Closing Disclosure forms to the consumer and the 
seller and the three methods by which a creditor can separate such 
information. The Bureau also proposed to add comments 38(t)(5)(v)-2 and 
-3 to provide examples where the creditor may choose to provide 
separate Closing Disclosure forms to the consumer and seller.
    The preamble to the proposal also discussed the existing 
requirements of the Gramm-Leach-Bliley Act (GLBA) and Regulation P, 
which generally provide that a financial institution (such as a 
creditor or settlement agent) may not disclose its customer's nonpublic 
personal information to a nonaffiliated third party without providing 
notice to the customer of such information sharing and an opportunity 
to opt-out of such sharing. The Bureau noted that there are several 
exceptions to these notice and opt-out requirements.\104\
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    \104\ 81 FR 54317, 54356 (Aug. 15, 2016).

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[[Page 37750]]

Comments Received
    The Bureau received comments from settlement agents, real estate 
agents, GSEs, title insurers and title trade associations, credit 
unions, a mortgage industry consultant, settlement services provider 
trade associations, a credit union trade association, a state bankers 
association, a group of mortgage software vendors, creditors, and other 
industry associations. Commenters generally supported the proposed 
comments 38(t)(5)(v)-1, -2, and -3; however, several commenters 
requested various clarifications.
    One commenter requested that the Bureau cross-reference the exact 
regulatory provisions expressly permitted to be left blank under Sec.  
1026.38(t)(5)(v)(A), (B), and (C). The commenter stated that as 
proposed, the comment refers to the ``applicable disclosure,'' which 
may be confusing or interpreted in unintended ways. The commenter 
further stated that the Bureau should restate the exact regulatory 
provisions or state the names of the part of form H-25 that may be left 
blank. Another commenter stated that the Bureau lacked the authority to 
permit revisions to a consumer-only form since no model of such form 
has been published in appendix H of Regulation Z.
    One commenter noted that the Bureau had a misstatement in its 
proposal. The Bureau stated that the settlement agent must provide to 
the seller either a copy of the Closing Disclosure or a permissible 
separate Closing Disclosure, under Sec.  1026.19(f)(4)(iv). The 
commenter noted that the correct cite for this statement should have 
been Sec.  1026.19(f)(4)(i).
    One commenter requested clarification of the Bureau's use of the 
term ``omit'' in the proposal. Section 1026.38(t)(5)(v) permits 
creditors to modify the Closing Disclosure by omitting certain 
information concerning the seller or consumer on the form provided to 
the other party. The commenter stated that the proposed use of the word 
``omit'' could be interpreted to mean that the inapplicable tables and 
labels can be deleted from form H-25. The commenter further stated that 
this interpretation would conflict with the regulatory text of Sec.  
1026.38(t)(5)(v), which authorizes information to be left ``blank'' on 
the separate Closing Disclosures but does not expressly permit 
creditors or settlement agents to ``omit'' or ``delete'' information 
from form H-25. The commenter further noted that Sec.  
1026.38(t)(5)(vi) expressly allows information to be ``deleted'' on a 
modified version of the Closing Disclosure provided to the seller or a 
third party. The commenter requested clarification as to whether the 
Bureau intended to propose that the regulatory text in Sec.  
1026.38(t)(5)(v) would authorize the deletion of inapplicable tables 
and labels on separate Closing Disclosures. The commenter stated that 
the authority to delete inapplicable tables and labels on a separate 
Closing Disclosure provided to the consumer would complicate compliance 
and constitute a new version of the Closing Disclosure that currently 
is not included in appendix H of Regulation Z.
    Another commenter noted that manually omitting or modifying 
sections of the Closing Disclosure from a systems programming 
perspective is challenging and will likely lead to an increase in 
errors. A different commenter stated that the Bureau should clarify 
that the seller's closing costs under Sec.  1026.38(f) and (g) cannot 
be left blank on the Closing Disclosure provided to the consumer 
because Sec.  1026.38(t)(5)(v)(B) does not provide such authority. Some 
commenters sought more clarity on the interplay between State privacy 
laws and contractual provisions and proposed comments 38(t)(5)(v)-1, -
2, and -3.
    The Bureau also received many comments related to the proposal's 
preamble discussion of the existing requirements of the GLBA and 
Regulation P. The Bureau received a number of observations on the 
changes in consumer information included on the Closing Disclosure 
compared to what was previously on the HUD-1 settlement statement. Many 
commenters noted that the real estate contract sets forth the terms of 
the purchase-sale agreement and may also address sharing of the Closing 
Disclosure, either specifically or generally via contract terms related 
to the delivery of information.
    Commenters generally requested additional clarity on sharing a 
combined or separate Closing Disclosure with third parties, including 
requests for the Bureau to provide clearer guidance, or frequently 
asked questions, concerning what customer information a creditor may 
share with a settlement agent, a real estate agent, or other parties to 
a transaction. Some also requested changes to Regulation P and 
Regulation Z to require or expressly permit creditors and settlement 
agents to provide Closing Disclosures to real estate agents without 
providing notice to the customer of such information sharing and an 
opportunity to opt-out of such sharing. Other commenters suggested that 
the Bureau create a list of third parties with whom creditors are 
``affirmatively permitted'' to share consumer and seller information, 
such as the Closing Disclosure.
    One commenter suggested that the Bureau's preamble discussion 
applies only to the provision of the consumer's Closing Disclosure to 
the borrower's agent or broker and to the provision of the seller's 
Closing Disclosure to the seller's agent or broker. This commenter also 
noted that, unless a different arrangement is established, all real 
estate agents in a transaction typically represent the seller and not 
the buyer. Real estate agent commenters stated that they should receive 
a copy of both the seller's and consumer's Closing Disclosures when 
separate Closing Disclosures are provided, regardless of whether the 
real estate agent is an agent of the other party. These commenters 
stated that such sharing should be required for several reasons: To 
inform their clients, imposed by a fiduciary relationship or a 
contractual obligation; to be used as an accounting tool for the real 
estate brokerage for which the real estate agent is associated; to find 
mistakes in the financial terms of the real estate transaction or on 
the Closing Disclosure; to assist non-English speakers; or to provide 
accurate transaction data to be included in multiple listing services 
or shared with appraisers. GSEs commented that it is important for 
creditors, and their successors and assigns, to see the seller's 
Closing Disclosure to ensure compliance with investor guidelines and 
the identification of potential fraudulent transactions.
    Many commenters mentioned that the easiest, simplest, and safest 
way to handle issues concerning the sharing of the Closing Disclosure 
with third parties would be for creditors, settlement agents, real 
estate agents and others to obtain written consent to the sharing from 
consumers and sellers. Some commenters stated that, to help alleviate 
secondary market concerns, it would be helpful for the Bureau to 
affirmatively state that the sharing of the Closing Disclosure is 
permissible under GLBA with the consent of the consumer or seller. One 
commenter noted that for creditors that currently utilize the consent 
method for the sharing of forms, and who have a proprietary loan 
origination system rather than a system from a third party vendor, the 
associated reprogramming expense could be avoided if the Bureau 
indicated that the written consent method was acceptable. Further, 
several commenters requested that the Bureau provide guidance on the 
type of authorizations it would view as sufficient, or a model form, to 
be able to provide the disclosures. One

[[Page 37751]]

commenter noted that because of the legal risk in sharing Loan 
Estimates and Closing Disclosures, creditors and settlement agents are 
asking consumers to sign separate written authorization forms to obtain 
the consent of the consumer to share these disclosures with third 
parties, including real estate agents, through the closing or 
settlement of the transaction, pursuant to GLBA. They stated that 
greater clarity regarding the ability to share Loan Estimates and 
Closing Disclosures pursuant to GLBA sections 502(e)(1) and 502(e)(8) 
may reduce the utilization of such separate authorization forms, and 
better avoid information overload for consumers and enable them to 
focus on the important information in their disclosures regarding their 
loan terms and costs. Some commenters stated that it would be 
beneficial to the industry if the Bureau provided further clarification 
in the rule or commentary that the exception under GLBA section 
502(e)(8) applies to the sharing of the seller's closing cost 
information under Sec.  1026.38(f) and (g) by the settlement agent with 
the creditor, and to the settlement agent's provision to the creditor 
of a copy of the separate seller's Closing Disclosure pursuant to Sec.  
1026.19(f)(4).
    Though not addressed in the proposal or preamble discussion, some 
commenters discussed issues of lender and settlement agent liability, 
and requested Bureau guidance. One commenter stated that it would be 
beneficial if the Bureau provided clarification regarding the 
administrative liability of settlement agents that provide the Closing 
Disclosure to the consumer pursuant to Sec.  1026.19(f)(1)(v), 
including whether settlement agents would be liable for noncompliant 
actions that were required by creditors. Some commenters noted that 
many creditors are attempting to shift liability to settlement agents 
in contracts and in loan closing instructions. One commenter stated 
that liability for the Closing Disclosure is unclear because under 
Sec.  1026.19(f)(4) the settlement agent appears to be responsible for 
the Closing Disclosure provided to the seller, including liability for 
its accuracy; however, proposed comments 38(t)(5)(v)-1 and -3 appear to 
place this responsibility on the creditor.
The Final Rule
    Since commenters generally supported the proposed additional 
provisions, the Bureau is adopting comments 38(t)(5)(v)-1 and -2 and 
comment 38(t)(5)(vi)-1 as proposed. The Bureau is adopting comment 
38(t)(5)(v)-3 with minor modifications clarifying the circumstances in 
which a creditor may be providing a Closing Disclosure to a seller. In 
response to the commenter requesting that the Bureau cross-reference 
the exact regulatory provisions expressly permitted to be left blank 
under Sec.  1026.38(t)(5)(v)(A), (B), and (C), the Bureau believes that 
the additions to comments 38(t)(5)(v)-1, -2, and -3, and comment 
38(t)(5)(vi)-1 are adequately specific and should allow creditors 
sufficient flexibility to modify the Closing Disclosure form for the 
consumer and the seller in a way that facilitates the transaction.
    In response to commenters' questions regarding the omission of 
inapplicable tables and labels when creating separate forms for 
consumers and sellers, the Bureau notes that the omission of a table or 
label from the consumer-only Closing Disclosure does not materially 
differ from reproducing the applicable table and labels without 
disclosing any numerical values. In either case, the disclosures 
required under Sec.  1026.38 are still made, just to the seller, not to 
the consumer. Accordingly, comment 38(t)(5)(v)-1 permits the creditor 
to leave blank or omit the applicable tables and labels on the 
consumer-only Closing Disclosure.
    In response to the commenter who stated that the Bureau should 
clarify that the seller's closing costs under Sec.  1026.38(f) and (g) 
cannot be left blank on the Closing Disclosure provided to the consumer 
because Sec.  1026.38(t)(5)(v)(B) does not provide such authority, the 
Bureau notes that certain information about the seller's transaction is 
required by Sec.  1026.38 because such information is necessary to 
comply with TILA section 128(a)(17).\105\ The Bureau believes TILA 
section 128(a)(17) requires disclosure of information about the 
seller's transaction. In addition RESPA section 4(a) requires that the 
RESPA settlement statement itemize all charges imposed upon the seller 
in connection with the settlement.\106\
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    \105\ 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, the approximate amount of the wholesale rate of funds in 
connection with the loan, and the aggregate amount of other fees or 
required payments in connection with the loan. TILA Section 
128(a)(17), 15 U.S.C. 1638.
    \106\ 78 FR 79730, 80038 (Dec. 31, 2013).
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    In response to commenters who raised questions about the interplay 
between State privacy laws and contractual provisions, and proposed 
comments 38(t)(5)(v)-1, -2, and -3, the Bureau notes that the comments 
as proposed described three different methods by which creditors may 
separate a consumer's information from a seller's information. In some 
instances, State law or contractual provisions may bar a creditor from 
disclosing a consumer's information to parties other than the consumer 
or bar a creditor from disclosing a seller's information to parties 
other than the seller. The comments as proposed provided options 
creditors could use to separate information to comply with these 
requirements or to comport with a creditor's decision to separate such 
information, while remaining in compliance with Sec.  1026.38(t) 
requirements as to the form of disclosures. The Bureau notes that one 
commenter read the language of Sec.  1026.38(t)(5)(v)-1 as proposed as 
potentially granting a creditor a Federal protection to make 
modifications to the form and provide the modified form to other 
parties, notwithstanding State law saying no other party has a right to 
those forms. However, the commenter provided no explanation for the 
proposition that a provision permitting separation of information is 
properly viewed as in conflict with a State law limiting or barring 
disclosure of such information, nor did the commenter cite to a 
specific State law. The Bureau believes that comments 38(t)(5)(v)-1, -
2, and -3 as finalized could facilitate creditors' compliance with 
State privacy laws by ensuring that creditors can separate consumer and 
seller information while remaining in compliance with Regulation Z 
requirements as to the form of disclosures.
    One commenter highlighted as incorrect the following sentence in 
the Bureau's proposal, ``the settlement agent must provide to the 
seller either a copy of the Closing Disclosure or a permissible 
separate Closing Disclosure, under Sec.  1026.19(f)(4)(iv),'' (emphasis 
added). The sentence in the proposal was a misstatement and should have 
stated that the settlement agent must provide to the creditor either a 
copy of the Closing Disclosure or a permissible separate Closing 
Disclosure, under Sec.  1026.19(f)(4)(iv), if the creditor is not the 
settlement agent.\107\
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    \107\ 81 FR 54317, 54355 (Aug. 15, 2016).
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    As discussed in the preamble to the proposal, there are several 
exceptions to the GLBA's general prohibition on a financial 
institution's disclosure of its customer's nonpublic personal 
information to a nonaffiliated third party without providing notice to 
the customer of such information sharing and an opportunity to opt-out 
of such

[[Page 37752]]

sharing. For example, GLBA section 502(e)(8) provides an exception that 
applies if a financial institution shares its customer's non-public 
personal information to comply with Federal, State, or local laws, 
rules and other applicable legal requirements. Regulation Z requires 
the use of the Closing Disclosure by the creditor to provide the 
required disclosures under Sec.  1026.38 concerning the transaction to 
the consumer under Sec.  1026.19(f)(1)(i), requires the settlement 
agent to provide to the creditor a copy of the disclosures provided to 
the seller under Sec.  1026.19(f)(4)(iv) when the consumer and seller's 
disclosures are provided in separate documents, and requires the 
settlement agent to provide the seller with the disclosures in Sec.  
1026.38 that relate to the seller's transaction reflecting the actual 
terms of the seller's transaction under Sec.  1026.19(f)(4)(i). GLBA 
section 502(e)(8) and Regulation P Sec.  1016.15(a)(7)(i) permit this 
required sharing of information without providing notice of such 
information sharing and an opportunity to opt-out of such sharing.\108\
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    \108\ GLBA 502(e)(8); 12 CFR 1016.15(a)(7)(i).
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    GLBA sections 502(e)(1) and 509(7)(A) provide an exception that 
applies if a financial institution's sharing of its customers' non-
public personal information is required, or is a usual, appropriate, or 
acceptable method to provide the customer or the customer's agent or 
broker with a confirmation, statement, or other record of the 
transaction, or information on the status or value of the financial 
service or financial product.
    The Closing Disclosure, whether provided as a combined form 
containing consumer and seller information or separate forms reflecting 
each side of the real estate transaction conveying the real property 
from the seller to the consumer, is a record of the transaction (among 
other things), both for the consumer and the creditor, of the 
transactions between the consumer, seller, and creditor, as required by 
both TILA and RESPA. Such records may be informative to real estate 
agents and others representing both the consumer credit and real estate 
portions of residential real estate sales transactions, as they provide 
the consumer or the consumer's agent with a record of the transaction. 
The Bureau in the preamble to the proposal stated that, based on its 
understanding of the real estate settlement process, it understands 
that it is usual, appropriate, and accepted for creditors and 
settlement agents to provide the combined or separate Closing 
Disclosure to consumers, sellers, and their agents as a confirmation, 
statement, or other record of the transaction, or to provide 
information on the status or value of the financial service or 
financial product to their customers or their customers' agents or 
brokers.
    The Bureau included discussion of GLBA and Regulation P in the 
preamble in response to inquiries from creditors, settlement agents, 
and real estate agents about the sharing of the Closing Disclosure with 
third parties. One commenter correctly noted that GLBA sections 
502(e)(1) and 509(7)(A) would apply only to the provision of the 
consumer's Closing Disclosure to the consumer's agent or broker and to 
the provision of the seller's Closing Disclosure to the seller's agent 
or broker.
    As noted by several commenters, creditors and settlement agents may 
disclose customer information with the consent or at the direction of 
the customer provided that the customer has not revoked the consent or 
direction.\109\ Some commenters requested that the Bureau provide a 
model form or guidance on the type of authorizations it would view as 
sufficient to satisfy GLBA section 502(e)(2). The Bureau did not 
propose such guidance or a model form in the proposal, however, nor did 
the Bureau in the proposal propose any amendments to Regulation P or 
its accompanying model forms. Furthermore, the Bureau does not believe 
that providing a model form or guidance as recommended by commenters 
would further the purposes of Regulation Z, which 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, and to protect the consumer against 
inaccurate and unfair credit billing and credit card practices. For 
these reasons, the Bureau declines in this rulemaking to provide such 
guidance or amend Regulation P to provide a model form.\110\
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    \109\ GLBA 502(e)(2); 12 CFR 1016.15(a)(1).
    \110\ TILA section 102(a), 15 U.S.C 1601. The Bureau also notes 
that, when the regulations implementing the GLBA's privacy 
provisions were first adopted, the Office of the Comptroller of the 
Currency, Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation, and the Office of Thrift Supervision 
(collectively, the Agencies) declined to elaborate on the 
requirements for obtaining consent or the consumer safeguards that 
should be in place when a consumer consents, stating that ``the 
resolution of this issue is appropriately left to the particular 
circumstances of a given transaction.'' The Agencies noted that 
``any financial institution that obtains the consent of a consumer 
to disclose nonpublic personal information should take steps to 
ensure that the limits of the consent are well understood by both 
the financial institution and the consumer. If misunderstandings 
arise, consumers may have means of redress, such as in situations 
when a financial institution obtains consent through a deceptive or 
fraudulent practice. Moreover, a consumer may always revoke his or 
her consent. In light of the safeguards already in place, the 
Agencies have decided not to add safeguards to the consent 
exception.'' Privacy of Consumer Financial Information, 65 FR 35182, 
35184 (Jun. 1, 2000).
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    With respect to comments requesting that the Bureau require or 
permit sharing of the Closing Disclosure with third parties, such as 
counterparties' real estate agents or other enumerated third parties, 
the Bureau notes that such sharing of the Closing Disclosure may be 
permissible currently to the extent that it is consistent with GLBA and 
Regulation P and is not barred by applicable State law. However, the 
Bureau does not believe that expansion of the scope of such permissible 
sharing would, in this rulemaking, be germane to the purposes of 
Regulation Z. The Bureau also notes that some of the rationales posed 
by commenters for including a requirement to share the Closing 
Disclosure with real estate agents, including as an accounting tool for 
the real estate brokerage for which the real estate agent is 
associated, or to provide accurate transaction data to be included in 
multiple listing services or shared with appraisers, are arguments 
concerning the sharing of information after consummation and also do 
not further the stated purposes of Regulation Z.
    Since the Bureau did not propose any amendments or clarifications 
to creditor and settlement agent liability, commenter requests related 
to changes or clarifications on these issues are largely outside the 
scope of this rulemaking. The Bureau refers commenters to the section-
by-section analysis to the TILA-RESPA Final Rule, where the Bureau 
stated that creditors under Sec.  1026.19(f)(1)(v) are responsible for 
ensuring compliance with Sec.  1026.19(f), even where a settlement 
agent provides the disclosure.\111\ In the section by section analysis 
to the TILA-RESPA Final Rule the Bureau also stated, in response to 
commenter questions regarding creditor and settlement agent liability 
in providing the required disclosures under Sec.  1026.19(f)(4) to the 
seller, that the Bureau proposed a separate requirement under Sec.  
1026.19(f)(4)(i) for the person conducting the settlement to provide 
the disclosures in Sec.  1026.38 that relate to the seller's 
transaction to the seller because the Bureau recognizes that a creditor 
does not owe a duty to the seller and to account for variations in 
local law that may require that the seller

[[Page 37753]]

receive a separate disclosure (e.g., for privacy reasons) or variations 
in local practice in which a seller and a consumer may not attend 
settlements in-person or at the same time.\112\ The Bureau does not 
believe it is necessary to mandate how a settlement agent and creditor 
must coordinate to ensure settlement agent compliance as discussed in 
Sec.  1026.19(f)(4)(iv) and comments 19(f)(1)(v)-2 through -4. In 
general, the Bureau believes final Sec.  1026.19(f)(1)(v) sets forth a 
clear standard for settlement agents to comply with Sec.  1026.19(f) to 
the extent they provide disclosures under that section.\113\ In 
response to the commenter statement that proposed comments 38(t)(5)(v)-
1 and -3 appear to place the liability for providing the Closing 
Disclosure on the creditor, whereas under Sec.  1026.19(f)(4) the 
settlement agent appears to be responsible for the Closing Disclosure 
provided to the seller, under the proposed commentary, the decision to 
provide separate Closing Disclosures to the consumer and the seller is 
to be made by the creditor. Even though Sec.  1026.19(f)(4) indicates 
that the settlement agent is to provide the seller with a Closing 
Disclosure, the creditor is not prohibited from providing the Closing 
Disclosure to the seller if the creditor decides to provide it in some 
instances (such as if the creditor is performing the functions of a 
settlement agent, or the settlement agent refuses to provide a single, 
integrated disclosure or a seller-specific separate disclosure).
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    \111\ 78 FR 79730, 79869 (Dec. 31, 2013).
    \112\ 78 FR 79730, 79890 (Dec. 31, 2013).
    \113\ 78 FR 79730, 79869 (Dec. 31, 2013).
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38(t)(5)(vi) Modified Version of the Form for a Seller or Third-Party
    As detailed in the section-by-section analysis of Sec.  
1026.38(t)(5)(v), the Bureau proposed and is now adopting new comment 
38(t)(5)(vi)-1 to cross-reference comment 38(t)(5)(v)-1 for additional 
clarity on permissible form modifications in relation to the modified 
version of the Closing Disclosure for sellers or third parties.
38(t)(5)(vii) Transaction Without a Seller or for Simultaneous 
Subordinate Financing
The Bureau's Proposal
    Section 1026.38(t)(5)(vii) permits modifications to form H-25 of 
appendix H for a transaction that does not involve a seller and for 
which the alternative tables are disclosed pursuant to Sec.  
1026.38(d)(2) and (e). Comment 38(t)(5)(vii)-2 explains that, as 
required by Sec.  1026.38(a)(3)(vii)(B), a form used for a transaction 
that does not involve a seller must contain the label ``Appraised Prop. 
Value,'' or ``Estimated Prop. Value'' where there is no appraisal. The 
Bureau proposed to revise Sec.  1026.38(t)(5)(vii), consistent with 
proposed revisions to Sec.  1026.38(d)(2) and (e), to include 
simultaneous subordinate financing as transactions for which a 
modification of form H-25 of appendix H is permitted. The Bureau also 
proposed a technical revision so that comment 38(t)(5)(vii)-2 correctly 
references Sec.  1026.38(t)(5)(vii) instead of Sec.  
1026.38(t)(5)(viii) and additional minor clarifying edits. In addition, 
the Bureau proposed to add comment 38(t)(5)(vii)(B)-1 to clarify that 
amounts provided by third parties may be disclosed as credits in the 
payoffs and payments table, comment 38(t)(5)(vii)(B)-2 to clarify the 
disclosure of subordinate financing proceeds, and comment 
38(t)(5)(vii)(B)-3 to cross-reference comment 37(h)(2)(iii)-1 (for 
additional examples) and comment 38-4 (for the disclosure of a 
principal reduction to provide a refund).
Comments Received
    Many of the comments that were submitted and that related to Sec.  
1026.38(d)(2) and (e) would be applicable to the proposal set forth 
under Sec.  1026.38(t)(5)(vii) to permit simultaneous subordinate 
financing purchase transactions to be disclosed using the alternative 
disclosures. Please see the section-by-section analyses of Sec.  
1026.38(d)(2) and (e) for a general discussion of such comments.
    As discussed more fully in the section-by-section analysis of Sec.  
1026.37(d)(2), and relevant to comments 38(t)(5)(vii)(B)-1 and -2, one 
commenter questioned what disclosures should be used when the optional 
alternative tables were initially used for the simultaneous subordinate 
financing transaction, but a seller later agrees to contribute to the 
costs of the subordinate financing, making continued use of the 
alternative tables impermissible under the proposal.
    An industry commenter supported the Bureau's proposed amendments to 
comment 38(t)(5)(vii)(B)-2, which provided that simultaneous 
subordinate financing proceeds are required to be disclosed in the 
payoffs and payments table under Sec.  1026.38(t)(5)(vii)(B) on a 
first-lien transaction. However, other commenters noted that the Bureau 
did not propose any amendments to the provisions of the alternative 
Loan Estimate and Closing Disclosure to explain how simultaneous 
subordinate financing itself would be disclosed on the alternative 
disclosures, including how to disclose the amount of proceeds from the 
subordinate financing being applied to the first-lien transaction. 
Commenters also asserted that most creditors prefer that the Closing 
Disclosure for the simultaneous subordinate financing include a 
disclosure of the amount of proceeds being applied to the first-lien 
loan, and asked the Bureau to permit this common practice and clarify 
the provision under which the disclosure should be made.
The Final Rule
    For the reasons discussed below, the Bureau is adopting Sec.  
1026.38(t)(5)(vii) as proposed with a minor technical revision, comment 
38(t)(5)(vii)-2 as proposed, and comments 38(t)(5)(vii)(B)-1 and -2 as 
proposed with revisions; renumbering proposed comment 38(t)(5)(vii)(B)-
2 as comment 38(t)(5)(vii)(B)-2.i; adding new comments 
38(t)(5)(vii)(B)-2.ii and -2.iii; and adopting proposed comment 
38(t)(5)(vii)(B)-3 with revisions. For the reasons discussed in the 
section-by-section analyses of Sec.  1026.38(d)(2) and (e), the Bureau 
is finalizing the proposed amendment to Sec.  1026.38(t)(5)(vii), which 
permits simultaneous subordinate financing purchase transactions to be 
disclosed using the alternative disclosures. Final Sec.  
1026.38(t)(5)(vii) permits modifications to form H-25 of appendix H for 
a transaction that does not involve a seller or for simultaneous 
subordinate financing transactions, and for which the alternative 
tables are disclosed under Sec.  1026.38(d)(2) and (e). The Bureau did 
not receive any comments in response to the proposed technical revision 
to comment 38(t)(5)(vii)-2 and the Bureau is adopting the proposed 
revision as final.
    The Bureau is revising the reference to the partial exemption 
criteria of Sec.  1026.3(h) in proposed comment 38(t)(5)(vii)(B)-1 to 
more closely align with final Sec.  1026.3(h). Final comment 
38(t)(5)(vii)(B)-1 provides, in part, that the proceeds from a loan 
that satisfies the partial exemption criteria in Sec.  1026.3(h) is an 
example of an amount paid by a third party that may be disclosed as a 
credit on the payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B). As discussed in more detail below, the Bureau is 
also amending proposed comment 38(t)(5)(vii)(B)-1 to address the 
commenter's question regarding how to proceed under the proposal when 
the optional alternative table was properly used on the Loan Estimate, 
or even the Closing Disclosure, but a subsequent event would cause the 
continued use of

[[Page 37754]]

the alternative table to be impermissible.
    The Bureau is not finalizing the requirement to disclose certain 
amounts as negative numbers in proposed comments 38(t)(5)(vii)(B)-1 and 
-2 for the same reasons the Bureau is removing certain references to 
positive or negative numbers elsewhere in this final rule. While the 
Bureau did not propose these revisions and does not anticipate any 
circumstances in which funds provided on behalf of consumers and the 
proceeds from simultaneous subordinate financing disclosed on the 
first-lien Closing Disclosure would not be disclosed as negative 
numbers, the Bureau is not finalizing the technical requirement to 
disclose these amounts as negative numbers to allow flexibility for any 
unforeseen situations.
    The Bureau is renumbering proposed comment 38(t)(5)(vii)(B)-2 as 
comment 38(t)(5)(vii)(B)-2.i and revising the comment for greater 
clarity. Proposed comment 38(t)(5)(vii)(B)-2 explained that on the 
Closing Disclosure for a first-lien transaction that also has 
simultaneous subordinate financing, the proceeds of the subordinate 
financing are disclosed in the payoffs and payment table under Sec.  
1026.38(t)(5)(vii)(B). As discussed in the section-by-section analysis 
of Sec.  1026.37(d)(2), a commenter asked the Bureau to clarify how to 
disclose the simultaneous subordinate financing loan proceeds that are 
applied to the first-lien transaction. In final comment 
38(t)(5)(vii)(B)-2.i, the Bureau adds the heading ``First-lien Closing 
Disclosure,'' explains that the comment pertains to first-lien Closing 
Disclosures disclosed using the alternative tables under Sec.  
1026.38(d)(2) and (e), and provides a refinance transaction as an 
example of a first-lien transaction that could be disclosed under Sec.  
1026.38(d)(2) and (e) that also has simultaneous subordinate financing. 
In response to the comments received on the proposal, the Bureau is 
also providing additional guidance on how to disclose the amount of 
subordinate financing, consistent with the requirements in comment 
38(j)(2)(vi)-2 for disclosing the proceeds of subordinate financing on 
the standard Closing Disclosure.
    The Bureau is adding comment 38(t)(5)(vii)(B)-2.ii to permit 
creditors to include, in the payoffs and payments table on the 
simultaneous subordinate financing Closing Disclosure, the proceeds of 
the subordinate financing applied to the first-lien transaction. Final 
comment 38(t)(5)(vii)(B)-2.ii responds to commenters' questions about 
how to disclose the simultaneous subordinate loan proceeds that will be 
applied to the first lien on the disclosure for the simultaneous 
subordinate financing. The commenters asserted that most creditors 
prefer that the simultaneous subordinate financing Closing Disclosure 
include a disclosure of the amount of loan proceeds that are applied to 
the first-lien loan, and asked the Bureau to permit this practice. In 
the proposal, the Bureau noted that the funds that are provided to the 
consumer from the proceeds of subordinate financing being applied to 
the first-lien transaction would not be included in the payoffs and 
payments table on the simultaneous subordinate financing disclosure. As 
a result, the cash to close amount disclosed under Sec.  
1026.38(e)(5)(ii) would have represented the loan proceeds as ``cash 
out'' to the borrower. For the same reasons discussed in the section-
by-section analysis of Sec.  1026.37(h)(2)(iii), the Bureau is not 
finalizing the proposed approach and instead is adding new comment 
38(t)(5)(vii)(B)-2.ii to permit creditors to include the proceeds of 
the subordinate financing applied to the first-lien transaction in the 
payoffs and payments table on the simultaneous subordinate financing 
Closing Disclosure. The Bureau is making similar amendments in 
commentary to Sec. Sec.  1026.37(h)(2)(iii) and 1026.38(j)(1)(v).
    The Bureau is adding comment 38(t)(5)(vii)(B)-2.iii and amending 
proposed comment 38(t)(5)(vii)(B)-1 to address the commenter's question 
regarding how to proceed under the proposal when the optional 
alternative table was properly used on the Loan Estimate, or even the 
Closing Disclosure, but a subsequent event would cause the continued 
use of the alternative table to be impermissible. For the reasons 
discussed in the section-by-section analysis of Sec.  1026.37(d)(2), 
the Bureau is directly addressing the commenter's concern by adding new 
comment 38(k)(2)(vii)-1, amending comments 38(d)(2)-1 and 38(j)-3, and 
amending proposed comments 38(t)(5)(vii)(B)-1 and -2 (including adding 
comment 38(t)(5)(vii)(B)-2.iii), to require the disclosure of the 
seller's contributions to the subordinate financing, if any, in the 
payoffs and payments table on the simultaneous subordinate financing 
Closing Disclosure and the summaries of transactions table on the 
first-lien Closing Disclosure, when the alternative disclosures are 
used for the simultaneous subordinate financing transaction. Final 
comment 38(t)(5)(vii)(B)-2.iii explains that if a creditor discloses 
the alternative tables pursuant to Sec.  1026.38(d)(2) and (e) on the 
simultaneous subordinate financing Closing Disclosure, the creditor 
must also disclose in the payoffs and payments table on the 
simultaneous subordinate financing Closing Disclosure, any seller 
contributions toward the simultaneous subordinate financing. Final 
comment 38(t)(5)(vii)(B)-1 includes, as an example of amounts paid by 
third parties that may be disclosed as credits on the simultaneous 
subordinate financing's payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B), contributions from a seller for costs associated 
with a simultaneous subordinate financing transaction. As discussed in 
the section-by-section analysis of Sec.  1026.38(k)(2), final comment 
38(k)(2)(vii)-1 explains that if the simultaneous subordinate financing 
transaction is disclosed using the alternative tables pursuant to Sec.  
1026.38(d)(2) and (e), the first-lien Closing Disclosure must include, 
in the summaries of transactions table for the seller's transaction 
under Sec.  1026.38(k)(2)(vii), any contributions toward the 
simultaneous subordinate financing from the seller that are disclosed 
in the payoffs and payments table under Sec.  1026.38(t)(5)(vii)(B) on 
the simultaneous subordinate financing Closing Disclosure. The result 
of these amendments, coupled with the amendments to comment 38(j)-3, is 
that the first-lien Closing Disclosure will be able to record the 
entirety of the seller's transaction.
    For example, assume the simultaneous subordinate financing 
transaction is disclosed using the alternative tables pursuant to Sec.  
1026.38(d)(2) and (e) and the seller contributes $200.00 toward the 
closing costs of the simultaneous subordinate financing. The 
simultaneous subordinate financing transaction Closing Disclosure must 
disclose the $200.00 contribution in the payoffs and payments table in 
accordance with Sec.  1026.38(t)(5)(vii)(B) and comment 
38(t)(5)(vii)(B)-1. The first-lien Closing Disclosure must disclose the 
$200.00 contribution in the summaries of transactions table for the 
seller's transaction under Sec.  1026.38(k)(2)(vii) on the first-lien 
Closing Disclosure, thereby recording the entirety of the seller's 
transaction on the first-lien Closing Disclosure. For a more detailed 
discussion of these new and revised comments, see the section-by-
section analyses of Sec.  1026.38(d)(2), (j), and (k)(2).
    The Bureau is adopting proposed comment 38(t)(5)(vii)(B)-3 with 
technical conforming revisions. As

[[Page 37755]]

discussed in more detail in the section-by-section analysis of Sec.  
1026.38 pertaining to comment 38-4 above, an industry group recommended 
that the Bureau use the phrase ``principal reduction'' instead of 
``principal curtailment,'' noting that consumers would be more familiar 
with the recommended phrase. The Bureau is revising proposed comment 
38(t)(5)(vii)(B)-3 to reflect the phrase ``principal reduction.'' 
Industry commenters also requested that the Bureau permit the use of 
principal curtailments for situations other than when a creditor is 
providing a credit for a tolerance refund. In the proposal, the Bureau 
sought to address the particular issue of how to disclose a principal 
curtailment that is used to provide a tolerance refund, but did not 
intend to propose to limit the use of principal curtailments to 
providing tolerance refunds. The Bureau is revising and restructuring 
comment 38-4 to provide clarity on the disclosure of principal 
reductions that are and are not used to provide tolerance refunds. As a 
result, the Bureau is amending comment 38(t)(5)(vii)(B)-3 to remove the 
reference to a tolerance refund under Sec.  1026.19(f)(2)(v), making 
the comment applicable to all principal reductions, regardless of 
whether the principal reduction is for the purpose of providing a 
tolerance refund.
38(t)(5)(ix) Customary Recitals and Information
    Comment 38(t)(5)(ix)-1 provides examples of information permitted 
to be disclosed on an additional page for the disclosure of customary 
recitals and information used locally in real estate settlements. The 
Bureau proposed to revise comment 38(t)(5)(ix)-1 to cross-reference 
proposed comment 38-4, which would have provided options for the 
disclosure of a principal curtailment to provide a refund under Sec.  
1026.19(f)(2)(v), including disclosure under Sec.  1026.38(t)(5)(ix).
    For the reasons discussed below, the Bureau is not finalizing the 
proposed amendments to comment 38(t)(5)(ix)-1. As discussed in more 
detail in the section-by-section analysis of Sec.  1026.38 pertaining 
to comment 38-4 above, some industry commenters raised concerns with 
the various options for disclosure of principal curtailments proposed 
by the Bureau. While the Bureau intended for the proposal to provide 
the flexibility for the disclosure of principal curtailments discussed 
in the Bureau staff's informal April 2016 webinar, the Bureau 
appreciates commenters' assertions that a uniform disclosure method for 
principal curtailments would reduce compliance burden, aid consumer 
understanding, and aid the utilization of a uniform data standard. The 
Bureau is therefore revising proposed comment 38-4 to, among other 
things, limit the locations in which a creditor may disclose principal 
reductions to only Sec.  1026.38(j)(1)(v) and (t)(5)(vii)(B). As a 
result, the Bureau is not finalizing the proposed revisions to comment 
38(t)(5)(ix)-1, which would have cross-referenced comment 38-4 for an 
explanation of how to disclose a principal curtailment under Sec.  
1026.38(t)(5)(ix). If there is insufficient space under Sec.  
1026.38(j)(1)(v) or (t)(5)(vii)(B) for certain required elements of the 
principal reduction disclosure, final comment 38-4 permits a creditor 
to provide an abbreviated disclosure under Sec.  1026.38(j)(1)(v) or 
(t)(5)(vii)(B) and a complete disclosure with a reference to the 
abbreviated disclosure under an appropriate heading on an addendum, in 
accordance with Sec.  1026.38(j) and (t)(5)(ix), as applicable. No 
amendments to comment 38(t)(5)(ix)-1 are necessary to effectuate this 
change. See the section-by-section analysis of Sec.  1026.38 pertaining 
to comment 38-4 for an explanation of when and how an addendum may be 
used in the context of a principal reduction disclosure.

Appendix D--Multiple-Advance Construction Loans

Loan Term

The Bureau's Proposal

    Proposed comment app. D-7.i clarified how a creditor may 
disclose the loan term, pursuant to Sec. Sec.  1026.37(a)(8) and 
1026.38(a)(5)(i), for a construction-permanent loan, taking into 
account the fact that such loans may be disclosed as one transaction 
or as more than one transaction. Under proposed comment app. D-
7.i.A, if the creditor disclosed the construction and permanent 
financing as a single transaction, the loan term disclosed would be 
the total combined term of the construction period and the permanent 
period. To illustrate this result, the proposed comment provided an 
example of how to disclose the loan term when a single set of 
disclosures is used for the combined construction-permanent loan. In 
the example, if the term of the construction period is 12 months and 
the term of the permanent period is 30 years, and both phases are 
disclosed as a single transaction, the loan term disclosed is 31 
years. Proposed comment app. D-7.i.A also included a cross-reference 
to comment 37(a)(8)-3 intending to explain that, in accordance with 
Sec.  1026.17(c)(3) and its accompanying commentary, the effect of 
minor variations in the number of days counted for the months or 
years of a loan may be disregarded for purposes of the loan term 
disclosure.
    Proposed comment app. D-7.i.B clarified how to disclose the term 
of the permanent phase of a construction-permanent loan when the 
creditor elected to disclose the two phases as separate 
transactions. Because the permanent phase may be consummated and 
disclosed at the same time as the construction phase and may also be 
disclosed as a separate transaction with payments that do not begin 
until months after consummation, creditors have reported some 
uncertainty about when to begin counting the loan term of the 
permanent phase for disclosure purposes. Proposed comment app. D-
7.i.B explained that, consistent with proposed comment 37(a)(8)-3, 
the loan term of the permanent financing is counted from the date 
that interest for the first scheduled periodic payment of the 
permanent financing begins to accrue, regardless of when the 
permanent phase is disclosed.

Comments Received

    As explained in the above section-by-section analysis of comment 
37(a)(8)-3, commenters were concerned that comment 37(a)(8)-3 did 
not include the explanations referred to in comment app. D-7.i.

The Final Rule

    For the reasons discussed below, the Bureau is finalizing 
comment app. D-7.i substantially as proposed, but the Bureau is 
removing the cross-references to comment 37(a)(8)-3 in comment app. 
D-7.i.
    The intent of the cross-reference to comment 37(a)(8)-3 in 
comment app. D-7.i.A was to explain that, in accordance with Sec.  
1026.17(c)(3) and its accompanying commentary, the effect of minor 
variations in the number of days counted for the months or years of 
a loan may be disregarded for purposes of the loan term disclosure. 
However, citing only to Sec.  1026.17(c)(3) might raise questions as 
to the applicability of other sections that are not cited, which was 
not the intent of the Bureau. Sections such as Sec.  1026.17(c)(4) 
are also applicable in determining the impact of minor variations in 
the number of days counted for the loan term, as well as other 
disclosures, as applicable. In order to avoid creating an impression 
that only Sec.  1026.17(c)(3) applies for purposes of construction 
and construction-permanent disclosures to the exclusion of other 
potentially applicable sections, the Bureau is not finalizing the 
cross-references to comment 37(a)(8)-3 in comment app.D-7.i.
    A similar approach to generally applicable provisions was taken 
in the TILA-RESPA Final Rule with respect to providing specific 
guidance in Sec.  1026.37(c) regarding whether the periodic 
principal and interest disclosure should be based on an average 30-
day month or some other measure. There, the Bureau noted that 
creditors may base their disclosures on calculation tools that 
assume that all months have an equal number of days, even if their 
practice is to take account of the variations in months for purposes 
of collecting interest. The Bureau further noted that because this 
Sec.  1026.17(c)(3) guidance applies generally to the disclosures 
required by Sec.  1026.37, the Bureau did not believe it

[[Page 37756]]

was necessary or appropriate to provide such guidance in Sec.  
1026.37(c).\114\
---------------------------------------------------------------------------

    \114\ See 78 FR 79730, 79937 (Dec. 31, 2013).
---------------------------------------------------------------------------

    Comment app. D-7.i.B, which explains how the loan term of the 
permanent phase is counted, also included a statement that it was 
consistent with comment 37(a)(8)-3. As explained above, comment 
37(a)(8)-3 only contains a cross-reference to comment app. D-7.i. 
and no additional explanations. Accordingly, the reference to 
comment 37(a)(8)-3 is deleted, because there is no explanation there 
for comment app. D-7.i. to be ``consistent with.''

Product

The Bureau's Proposal

    Proposed comment app. D-7.ii would explain how to disclose the 
duration of the ``Interest Only'' feature of a construction loan or 
the construction phase of a construction-permanent loan under 
Sec. Sec.  1026.37(a)(10)(ii)(B) and 1026.38(a)(5)(iii). The 
duration of the interest-only period depends on whether the 
construction phase is disclosed separately, which would be covered 
by proposed comment app. D-7.ii.A, or as a combined transaction with 
the permanent phase, which would be covered by proposed comment app. 
D-7.ii.B.
    Section 1026.37(a)(10) requires disclosure of the loan product, 
including the features that may change the periodic payment on the 
loan. Section 1026.37(a)(10)(iv) requires disclosure of the duration 
of the payment period of certain of the loan features, including the 
``Interest Only'' feature under Sec.  1026.37(a)(10)(ii)(B). 
Disclosure of an ``Interest Only'' feature is required if the loan 
does not have a negative amortization feature and one or more 
regular periodic payments may be applied only to interest accrued 
and not to the loan principal. The duration of the ``Interest Only'' 
payment period, therefore, counts the regular periodic payments that 
may be applied only to interest accrued and not to the loan 
principal.
    In a construction loan disclosure, or when a separate disclosure 
is provided for the construction phase of a construction-permanent 
loan, the final payment will typically be a balloon payment that is 
the sum of the final interest payment and the loan principal. As a 
payment that includes principal, the final balloon payment is not 
counted for purposes of determining the duration of the ``Interest 
Only'' payment period. This means, for example, that the product 
disclosure for a fixed rate construction loan with a term of one 
year is ``11 mo. Interest Only, Fixed Rate.'' Proposed comment app. 
D-7.ii.A provided this explanation and example.
    Proposed comment app. D-7.ii.B explained that, if a single, 
combined construction-permanent disclosure is provided, the time 
period of the interest-only feature that is disclosed as part of the 
product disclosure under Sec. Sec.  1026.37(a)(10) and 
1026.38(a)(5)(iii) is the full term of the interest-only 
construction financing. In such cases, the construction and 
permanent phases are considered together as a single loan or 
transaction, and there is no balloon payment of principal and 
interest at the end of the construction phase. Proposed comment app. 
D-7.ii.B provided an example explaining that a creditor discloses 
the ``Product'' for a fixed rate, construction-permanent loan with 
an interest-only construction phase of 12 months as ``1 Year 
Interest Only, Fixed Rate.''

Comments Received

    While the Bureau did not receive any comments that directly 
addressed proposed comment app. D-7.ii, a comment on proposed 
comment app. D-7.iii, which is further discussed in the section-by-
section analysis for comment app. D-7.iii below, raised issues that 
directly concern the disclosure of the loan product under Sec.  
1026.37(a)(10). Proposed comment app. D-7.iii provided, in part, 
that if the creditor may modify the rate for permanent financing 
when the construction financing converts to permanent financing, 
certain variable-rate disclosures are provided regardless of whether 
the permanent financing has a fixed, adjustable, or step rate. The 
commenter indicated that there could be confusion over the 
applicable product disclosures for construction-permanent loans 
disclosed as either one transaction or two transactions but 
consummated simultaneously where the interest rate for the permanent 
phase is set upon completion of the construction phase. The 
commenter indicated the loan product for such a loan would seem to 
be adjustable rate, rather than fixed rate, which could generate 
confusion over how to disclose the loan product for this scenario.

The Final Rule

    The Bureau agrees with the commenter and, for this reason, is 
finalizing comment app. D-7.ii substantially as proposed, but adding 
comment app. D-7.ii.C and making a conforming change to comment app. 
D-7.ii.B for consistency. Comment app. D-7.ii.C clarifies that for 
construction-permanent loans with a single consummation, in the case 
of either a separate disclosure for the permanent phase or a single 
combined disclosure for both phases, if the creditor reserves the 
right to modify the disclosed interest rate for the permanent phase 
at a post-consummation date and the modified interest rate for the 
permanent phase is not known at the time of consummation, the loan 
product disclosed under Sec. Sec.  1026.37(a)(10) and 
1026.38(a)(5)(iii) is ``Adjustable Rate.'' This is true even if, 
once set at the later date, the interest rate for the permanent 
phase would not change again.
    Comment app. D-7.ii.C reflects the applicability of Sec.  
1026.37(a)(10)(i) when disclosing the loan product for construction-
permanent loans with a single consummation, just as it would apply 
to any other covered loan. Under Sec.  1026.37(a)(10)(i), if the 
creditor reserves the right to modify the interest rate for the 
permanent phase of a construction-permanent loan with a single 
consummation, and that interest rate may increase but the rate that 
will apply is not known at consummation, the loan product disclosed 
under Sec. Sec.  1026.37(a)(10) and 1026.38(a)(5)(iii) is 
``Adjustable Rate,'' if the permanent phase is disclosed separately 
or a single disclosure is used for the combined construction-
permanent financing. Further, any other disclosures required for the 
loan product specified would also apply. For example, the 
introductory rate or payment period disclosure as required by 
Sec. Sec.  1026.37(a)(10)(iv) and 1026.38(a)(5)(iii) is disclosed 
even if the construction and permanent phases individually are fixed 
rate. In the loan described above, if the loan is disclosed using a 
single disclosure for a combined construction-permanent financing, 
the introductory period disclosure would be the term of the 
construction phase and then the term of the permanent phase, e.g. 
``1/30 Adjustable Rate.'' If, however, the permanent phase is 
disclosed separately, assuming the permanent phase is a fixed rate 
upon conversion from the construction phase, the introductory rate 
disclosure would be zero followed by the term of the permanent 
phase, e.g., ``0/30 Adjustable Rate.''
    Additionally, should the creditor reserve the right to modify 
the interest rate for the permanent phase of a construction-
permanent loan with a single consummation, and that interest rate 
may increase but the rate that will apply is not known at 
consummation, the other adjustable-rate loan disclosures would be 
required, if not otherwise already required. For example, comment 
app. D-7.iii as finalized discusses the requirements for the 
disclosure under Sec.  1026.20(c).
    Similarly, the Adjustable Interest Rate table, as required by 
Sec. Sec.  1026.37(j) and 1026.38(n), is disclosed where the 
creditor reserves the right to modify the interest rate for the 
permanent phase of a construction-permanent loan with a single 
consummation, and that interest rate may increase but the rate that 
will apply is not known at consummation. If the permanent phase is 
disclosed separately or a single disclosure is used for the combined 
construction-permanent financing, the creditor discloses the index 
and margin, as required Sec.  1026.37(j)(1), using the index and/or 
margin identified in the legal obligation that will be used to 
determine the interest rate for the permanent phase at conversion. 
The creditor also discloses the initial interest rate at 
consummation under Sec.  1026.37(j)(3), which may be the interest 
rate for the construction phase. Finally, the creditor discloses the 
minimum and maximum interest rates for the permanent phase, as 
required by Sec.  1026.37(j)(4). If the legal obligation does not 
provide a minimum and/or maximum interest rate cap for the permanent 
phase interest rate upon conversion, as stated in current comment 
37(j)(4)-1 and -2, the disclosure is based on the applicable law.
    Comment app. D-7.ii.C is consistent with the applicability of 
the other Sec.  1026.37(a)(10)(i) provisions to construction-
permanent loans. For example, using the definition in Sec.  
1026.37(a)(10)(i)(B), if, for a construction-permanent loan using a 
single disclosure for both phases, the interest rates for both 
phases are fixed at consummation and the creditor does not reserve 
the right to modify the rate after consummation, but the interest 
rates are not the same, the creditor would disclose the loan product 
under Sec. Sec.  1026.37(a)(10) and 1026.38(a)(5)(iii) as a

[[Page 37757]]

``Step Rate'' product because the interest rate will change after 
consummation and the rates and periods they will apply are known. 
Further, the introductory rate and payment period disclosures 
required by Sec. Sec.  1026.37(a)(10)(iv) and 1026.38(a)(5)(iii) 
would also be required.
    But it should be noted that comment app. D-7.ii.C is read in the 
context of the rest of the rule. For example, while a construction-
permanent loan using a single disclosure for both phases where the 
creditor reserves the right to modify the permanent phase interest 
rate after consummation would not by itself require disclosure of 
the Adjustable Payments table, an aspect of the construction phase 
or permanent phase might otherwise require it, such as an interest-
only period in the construction phase. As explained in the 
discussion of proposed comment app. D-7.v, finalized as comment app. 
D-7.iv, the adjustable payment table is included for separate 
disclosures of the construction phase or combined construction-
permanent disclosures if the interest during the construction phase 
is payable only on the amount actually advanced--in such cases the 
periodic payment may change after consummation but not based on an 
adjustment to the interest rate.

Interest Rate

The Bureau's Proposal

    Proposed comment app. D-7.iii explained the disclosure of the 
interest rate in a construction-permanent loan pursuant to 
Sec. Sec.  1026.37(b)(2) and 1026.38(b). The comment addressed a 
unique aspect of some construction-permanent loans: If the permanent 
phase is disclosed at the same time as the construction phase, 
either in a combined disclosure with the construction phase or in a 
separate disclosure of only the permanent phase, the interest rate 
of the permanent financing may not be known because the conversion 
to permanent financing may not take place for several months. If the 
permanent financing has an adjustable rate and separate disclosures 
are provided, the proposed comment stated that the rate disclosed 
for the permanent financing is the fully-indexed rate pursuant to 
Sec.  1026.37(b)(2) and its commentary. If the permanent financing 
has a fixed rate, proposed comment app. D-7.iii would have explained 
that the rate disclosed is based on the best information reasonably 
available at the time the disclosures are made and included a cross-
reference to comments 19(e)(1)(i)-1 and 19(f)(1)(i)-2, which provide 
explanation of the best information reasonably available standard. 
The proposed comment also provided instruction on disclosures that 
may be required after consummation if the creditor may modify the 
rate disclosed for the permanent financing when the construction 
financing converts to permanent financing. If such an adjustment of 
the interest rate occurs at the time of conversion and results in a 
payment change, the creditor must provide the rate and payment 
adjustment disclosures required by Sec.  1026.20(c) (commonly 
referred to as ARM notices) at least 60 days, and no more than 120 
days, before the first payment at the adjusted level is due, without 
regard to whether the permanent financing has a fixed, adjustable, 
or step rate. The Bureau sought comment on the appropriateness of 
the provision of the Sec.  1026.20(c) disclosures in connection with 
the conversion to permanent financing and any operational changes 
for creditors in a construction-permanent loan context to provide 
the disclosure required by Sec.  1026.20(c), generally required at 
least 60 days, and no more than 120 days, before the first payment 
at the adjusted level is due.

Comments Received

    The Bureau received one comment on the proposal regarding 
comment app. D-7.iii. The commenter noted that, if the loan in 
question is a two-phase construction-permanent loan in which the 
permanent phase will be consummated at the close of the construction 
phase of the loan, the creditor can issue a revised Loan Estimate 
for the permanent phase of the loan any time prior to 60 days before 
consummation of the permanent phase. The Bureau agrees that such a 
revision of the Loan Estimate may be permissible under Sec.  
1026.19(e)(3)(iv). The commenter stated that if the transaction is a 
single consummation construction-permanent loan and the creditor may 
modify the rate for permanent financing when the construction 
financing converts to permanent financing, the loan product would 
not be fixed-rate, and if that rate upon conversion is unknown would 
not be step-rate either, as stated in proposed comment app. D-7.iii. 
The commenter further noted that the permanent phase of the 
transaction would be an adjustable-rate loan product if the creditor 
reserves the right to modify the rate when the construction loan 
ends.

The Final Rule

    The Bureau is finalizing comment app. D-7.iii substantially as 
proposed, but with clarifications. The interest rate disclosed under 
Sec. Sec.  1026.37(b)(2) and 1026.38(b) is the interest rate 
applicable to the transaction at consummation. If the construction 
phase and permanent phase of a construction-permanent transaction 
are consummated at the same time, the payments for the permanent 
phase will often not be due for a year or more. In such situations, 
the legal obligation may provide that the interest rate of the 
permanent phase may change when the construction phase converts to 
the permanent phase, and further, may not specify what the interest 
rate will change to at the permanent phase. As discussed in final 
comment app. D-7.ii, the fact that the permanent phase interest rate 
may change and increase after consummation requires the permanent 
phase, if considered separately, to be disclosed as an adjustable-
rate product, as defined in Sec.  1026.37(a)(10)(i)(A) and not a 
fixed-rate or step-rate product, even if the loan will become a 
fixed-rate or a step-rate at the time of conversion. Similarly, as 
discussed in final comment app. D-7.ii, the combined construction-
permanent transaction in such a situation would also be disclosed on 
the combined Loan Estimate and Closing Disclosure as an adjustable-
rate product. However, the construction phase, if disclosed 
separately and if it has no interest rate changes of its own, would 
not. The disclosure of the permanent phase as an adjustable-rate 
product in these circumstances applies even if, upon conversion, the 
permanent phase will have a fixed interest rate. The statement 
``regardless of whether the permanent financing has a fixed, 
adjustable, or step rate'' at the end of the comment as proposed is 
not adopted given the clarification of the product in final comment 
app. D-7.ii.
    The Bureau is providing clarification in comment app. D-7.iii 
that in a transaction secured by the consumer's principal dwelling, 
if the legal obligation provides that the interest rate of the 
permanent financing may change, and therefore may increase, when the 
construction financing converts to permanent financing, and such 
conversion results in a fixed-rate transaction and payment change, 
the creditor must provide the disclosures pursuant to Sec.  
1026.20(c) generally at least 60 days, and no more than 120 days, 
before the first payment on the permanent phase at the adjusted 
level is due. Pursuant to Sec.  1026.20(c), an adjustable-rate 
mortgage (ARM) payment change disclosure must be provided to the 
consumer when an interest rate adjustment resulting from the 
conversion of an adjustable-rate mortgage to a fixed-rate 
transaction, if that interest rate adjustment results in a 
corresponding payment change, as is the case in the conversion of 
the construction to a permanent loan described above.
    If the permanent phase interest rate disclosed at consummation 
may increase when the construction phase converts to the permanent 
phase, the permanent phase is both an adjustable-rate product under 
Sec.  1026.37(a)(10)(i)(A) and an ARM, as identified in Sec.  
1026.20(c)(1). If the interest rate set at conversion for the 
permanent financing will not change post-conversion, the permanent 
financing then becomes a fixed-rate loan, and the conversion from 
construction to permanent financing is a conversion of the permanent 
financing from an adjustable-rate mortgage to a fixed-rate 
transaction. Thus, the ARM payment change disclosure must be 
provided to consumers in this situation because, pursuant to Sec.  
1026.20(c), the disclosure is required when an ARM converts to a 
fixed-rate transaction, if the interest rate adjustment results in a 
payment change. Note that this requirement only applies if the loan 
is secured by the consumer's principal dwelling. Because the Sec.  
1026.20(d) ARM initial interest rate adjustment disclosure is not 
required when an ARM converts to a fixed-rate transaction, that 
requirement would not be triggered by the construction to permanent 
phase conversion. However, should the construction or permanent 
phase individually otherwise meet the coverage requirements of Sec.  
1026.20(c) or (d), for example, if the permanent phase has an 
adjustable rate after conversion or if the initial term of the 
construction phase exceeds one year, nothing in comment app. D-7.iii 
should be read to exclude or modify those requirements.
    Finally, in response to the commenter's assertion regarding 
resetting tolerances for the permanent phase, the Bureau notes that 
if the loan in question is a two-phase construction-permanent loan 
in which the

[[Page 37758]]

permanent phase will be consummated at the close of the construction 
phase, and if consistent with Sec.  1026.19(e)(3)(iv), the creditor 
can issue revised disclosures and reset tolerances by issuing a 
revised Loan Estimate for the permanent phase, which may disclose a 
different interest rate than originally disclosed.

Initial Periodic Payment

    Proposed comment appendix D-7.iv would have clarified that the 
general rule of Sec.  1026.17(c)(3), which allows creditors to 
disregard the effects of certain minor variations in making 
calculations and disclosures, applies to the appendix D calculation 
of the initial periodic payment amount disclosed under Sec. Sec.  
1026.37(b)(3) and 1026.38(b). For example, the effect of the fact 
that months have different numbers of days may be disregarded in 
making the disclosure.
    The Bureau did not receive comments on the proposed 
clarification to comment app. D-7.iv. However, for the reasons 
explained in the above section-by-section analysis of comment app. 
D-7.i, the Bureau is removing this cross-reference for consistency. 
While the creditor may consider Sec.  1026.17(c)(3) to determine the 
effects of certain minor variations in making calculations and 
disclosures, this should not be to the exclusion of other applicable 
sections, such as Sec.  1026.17(c)(4). Accordingly, proposed comment 
app. D-7.iv is not being adopted.

Increase in Periodic Payment

The Bureau's Proposal

    Sections 1026.37(b)(6) and 1026.38(b), by cross-reference, 
require a creditor to provide an affirmative or negative answer to 
the question, ``Can this amount increase after closing?'' with 
respect to certain amounts, including the initial periodic payment 
amount disclosed under Sec.  1026.37(b)(3). Creditors have asked the 
Bureau what answer may be provided to this question in the case of 
construction financing if the actual schedule of advances is not 
known. Proposed comment app. D-7.v explained that, in general, the 
answer a creditor provides will depend upon whether the construction 
financing has a fixed rate or an adjustable rate. Proposed comment 
app. D-7.v.A and B discussed the disclosure of fixed-rate 
construction financing, and proposed comment app. D-7.v.C discussed 
the disclosure of adjustable-rate construction financing.
    The payments made during the construction phase are often 
interest-only payments. The amount of any particular interest-only 
payment on a construction loan is typically determined by applying 
the contract interest rate to the amounts advanced. The amounts 
advanced may be tied to construction milestones and the total of the 
amounts advanced will increase with each milestone, usually 
resulting in increases in the amounts of the interest-only payments 
that become due. If the construction financing has a fixed rate, the 
periodic interest-only payments will increase over the term of the 
loan, reflecting increases in the amounts advanced. If the 
construction financing has an adjustable rate, the periodic 
interest-only payments may also increase over time, but the increase 
may be due to both an increase in the adjustable interest rate and 
increases in the amounts advanced.
    A creditor may use the methods in appendix D to estimate 
interest and make disclosures for construction loans if the actual 
schedule of advances is not known. The calculation of the periodic 
payments in a fixed-rate construction loan using appendix D produces 
interest-only periodic payments that are equal in amount. The 
preamble of the proposed rule explained that although the actual 
interest-only payments will increase over the term of the 
construction financing as the amounts advanced increase, because the 
methods provided by appendix D to estimate interest may be used to 
make disclosures, a technically correct and compliant answer to 
``Can this amount increase after closing?'' is ``NO.'' The periodic 
payments for fixed-rate construction financing, as calculated under 
appendix D, do not increase but are equal.
    Creditors nonetheless have expressed concern over providing an 
answer of ``NO'' to the question, ``Can this amount increase after 
closing?'' This technically correct disclosure may not reflect the 
actual increase in payments that will occur over the term of the 
construction financing, even though the amount of such increases is 
not known at or before consummation. Thus, the Bureau proposed 
comment app. D-7.v.A to explain that a creditor may disclose the 
initial periodic payment using appendix D and nevertheless may 
answer ``YES'' to the question, ``Can this amount increase after 
closing?'' Comment app. D-7.v.A also explained that a technically 
correct answer to ``Can this amount increase after closing'' is 
``NO.'' The proposed comment is consistent with informal guidance 
provided by the Bureau.
    Proposed comment app. D-7.v.B explained that, if separate 
disclosures are provided for fixed-rate construction and permanent 
financing and appendix D is used to compute the periodic payment for 
the construction phase, the disclosures under Sec.  
1026.37(b)(6)(iii) and the disclosure of a range of payments under 
Sec.  1026.37(c)(2)(i) may be omitted. As discussed above, the 
periodic payments calculated under appendix D for a fixed-rate loan 
are equal. Consequently, the proposal stated a creditor in that case 
does not provide the increase in periodic payments disclosures under 
Sec.  1026.37(b)(6)(iii), such as the due date of the first adjusted 
principal and interest payment or a reference to the adjustable 
payments table required by Sec.  1026.37(i). The proposal also 
stated such a creditor also does not disclose the principal and 
interest payment under Sec.  1026.37(c)(2)(i) as a range of payments 
in the projected payments table, even though the interest-only 
payments would increase over the term of the construction financing, 
reflecting increases in the total amount advanced.
    Proposed comment app. D-7.v.C stated that, if separate 
disclosures are provided for adjustable-rate construction financing 
and appendix D is used to calculate the periodic payment, the 
disclosures reflect the changes that are due to changes in the 
interest rate but not the changes that are due to changes in the 
amounts advanced and provided an illustrative example. Proposed 
comment app. D-7.v.C. also stated that while a creditor extending 
fixed-rate construction financing may answer either ``YES'' or 
``NO'' as the answer to the question, ``Can this amount increase 
after closing?,'' because payments may increase based on increases 
in advances, a creditor extending adjustable-rate construction 
financing would disclose ``YES'' as the answer to the question, 
``Can this amount increase after closing?'' When a creditor extends 
adjustable-rate construction financing, unlike when it extends 
fixed-rate construction financing, payments may increase based on an 
increase in the adjustable interest rate as well as an increase in 
the amount advanced. Because the payments may increase in such 
cases, without regard to the amount of advances, a creditor would 
disclose ``YES'' as the answer to the question, ``Can this amount 
increase after closing?'' and ``NO'' would not be a technically 
correct answer.
    Proposed comment app. D-7.v.C. also stated that, for adjustable-
rate construction financing, a creditor must provide disclosures 
reflecting changes that are due to changes in the interest rate, but 
may omit disclosures reflecting changes that are due to changes in 
the total amount advanced. Proposed comment app. D-7.v.C. explained 
that the creditor may omit the adjustable payment table disclosure 
required by Sec.  1026.37(i) because the disclosure would reflect a 
change due to a change in the total amount advanced. Consistent with 
these disclosures, the creditor would also disclose a range of 
payments in the principal and interest row of the projected payments 
table under Sec.  1026.37(c)(2)(i).

Comments Received

    Commenters raised concerns regarding the options provided by the 
proposed commentary and the time that would be required to implement 
it. An individual commenter objected to the option to provide either 
an affirmative or negative answer to the question, ``Can this amount 
increase after closing?'' The commenter stated that disclosing 
``NO'' would be inaccurate as the payment can range as high as 
interest on the total amount of the approved loan or as little as 
$0.00, if no funds have been drawn. A vendor commented that the 
optionality in proposed comment app. D-7.v.A would complicate 
compliance because creditors and investors would need to conduct 
additional staff training regarding these options, including that 
they are only applicable for fixed-rate transactions. The option 
provided under proposed comment app. D-7.v.B to omit the disclosures 
under Sec.  1026.37(b)(6)(iii) and (c)(2)(i) would similarly 
complicate compliance and require training. The commenter further 
noted that implementing these options would require significant 
reprogramming for technology providers across the industry, 
including loan origination, document production, and compliance 
software companies. The commenter also stated that useful 
information under Sec.  1026.37(b)(6)(iii) and (c) that is based on 
the principal balance would be able to be disclosed and noted 
consumers would benefit from a disclosure of the maximum principal 
and interest payment

[[Page 37759]]

based on the maximum principal balance that could be outstanding 
during the construction phase.
    Several vendors expressed implementation concerns with proposed 
comments app. D-7.v.A and B. They indicated their systems cannot 
support a ``YES'' for fixed-rate construction-only disclosures 
without the Sec.  1026.37(b)(6)(iii) bullet points as the proposed 
comments would permit. The vendors' comments noted that, currently, 
most software automatically produces the bullets under Sec.  
1026.37(b)(6)(iii) when a ``YES'' answer is provided under Sec.  
1026.37(b)(6). Thus, while the proposal indicated the bullets under 
Sec.  1026.37(b)(6)(iii) are optional, the vendors indicated the 
optionality did not exist under their programs. The proposed changes 
would require reprogramming and would also complicate software 
integrations. Vendors estimated the proposed comments would require 
9 to 12 months to implement. These implementation concerns were 
echoed by a trade organization, which commented that the 
construction loan management (CLM) systems that creditors use to 
manage draws and inspections during the construction phase do not 
communicate with servicing and loan origination software. Because of 
such software issues, creditors manually interface their CLM systems 
with their other systems. The comment noted sufficient time will be 
needed to adjust systems and processes to the new rules.

The Final Rule

    Based on the concerns initially raised by creditors and noted in 
the proposed rule, and the additional concerns expressed in the 
comments, the Bureau is adopting comment app. D-7.v with 
modification. The option to disclose an answer of either ``YES'' or 
``NO'' to the question ``Can this amount increase after closing?'' 
under comment app. D-7.v.A is not adopted under this final rule. 
Only a disclosure of ``YES'' would be provided as the Sec.  
1026.37(b)(6) response to whether there will be an increase in the 
periodic payment when the amounts or timing of advances is unknown 
at or before consummation and the appendix D assumption that applies 
if interest is payable only on the amount advanced for the time it 
is outstanding is used to calculate the periodic payment. This 
change will address the concerns of creditors and others that the 
disclosure should reflect the fact that the payments actually 
increase over the term of the construction financing, even though 
the amount of such increases is not known at or before consummation. 
However, during the optional compliance period before October 1, 
2018, and after the optional compliance period with respect to 
transactions for which a creditor or mortgage broker received an 
application during the optional compliance period, disclosures may 
continue to be made in the manner explained by the informal guidance 
provided by the Bureau and restated in proposed comment app. D-
7.v.A. This takes into account the concerns of vendors, creditors, 
and others for sufficient time to reprogram systems and train staff 
to integrate the disclosures finalized here into their systems and 
processes.
    To further simplify the disclosures and their implementation, 
the scope of comments app. D-7.v.A. and B is not limited to 
circumstances when separate disclosures are provided for fixed-rate 
construction financing as they were in the proposed rule and comment 
app. D-7.v.C is not limited to separate disclosures for adjustable-
rate construction financing. As a practical matter, if ``YES'' is 
the answer to ``Can this amount increase after closing?'' when 
separate disclosures are provided for either fixed-rate or 
adjustable-rate construction financing, ``YES'' will necessarily be 
the answer when a combined disclosure for that financing is 
provided. This is generally the result whenever a combined 
disclosure is used because the interest-only payment of the 
construction financing increases to the principle and interest 
payment of the permanent financing. Comment app. D-7.v therefore 
applies to both separate construction disclosures and combined 
construction-permanent disclosures because, in either case, the 
Sec.  1026.37(b)(6) disclosures would reflect the construction phase 
during which there may be an increase in the periodic payment. In 
addition, the statement, ``If the amounts or timing of advances is 
unknown at or before consummation and the appendix D assumption that 
applies if interest is payable only on the amount advanced for the 
time it is outstanding is used to calculate the periodic payment'' 
is provided as the introductory paragraph that applies to all of 
comment app. D-7.v.A through C. This condition in the introductory 
paragraph is the perquisite for the applicability of the 
explanations that follow in the subsequent paragraphs of the 
comment. The Bureau considers that the greater consistency provided 
for the Sec.  1026.37(b)(6) disclosures by the final rule will 
provide greater clarity and help creditors facilitate the 
implementation of these provisions. However, the option to answer 
``NO'' during the optional compliance period before October 1, 2018, 
will continue to be limited to circumstances when separate 
disclosures are provided for fixed-rate construction financing. As 
noted above, when a single, combined disclosure is used for both the 
construction and permanent phases, or when the construction phase 
has an adjustable rate and either separate or combined disclosures 
are provided, the initial interest-only periodic payment may 
increase, even when the initial payment is calculated in accordance 
with appendix D.
    The option in proposed comment app. D-7.v.B to omit the 
disclosures under Sec.  1026.37(b)(6)(iii) and the disclosure of a 
range of payments under Sec.  1026.37(c)(2)(i) is adopted with 
modifications. In adopting these modifications, the Bureau agrees 
with the comments noting that useful information could be provided 
to consumers based on the maximum principal balance that could be 
outstanding during the construction phase. The Bureau is also taking 
into account the practical consequences of the comments noting that 
many systems automatically populate the Sec.  1026.37(b)(6)(iii) 
``bullets'' when a response of ``YES'' is disclosed.
    Comment app. D-7.v.B, as modified, provides an explanation of 
how to make the Sec.  1026.37(b)(6)(iii) disclosures when a ``YES'' 
response to ``Can this amount increase after closing?'' is 
disclosed. The comment explains that years or months may be used for 
the Sec.  1026.37(b)(6)(iii) disclosures, consistent with comment 
37(b)(6)-1. Using months for the disclosures provides more useful 
information for construction loans in particular, as such loans 
often do not exceed 12, rather than 24, months. The comment provides 
examples that, for a 10-month construction loan, the first bullet 
may disclose, ``Adjusts every mo. starting in mo. 1'' and the second 
bullet may disclose, ``Can go as high as $ [ insert maximum possible 
payment] in year 1.'' The comment clarifies the maximum possible 
payment disclosed would be based on the maximum principal balance 
that could be outstanding during the construction phase. The 
adjustment may start in the first month (``mo. 1'') because the 
first payment is not likely to equal the amount computed using the 
appendix D assumptions when the amounts or timing of advances is 
unknown at or before consummation and interest is payable only on 
the amount advanced for the time it is outstanding.
    Comment app. D-7.v.B further explains that as part of the 
``First Change/Amount'' disclosure in the ``Adjustable Payment (AP) 
Table'' pursuant to Sec.  1026.37(i)(5)(i), the creditor may omit 
and leave blank the amount or range corresponding to the first 
periodic principal and interest payment that may change. The timing 
of the first change, which is the earliest possible payment that may 
change under the terms of the legal obligation under comment 
37(i)(5)-2, is still disclosed. This disclosure, in particular, 
reflects a change due to a change in the total amount advanced, but 
when the amounts or timing of advances is unknown at or before 
consummation and interest is payable only on the amount advanced for 
the time it is outstanding, there is not a method for computing the 
amount at the first change in payment. However, the other 
disclosures in the ``Adjustable Payment (AP) Table'' may be made 
without having to take an unknown quantity into account. For 
example, the first change may take place at the first payment, the 
earliest possible payment that may change, because the first payment 
likely may not equal the amount computed using the appendix D 
assumption, and the maximum payment would be based on the maximum 
draw that could be outstanding during the construction phase.
    The reference to Sec.  1026.37(c)(2)(i) in proposed comment app. 
D-7.v.B is also removed in this rule. Because the payment can range 
as high as the interest on the total amount of the approved loan or 
as little as $0.00, as noted in the comments, the proposed option to 
omit the Sec.  1026.37(c)(2)(i) disclosures is not adopted. As 
discussed below, proposed comment app. D-7.vi adopted in this rule 
as comment app. D-7.v, which directly addresses the projected 
payments disclosures for multiple-advance construction loans, more 
appropriately addresses such issues.
    Comment app. D-7.v.C, which addresses the increase in periodic 
payment disclosures for adjustable-rate construction financing, is 
modified for consistency with the app. D-7.v

[[Page 37760]]

changes described above. It applies to both the separate 
construction disclosures and the combined construction-permanent 
disclosures, rather than only to separate construction disclosures 
as proposed. Because the Sec.  1026.37(b)(6)(iii) bullets may be 
disclosed as provided in comment app. D-7.v.B, comment app. D-7.v.C 
explains that both the adjustable payment table and the adjustable 
interest rate table are included in the Sec.  1026.37(b)(6) 
disclosures for adjustable-rate construction financing.
    Finally, because proposed comment app. D-7.iv is not being 
adopted, a conforming change is being made and proposed comment app. 
D-7.v is renumbered as comment app. D-7.iv in this rule.

Projected Payments Table

The Bureau's Proposal

    Comment app. D-7 currently addresses only the disclosure of a 
projected payments table under Sec. Sec.  1026.37(c) and 1026.38(c). 
Comment app. D-7.i provides an illustration of the construction 
phase projected payments table disclosure if the creditor elects to 
disclose the construction and permanent phases as separate 
transactions. Comment app. D-7.ii provides an illustration of the 
projected payments table disclosure if the creditor elects to 
disclose the construction and permanent phases as a single 
transaction. The proposed rule would have restated comment app. D-
7.i as comment app. D-7.vi.A and added clarifying language to 
specify that, if interest is payable only on the amount actually 
advanced for the time it is outstanding, the creditor uses the 
assumption in appendix D, part I.A.1, to determine the amount of the 
interest-only payment to be made during the construction phase. The 
proposed comment would have also clarified that comment app. D-7.i's 
statement that the creditor must disclose the construction phase 
transaction as a product with a balloon payment feature, pursuant to 
Sec. Sec.  1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), applies 
unless the transaction has negative amortization, interest-only, or 
step payment features, consistent with Sec.  1026.37(a)(10)(iii). 
References to the balloon payment disclosures under Sec. Sec.  
1026.37(b)(5), 1026.37(b)(7)(ii), and 1026.38(b) would have been 
added to the existing statement that the creditor must disclose the 
balloon payment in the projected payments table.
    The proposed rule would have also restated comment app. D-7.ii 
as comment app. D-7.vi.B. Language consistent with informal guidance 
provided by the Bureau would have been added to clarify comment app. 
D-7.ii's statement that the projected payments table must reflect 
the interest-only payments during the construction phase in a first 
column. As proposed, the comment would have explained that the first 
column also reflects the amortizing payments for the permanent phase 
if the term of the construction phase is not a full year. This 
clarification would have ensured consistency with Sec.  
1026.37(c)(1)(iii)(B), which requires disclosure of a range of 
payments if the periodic principal and interest payment or range of 
payments may change during the same year as the initial periodic 
payment or range of payments. A clarifying revision would have also 
been added to proposed comment app. D-7.vi.B to explain that, if 
interest is payable only on the amount actually advanced for the 
time it is outstanding, the creditor uses the assumption in appendix 
D, part II.A.1 to determine the amount of the interest-only payment 
to be made during the construction phase.

Comments Received

    A law firm commenter recommended that the Bureau incorporate the 
guidance from Section 14.7 of the Bureau's TILA-RESPA Integrated 
Disclosure Rule Small Entity Compliance Guide regarding the mortgage 
insurance and estimated escrow disclosures in the projected payments 
table for transactions where the terms of the legal obligation for 
the permanent phase, but not the construction phase, require 
mortgage insurance or escrow. This commenter also recommended that 
the Bureau clarify the impact of the mortgage insurance and 
estimated escrow disclosures on the estimated total monthly payment 
disclosure where the construction phase is not a full year and, 
therefore, the first column in the projected payments table 
discloses a range of payments reflecting the interest-only payments 
during the construction phase and the amortizing payments for the 
permanent phase. A vendor group commenter similarly recommended that 
the rule address the treatment of estimated escrow payments as they 
relate to single-close construction-to-permanent transactions.
    Another law firm commenter stated that the regulation does not 
explain how to calculate the amount of the periodic payment of 
``only interest'' other than directing creditors to assume that 
interest is ``outstanding at the contract interest rate for the 
entire construction period.'' This commenter provided an example of 
the interest-only monthly payment computed using a daily interest 
accrual method. The commenter requested that the Bureau validate the 
formula used to compute the monthly payment.

The Final Rule

    As an initial matter, because proposed comment app. D-7.iv is 
not being adopted, proposed comment app. D-7.vi is renumbered as 
comment app. D-7.v in this rule. In addition, the description of the 
Sec.  1026.17(c)(6)(ii) provision that is currently in the 
introductory paragraph of comment app. D-7, but did not appear in 
proposed comment app. D-7.vi, is reinstated in the introductory 
paragraph of comment app. D-7.v in this rule. This revision is 
necessary to provide the context of the ``two alternatives'' cited 
in the following sentence of the comment.
    As discussed above concerning proposed comment app. D-7.v, 
comments noted the actual payment during the construction phase can 
range as high as the interest on the total amount of the approved 
loan or as little as $0.00. Nonetheless, current comment app. D-7.i 
and proposed comment app. D-7.vi provided that the creditor 
determines the amount of the interest-only payment to be made during 
the construction phase using the assumption in appendix D, part 
I.A.1. To promote consistency and continuity for construction 
disclosures in the projected payments table, comment app. D-7.v.A as 
adopted in this final rule continues to require the creditor to 
determine the amount of the interest-only payment to be made during 
the construction phase using the assumption in appendix D, part 
I.A.1. This means that the interest-only construction payments are 
not disclosed as a range of payments in the projected payments 
table. If a separate disclosure is used for the construction phase 
or if the term of the construction phase is a full year and a 
combined disclosure for both phases is used, only the payment 
determined using the appendix D assumption is disclosed in the 
projected payments table rather than a range of payments between $0 
and the interest on the total amount of the approved loan. If a 
single disclosure is used for both the construction and permanent 
phases and the term of the construction phase is less than a full 
year, a range of payments reflecting the payment determined using 
the appendix D assumption and the amortizing payments that will 
begin in the first year is disclosed.
    The Bureau agrees with the commenters that recommended 
incorporating additional discussion on disclosing escrow and 
mortgage insurance that was previously provided in an informal 
webinar by Bureau staff and incorporated into the Bureau's TILA-
RESPA Integrated Disclosure Rule Small Entity Compliance Guide. That 
discussion is added as comment app. D-7.v.C. Comment app. D-7.v.B is 
also revised to include a reference to mortgage insurance and escrow 
payments, which are reflected in the first column of the projected 
payments table along with the amortizing payments of the permanent 
phase if the creditor elects to disclose the construction and 
permanent phases as a single transaction and the construction phase 
is not a full year.
    With respect to the commenter that requested the Bureau validate 
the method used to compute the monthly interest payment for 
disclosure purposes, appendix D does not specify the method used to 
calculate the interest or monthly payment of the construction 
transaction. Appendix D only provides assumptions that creditors may 
use to estimate and disclose the terms of multiple advance 
construction loans. For example, if interest is payable only on 
amounts advanced, the estimated interest is computed based on the 
assumption that one-half the commitment amount is outstanding for 
the entire construction. The example that follows section I.B.4 of 
appendix D demonstrates how the interest-only monthly payment may be 
calculated using the assumptions provided, including the assumed use 
of monthly periods for calculation purposes. The example in the (B) 
column states the amount of the calculated monthly payment. The 
amount of the monthly payment in column (A) may be calculated by 
dividing the estimated interest by the number of months of the 
construction transaction in the example. However, these are only 
examples. Neither the regulation nor appendix D requires the use of 
monthly periods, or any other particular unit-periods. A creditor 
may use daily, or other, unit-periods for calculation purposes, as 
long as the period

[[Page 37761]]

used is not inconsistent with the terms of the legal obligation 
between the creditor and the consumer.

Construction Costs as ``Other'' Costs

The Bureau's Proposal

    Proposed comment app. D-7.vii.A would have explained the amount 
of construction costs is disclosed under the subheading ``Other'' 
under Sec.  1026.37(g)(4), consistent with informal guidance 
provided by the Bureau and the proposed changes to Sec.  
1026.37(g)(4). This proposed comment was consistent with proposed 
amendments to comment 37(g)(4)-4, which would have provided that the 
amount of construction costs must be disclosed under the subheading 
``Other'' pursuant to Sec.  1026.37(g)(4).
    Proposed comment app. D-7.vii.B would have also addressed 
disclosure of a portion of a construction loan's proceeds that is 
placed in a reserve or other account at consummation, sometimes 
referred to as a ``construction holdback.'' Consistent with informal 
guidance provided by the Bureau, the proposed comment would have 
explained that the amount of such an account may be disclosed 
separately from other construction costs or may be included in the 
amount disclosed for construction costs for purposes of required 
disclosures and calculations under Sec. Sec.  1026.37 and 1026.38, 
at the creditor's option. The comment would also have explained that 
if the creditor chooses to disclose the amount of loan proceeds 
placed in a reserve or other account at consummation separately, the 
creditor may disclose the amount as a separate itemized cost, along 
with a separate itemized cost for the balance of the construction 
costs, in accordance with Sec.  1026.37(g)(4), the amount may be 
labeled with any accurate term in accordance with the clear and 
conspicuous standard explained at comment 37(f)(5)-1, and the 
balance of construction costs must exclude the designated amount to 
avoid double counting.

Comments Received

    Comments on proposed comment app. D-7.vii were generally made 
together with comments submitted on the proposed revision of 
comments 37(g)(4)-4 and 38(g)(4)-1 and, similarly, were generally 
unfavorable. Commenters stated that disclosure of construction costs 
under Sec. Sec.  1026.37(g)(4) and 1026.38 (g)(4) would make the 
closing costs in many loans, including construction loans, appear to 
be enormous, causing confusion. Commenters stated that consumers 
would be concerned that loans were prohibitively expensive upon 
seeing such high ``closing costs.'' Commenters also noted that 
consumer testing had not been conducted for the proposed required 
disclosures, and disagreed with what they perceived as giving a 
greater priority to comparability between the Loan Estimate and the 
Closing Disclosure than to consumer understanding. Significant staff 
training and systems reprogramming were also cited as concerns by 
commenters. A fuller presentation of these comments is in the 
discussion of comment 37(g)(4)-4 above in this preamble.
    However, some commenters also pointed out an issue that was 
specific to proposed comment app. D-7.vii. Two trade association 
commenters noted that proposed comment app. D-7.vii.A did not 
expressly refer to the alternative disclosure for transactions 
without a seller, which was referenced in the proposed commentary to 
Sec. Sec.  1026.37(g)(4) and 1026.38 (g)(4). The commenters believed 
that not including this reference would create legal complexity and 
may introduce different interpretations between creditors and 
investors, causing confusion for the industry.

The Final Rule

    The Bureau is not adopting comment app. D-7.vii as proposed but 
is adopting the comment with modifications in response to comments. 
The changes adopted are consistent with the changes made to other 
provisions in this rule that address construction costs. Because the 
disclosure of construction costs under Sec. Sec.  1026.37(g)(4) and 
1026.38 (g)(4) is not being required as proposed, comment app. D-
7.vii as adopted is revised to describe the options available for a 
creditor to disclose and calculate construction costs rather than 
focus only on the disclosure of construction costs as ``Other 
costs.'' In addition, because proposed comment app. D-7.iv is not 
being adopted in this rule, proposed comment app. D-7.vii is 
renumbered as comment app. D-7.vi in this rule.
    Comment app. D-7.vi, as redesignated, is renamed ``Disclosure of 
construction costs.'' The reference to construction costs as ``other 
costs'' is removed, because construction costs will no longer be 
disclosed as ``other costs'' under Sec. Sec.  1026.37(g)(4) and 
1026.38(g)(4). Proposed comment app. D-7.vii.A is redesignated as 
comment app. D-7.vi.A and revised to provide a description of 
``construction costs,'' as costs related to the improvements to be 
made to the property that the consumer contracts for in connection 
with the financing transaction and that will be paid in whole or in 
part with loan proceeds. Proposed comment app. D-7.vii.A is revised 
to refer to costs for which the consumer contracts in connection 
with the financing transaction rather than costs the consumer 
contracts at or before the real estate closing to pay, as proposed, 
because it may not be clear if there is a ``real estate closing'' 
when the financial transaction only involves construction. Even when 
a ``real estate closing'' is clearly present, improvements in 
connection with the financing transaction may not be contracted for 
until shortly after the closing takes place. In such cases, as long 
as the creditor knows that financing the improvement is a purpose of 
the loan proceeds, the construction costs are in connection with the 
financing transaction.
    Further, proposed comment app. D-7.vii.B is redesignated as 
comment app. D-7.vi.D. Comments app. D-7.vi.B and C as adopted in 
this rule describe the options available for a creditor to disclose 
and calculate construction costs under the Loan Estimate and Closing 
Disclosure, respectively.
    Comment app. D-7.vi.B as adopted provides that on the Loan 
Estimate the creditor factors construction costs into the funds for 
borrower calculation under Sec.  1026.37(h)(1)(v), or discloses 
these costs under Sec.  1026.37(h)(2)(iii) in the optional 
alternative calculating cash to close table for transactions without 
a seller or for simultaneous subordinate financing. Comment app. D-
7.vi.C as adopted in this rule describes the options a creditor has 
with respect to construction costs on the Closing Disclosure: to 
disclose these costs under Sec.  1026.38(j)(1)(v) in the summaries 
of transactions table and factor them into the funds for borrower 
calculation under Sec.  1026.38(i)(4) and (6) or disclose these 
costs under Sec.  1026.38(t)(5)(vii)(B) in the optional alternative 
calculating cash to close table for transactions without a seller or 
for simultaneous subordinate financing.
    A conforming change is made to comment app. D-7.vi.D, which was 
proposed comment app. D-7.vii.B, by removing the reference to Sec.  
1026.37(g)(4) and replacing it with a reference to ``the disclosure 
and calculation options described in comments app. D-7.vi.B and C.''

Construction Loan Inspection and Handling Fees

    Proposed comment app. D-7.viii provided instructions for the 
disclosure of construction loan inspection and handling fees 
consistent with informal guidance provided by the Bureau. The 
proposed comment explained that comment 4(a)-1.ii.A identifies 
inspection and handling fees for the staged disbursement of 
construction loan proceeds as finance charges. The proposed comment 
also provided cross-references to proposed comments 37(f)-3, 
37(f)(6)-3, and 38(f)-2, which are discussed in the section-by-
section analysis above. The Bureau believes that, by directing 
readers of the appendix D commentary to these other comments, 
proposed comment app. D-7.viii would facilitate compliance.
    The Bureau did not receive any comments on proposed comment app. 
D-7.viii. Although the Bureau received no comments regarding this 
proposed comment, as stated in the discussion of comment 37(f)-3, 
above, the Bureau is finalizing comment app. D-7.viii as proposed 
with an additional clarification in response to comments received 
that construction loan inspection and handling fees are loan cost 
charges that must be added to the ``In 5 Years'' disclosure under 
Sec.  1026.37(l)(1) and the total of payments disclosure under Sec.  
1026.38(o)(1) because they are disclosed under Sec.  1026.37(f), 
even when they are disclosed on an addendum. Consistent with a 
clarification being adopted in comment 37(f)-3, a statement is added 
that inspection and handling fees include draw fees. In addition, 
because proposed comment app. D-7.iv is not being adopted in this 
rule, proposed comment app. D-7.viii is renumbered as comment app. 
D-7.vii in this rule.

Appendix H--Closed-End Forms and Clauses

The Bureau's Proposal

    Pursuant to TILA section 105(b), a creditor is deemed to be in 
compliance with TILA's disclosure provisions with respect to other 
than numerical disclosures if the creditor uses any appropriate 
model form or clause as

[[Page 37762]]

published by the Bureau.\115\ Appendix H to Regulation Z includes 
blank forms illustrating the master headings, headings, subheadings, 
etc., that are required by Sec. Sec.  1026.37 and 1026.38, i.e., 
forms H-24(A) and (G), H-25(A) and (H) through (J), and H-28(A), 
(F), (I), and (J) (together, the blank forms). Appendix H to 
Regulation Z also includes non-blank forms providing samples of 
disclosures, i.e., forms H-24(B) through (F), H-25(B) through (G), 
and H-28(B) through (E), (G), and (H) (together, the sample forms).
---------------------------------------------------------------------------

    \115\ 15 U.S.C. 1604(b). A creditor may delete any information 
which is not required by TILA or rearrange the format, if in making 
such deletion or rearranging the format, the creditor does not 
affect the substance, clarity, or meaningful sequence of the 
disclosure. Id.
---------------------------------------------------------------------------

    Current comment app. H-30 provides that forms H-24(A) through 
(G), H-25(A) through (J), and H-28(A) through (J), i.e., both the 
blank forms and the sample forms, are model forms for the 
disclosures required under Sec. Sec.  1026.37 and 1026.38 and that 
use of an appropriate model form is mandatory for a transaction that 
is a federally related mortgage loan (as defined in Regulation X). 
The Bureau proposed to revise comment app. H-30 to distinguish 
between the blank forms and the sample forms and to establish that 
only the blank forms are model forms.

Comments Received

    Commenters, including creditors, vendors, trade associations, 
government sponsored enterprises (GSEs), a title insurance 
underwriter, and an individual attorney, opposed the proposed 
revisions to comment app. H-30 that would remove the sample forms' 
status as model forms, and thus remove the existing safe harbor 
protection afforded by use of the sample forms. A title insurance 
underwriter, a trade association, and GSE commenters noted the 
Bureau's statement in the TILA-RESPA Final Rule that the sample 
forms ``illustrate the disclosures required under Sec. Sec.  1026.37 
and 1026.38, for particular types of transactions.'' \116\ Trade 
association commenters challenged the Bureau's legal authority to 
revise comment app. H-30 as proposed and stated that reversing the 
decision made in the TILA-RESPA Final Rule at this point would 
appear to be arbitrary and capricious.
---------------------------------------------------------------------------

    \116\ 78 FR 79730, 80064 (Dec. 31, 2013).
---------------------------------------------------------------------------

    GSE commenters stated that the sample forms were critical to the 
GSEs' development of the Uniform Closing Dataset (UCD) and that it 
is important to preserve the safe harbor protection afforded by use 
of the sample forms. As an example of the importance of safe harbor 
protection, a title insurance underwriter cited Sec.  1026.37(b)(6), 
which, for each amount required to be disclosed by Sec.  
1026.37(b)(1) through (3), requires creditors to provide a statement 
of whether the amount may increase after consummation as an 
affirmative or negative answer to the question, and under such 
question disclosed as a subheading, ``Can this amount increase after 
closing?'' Moreover, in the case of an affirmative answer, Sec.  
1026.37(b)(6) requires creditors to provide additional information 
specified in Sec.  1026.37(b)(6)(i) through (iii), as applicable. 
The title insurance underwriter commented that, without the status 
of the sample forms as model forms, there would be no safe harbor 
regarding the formatting or organization of the disclosures required 
under Sec.  1026.37(b)(6). The title insurance underwriter stated 
that the proposed revisions to comment app. H-30 would increase 
legal risk for creditors, which could potentially increase costs for 
consumers.
    Some commenters, including a creditor, a title insurance 
underwriter, a trade association, and a vendor group, requested that 
the Bureau conduct a systematic review of the sample forms to 
address errors and for consistency with the final rule. A trade 
association commenter requested that the Bureau publish more details 
regarding the hypothetical transactions and assumptions that 
underlie the various existing sample forms. That commenter further 
requested that the Bureau develop additional sample forms to 
demonstrate alternative approaches for disclosing the same 
hypothetical transactions that underlie the existing sample forms.

The Final Rule

    For the reasons discussed below, the Bureau is not adopting the 
proposed revisions to current comment app. H-30. Accordingly, use of 
an appropriate sample form, if properly completed with accurate 
content, constitutes compliance with the requirements of Sec. Sec.  
1026.37 or 1026.38 and associated commentary, as applicable. In part 
in response to commenters' concerns, the Bureau concludes that 
maintaining the current text of comment app. H-30 and the sample 
forms' status as model forms will facilitate compliance and promote 
greater consistency in formatting the disclosures required under 
Sec. Sec.  1026.37 and 1026.38. Such consistency, in turn, can 
facilitate comparison shopping for consumers.
    In finalizing the current proposal, the Bureau has not pursued 
commenters' suggestions to develop additional sample forms, publish 
more details regarding the forms' underlying assumptions, and 
conduct a systematic review of the forms, because such actions would 
be very time consuming and resource-intensive, whereas the Bureau's 
focus in this rulemaking is providing additional clarity in an 
expeditious manner.

VI. Effective Date

A. The Bureau's Proposal

    The Bureau proposed an effective date 120 days after publication in 
the Federal Register of any final rule based on the proposal. The 
Bureau also requested comment on when the changes proposed should be 
effective. In addition, the Bureau requested comment on whether there 
is a better or worse time of year for any of the proposed changes to 
become effective. The Bureau also requested comment on whether specific 
changes, as detailed in the section-by-section analysis of the 
proposal, should have a separate effective date and, if so, whether it 
should be earlier or later than the general effective date and why. In 
the proposal, the Bureau stated that it believed that the proposed 
changes should enable industry to implement the provisions set forth in 
the TILA-RESPA Rule more cost-effectively and that industry should be 
able to implement these changes relatively quickly. At the same time, 
the Bureau stated that it recognized that some of the proposed changes 
might require changes to systems or procedures.
    In addition, the Bureau proposed revisions to comment 1(d)(5)-1 
related to the implementation timeframe for the escrow cancellation 
notice required by Sec.  1026.20(e) and the partial payment disclosure 
required by Sec.  1026.39(d)(5). Those revisions are discussed further 
in the section-by-section analysis of Sec.  1026.1(d)(5).

B. Comments Received

    In response to the proposed rule, the Bureau received many comments 
concerning the effective date and implementation period. One consumer 
group commenter indicated that the changes in the final rule should be 
applied prospectively only. Thus, the changes should only be effective 
to applications received on or after a date certain. The commenter 
stated that such prospective application of the changes would create 
clarity for enforcement agencies and consumers.
    A large number of industry commenters addressed the effective date 
and implementation period issues. Some industry commenters suggested a 
single implementation period applicable to all changes made in the 
final rule. These industry commenters indicated that 120 days was not 
adequate to implement the changes. They indicated they needed 
additional time to complete software updates, to conduct testing and 
self-audits, to update training policies, and to complete staff 
training. These commenters' suggestions for the implementation period 
ranged from 6 months to 24 months. One commenter suggested 6 months, 
one commenter suggested 6 to 9 months, one commenter suggested 18 
months, one commenter suggested 24 months, and the predominance of 
commenters suggested 12 months. One commenter suggested that the 
implementation period should extend to the later of (1) 12 months or 
(2) 180 days after the effective date for all other regulations related 
to mortgages that have recently been finalized by the Bureau.
    Several industry commenters suggested that the implementation 
timeframe should vary based on the particular change. One commenter 
suggested a 30-day implementation period for changes requiring little 
or no reprogramming and a 180-day

[[Page 37763]]

implementation period for other changes, such as changes to the 
calculating cash to close table, and the total of payments disclosure. 
One commenter recommended an earlier implementation period for changes 
related to the official interpretations, but recommended a voluntary 
compliance period coupled with a mandatory compliance deadline of 12 
months for provisions that it perceived as requiring changes to the 
forms, including the calculating cash to close table. One commenter 
indicated that changes that require little reprogramming should be 
effective immediately upon publication. This commenter indicated that, 
for other changes, the effective date should be 180 days from 
publication of the final rule. One commenter suggested that certain 
changes that do not require software upgrades should be effective upon 
finalization and asked the Bureau to work with vendors to determine an 
appropriate effective date for other provisions.
    Several industry commenters suggested that the Bureau allow 
optional compliance. One commenter indicated that an optional 
compliance period would allow changes to loan origination systems to be 
``rolled out'' prior to the final compliance date, so that all of the 
changes do not have to occur on one day. This commenter stated that an 
optional compliance period would ease the transition process for both 
providers of loan origination systems and for the users of the systems 
who must learn about and understand the changes being implemented. One 
commenter stated that because some of the proposed changes are based on 
unofficial guidance previously provided by the Bureau's staff, many 
creditors are already complying with those proposed changes. This 
commenter indicated that the Bureau should permit optional compliance 
with the final changes so that creditors already complying with the 
final changes are not penalized.
    Several industry commenters asked that certain changes be made 
retroactive. For example, one industry commenter indicated that 
technical, non-substantive changes (i.e., typographical errors, 
incorrect rule references, and other minor modifications) should be 
effective as quickly as possible and should apply retroactively. 
Another industry commenter recommended that certain amendments, such as 
the proposed changes related to cooperative units and the proposed 
changes related to the sharing of Closing Disclosures, should be 
effective for all loan applications received on or after October 3, 
2015. One industry commenter recommended retroactivity for proposed 
changes related to tolerances for the total of payments for 
transactions for which creditors received applications before the 
effective date of the tolerance. One industry commenter indicated that, 
where the Bureau is memorializing unofficial guidance, the provisions 
should be effective upon rule finalization for all transactions 
originated on or after October 3, 2015. One industry commenter 
indicated that the Bureau should provide retroactive protection for 
clarifications of ambiguous provisions and formal adoption of informal 
guidance previously provided by the Bureau. This commenter also 
indicated that any cure or correction provisions that are adopted 
should be retroactive. The commenter also asked the Bureau to confirm 
that the Bureau's ``good faith'' approach to oversight of the TILA-
RESPA integrated disclosures is still in effect and will remain in 
effect during the implementation period after the proposal is 
finalized.

C. The Final Rule

Overview of the Final Rule
    Based on the requests that creditors be allowed to implement some 
aspects of the final rule soon after issuance, the amendments in the 
final rule (2017 TILA-RESPA Amendments) will become effective on 
October 10, 2017. The Bureau is further allowing optional compliance 
until compliance with the 2017 TILA-RESPA Amendments becomes mandatory. 
As discussed in more detail below, the Bureau believes that an optional 
compliance period is the best framework for addressing the specific 
implementation challenges that are present in this rulemaking as 
identified in the proposal and in comments. Therefore, compliance with 
the 2017 TILA-RESPA Amendments is mandatory only with respect to 
transactions for which a creditor or mortgage broker received an 
application on or after October 1, 2018 (except for compliance with the 
escrow cancellation notice required by Sec.  1026.20(e) and the partial 
payment policy disclosure required by Sec.  1026.39(d)(5) discussed in 
the section-by-section analysis of Sec.  1026.1(d)(5)). Except with 
respect to the escrow cancellation notice and the partial payment 
disclosure requirements, for transactions for which a creditor or 
mortgage broker received an application prior to October 1, 2018, from 
the effective date of the 2017 TILA-RESPA Amendments, a person may 
comply either with Regulation Z (as interpreted by the commentary) as 
it is in effect (including the amendments set forth in the 2017 TILA-
RESPA Amendments) or as it was in effect on October 9, 2017, together 
with any amendments that become effective other than the 2017 TILA-
RESPA Amendments.
    After considering the comments, the Bureau believes that it is 
appropriate for several reasons to require compliance with the 2017 
TILA-RESPA Amendments only with respect to transactions for which a 
creditor or mortgage broker received an application on or after October 
1, 2018 (except for compliance with the escrow cancellation notice and 
partial payment policy disclosure requirements discussed above with 
which compliance will become mandatory on October 1, 2018, regardless 
of when an application was received). The final rule will require 
several changes to systems used to produce the TILA-RESPA integrated 
disclosure forms. The Bureau believes that mandating compliance with 
the 2017 TILA-RESPA Amendments only with respect to transactions for 
which a creditor or mortgage broker received an application on or after 
October 1, 2018, will provide creditors sufficient time to complete 
software updates, to conduct testing and self-audits, to update 
training policies, and to complete staff training that may be needed to 
implement the changes in the final rule. The Bureau does not believe 
that a longer timeframe, as requested by a small number of commenters, 
is necessary given the nature of the changes in this final rule.
    The Bureau believes that it is appropriate to allow optional 
compliance with the 2017 TILA-RESPA Amendments for several reasons. As 
the Bureau noted in its proposal, this final rule does not reopen major 
policy decisions made in the TILA-RESPA Final Rule. This final rule 
generally clarifies ambiguous provisions, including by memorializing 
past informal guidance, and makes technical amendments. The Bureau 
believes many creditors, either in reliance on informal guidance or 
otherwise, currently may be complying with some of the final rule's 
clarifications. At the same time, given that the Bureau is clarifying 
existing ambiguity, the Bureau recognizes that not all creditors have 
already adopted processes in compliance with the final rule and that 
creditors are likely at various points along a continuum of adopting 
practices in compliance with the final rule. Therefore, the Bureau 
believes it reasonable to grant creditors an interim period in which to 
phase in their compliance with the final rule, in accordance with their 
individual circumstances. As to the purely

[[Page 37764]]

technical and clarifying amendments, the Bureau does not believe that 
this phased-in optional compliance period poses any risks of consumer 
harm.
    The final rule also contains a few substantive changes to the TILA-
RESPA Rule in a limited number of situations in which the Bureau has 
identified potential discrete solutions to specific implementation 
challenges. While the Bureau believes that these limited substantive 
changes will generally benefit consumers and industry alike by 
providing greater clarity for implementation, the Bureau also does not 
believe that permitting a phased-in optional compliance period for 
these limited substantive changes is likely to cause consumer harm. 
These substantive changes are limited and do not affect the content of 
the disclosures giving rise to statutory damages. Moreover, the changes 
to the disclosures do not alter the bottom-line dollar disclosures 
consumers are most likely to rely on in shopping for and closing on a 
mortgage, thereby minimizing the risk of consumer harm during the 
optional compliance period. For example, a creditor phasing in changes 
relating to the calculating cash to close table would nonetheless be 
required to disclose a final cash to close amount that is consistent 
with the summaries of transactions table. In general, the Bureau 
believes, therefore, that the minor variations in disclosure possible 
during the limited duration of the optional compliance period will not 
cause significant consumer confusion, whether such minor variations 
occur as between a Loan Estimate and Closing Disclosure issued by the 
same creditor or between Loan Estimates issued by two different 
creditors, although creditors may not phase in compliance in a way that 
violates provisions of Regulation Z (as interpreted by the commentary) 
unchanged by this final rule, as discussed further below in the Details 
of the Final Rule section.
    The Bureau also believes that industry's overall compliance with 
the TILA-RESPA Rule will be facilitated by the implementation of these 
limited substantive changes and that therefore there is both a consumer 
and industry benefit to allowing creditors to implement these changes 
as quickly as possible after the effective date. At the same time, the 
commenters clearly indicated that not all creditors will be able to 
implement these changes on the same schedule. The flexibility afforded 
under the optional compliance period may help creditors implement the 
provisions of the final rule more quickly and easily.
    For these reasons, the Bureau agrees with several commenters that 
it is appropriate to allow creditors flexibility to comply with the 
2017 TILA-RESPA Amendments all at one time, or to phase in the changes 
prior to the mandatory compliance date. After considering the comments, 
the Bureau does not believe that it would be optimal in these 
circumstances for the Bureau to impose a detailed schedule for 
creditors to phase in the changes required by this final rule, for 
example by establishing multiple effective dates that are staggered 
over time. Thus, after the effective date of the 2017 TILA-RESPA 
Amendments, creditors generally may phase in the 2017 TILA-RESPA 
Amendments as best comports with their business models, whether based 
on application dates for specific provisions or even during the course 
of a transaction, although such phased-in compliance may not place the 
creditor in violation of provisions of Regulation Z (as interpreted by 
the commentary) unchanged by this final rule, as discussed further 
below in the Details of the Final Rule section. The Bureau bases this 
decision on the general clarifying purpose of the final rule coupled 
with the limited, technical nature of the few substantive changes. Such 
expansive flexibility during the optional compliance period may not be 
appropriate in the context of other final rules with more significant 
substantive changes, more novel (as opposed to clarifying) amendments, 
or provisions whose staggered implementation posed a greater risk of 
consumer harm. Additionally, this approach may not be appropriate in 
circumstances where the provisions of the final rule were sufficiently 
related that implementing them piecemeal would cause significant 
conflict with either the existing rule or the final rule.
    With respect to some commenters' requests that the Bureau make 
provisions of the final rule retroactive, the Bureau declines to do so. 
Retroactive rulemaking is disfavored by the courts, and commenters have 
not established why it would be appropriate here.
    As discussed above, one commenter asked the Bureau to confirm that 
the Bureau's ``good faith'' approach to oversight of the TILA-RESPA 
integrated disclosures is still in effect and will remain in effect 
during the implementation period after the proposal is finalized. The 
Director of the Bureau publicly stated, in the early days after the 
TILA-RESPA Final Rule became effective in 2015, that the Bureau's 
oversight would be sensitive to the progress made by those entities 
that have squarely focused on making good-faith efforts to come into 
compliance with the TILA-RESPA Final Rule on time.\117\ The Bureau will 
take this approach in its oversight of efforts by creditors to come 
into compliance by the mandatory compliance date with the changes in 
this final rule.
---------------------------------------------------------------------------

    \117\ See, e.g., Letter from Director Richard Cordray, CFPB, to 
Industry Trades (April 28, 2015); Letter from Director Richard 
Cordray, CFPB, to Representatives Andy Barr and Carolyn B. Maloney, 
U.S. House of Representatives (June 3, 2015).
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Details of the Final Rule
    After considering the comments received and for the reasons 
discussed above, the Bureau is establishing an effective date, optional 
compliance provision, and mandatory compliance date for this final 
rule. Comment 1(d)(5)-2 sets forth the effective date, the optional 
compliance provision, and the mandatory compliance date.
    The effective date is 60 days after publication in the Federal 
Register. Consistent with the practice of other agencies in similar 
contexts, the 2017 TILA-RESPA Amendments will be incorporated into the 
Code of Federal Regulations on the effective date, but the amendments 
will not yet be mandatory. Instead, compliance with the July 2017 TILA-
RESPA Amendments is only mandatory with respect to transactions for 
which a creditor or mortgage broker received an application on or after 
October 1, 2018 (except for compliance with the escrow cancellation 
notice required by Sec.  1026.20(e) and the partial payment policy 
disclosure required by Sec.  1026.39(d)(5) discussed in comment 
1(d)(5)-1.iv, which, starting October 1, 2018, apply without regard to 
when the application for the covered loan was received).
    Except as discussed in comment 1(d)(5)-1.iv with respect to the 
escrow cancellation notice and the partial payment disclosure, for 
transactions for which a creditor or mortgage broker received an 
application prior to October 1, 2018, from the effective date of the 
2017 TILA-RESPA Amendments, a person has the option of complying with 
Regulation Z (as interpreted by the commentary) either as it is in 
effect or as it was in effect on October 9, 2017, together with any 
amendments that become effective other than the 2017 TILA-RESPA 
Amendments. With respect to transactions subject to the optional 
compliance provision, this means that an act or omission violates 
Regulation Z (as interpreted by the commentary) only if the act or 
omission violates both: (1) Regulation Z (as interpreted by the 
commentary), as it is

[[Page 37765]]

in effect; and (2) Regulation Z (as interpreted by the commentary), as 
it was in effect on October 9, 2017, together with any amendments that 
become effective other than the 2017 TILA-RESPA Amendments. Consistent 
with Sec.  1026.25, a creditor must keep records of such compliance and 
permit the agency responsible for enforcing Regulation Z with respect 
to that creditor to inspect those records.
    Under the optional compliance provision, as discussed above, a 
creditor is permitted to comply with the 2017 TILA-RESPA Amendments all 
at one time, or to phase in the changes prior to the mandatory 
compliance date whether based on application dates or during the course 
of a transaction, although such phased-in compliance may not place the 
creditor in violation of provisions of Regulation Z (as interpreted by 
the commentary) unchanged by this final rule, as discussed further 
below. For example, current Sec.  1026.37(l)(3) requires creditors to 
disclose the total interest percentage (TIP) and provides that the TIP 
is the total amount of interest that the consumer will pay over the 
life of the loan, expressed as a percentage of the principal of the 
loan. Among other things, the final rule revises comment 37(l)(3)-1 to 
state that prepaid interest that is disclosed as a negative number 
under Sec. Sec.  1026.37(g)(2) or 1026.38(g)(2) must be included as a 
negative value when calculating the TIP. With respect to transactions 
subject to the optional compliance provision, a creditor may either (1) 
include negative prepaid interest into the TIP calculation as a 
negative value as discussed in final comment 37(l)(3)-1; or (2) not 
include negative prepaid interest into the TIP calculation because the 
current regulation and commentary do not restrict how a creditor 
factors negative prepaid interest into the TIP calculation. As another 
example, current Sec.  1026.38(e) and 1026.38(i) provide that, in the 
Closing Disclosure's calculating cash to close table, the amounts that 
are required to be disclosed under the subheading ``Loan Estimate'' are 
the amounts disclosed on the Loan Estimate. Sections 1026.38(e) and 
1026.38(i) do not specify which Loan Estimate's amounts should be used 
if multiple Loan Estimates have been provided. The final rule adds 
comments 38(e)-6 and 38(i)-5 to specify that the amounts required to be 
disclosed under the subheading ``Loan Estimate'' on the Closing 
Disclosure's calculating cash to close table are the amounts disclosed 
on the most recent Loan Estimate provided to the consumer. With respect 
to transactions subject to the optional compliance provision, a 
creditor may disclose, under the subheading ``Loan Estimate'' on the 
Closing Disclosure's calculating cash to close table, the amounts from 
any Loan Estimate provided to the consumer, including the most recent 
Loan Estimate provided to the consumer.
    Notwithstanding the flexibility discussed above to phase in the 
2017 TILA-RESPA Amendments prior to the mandatory compliance date, 
creditors cannot phase in the amendments in a way that violates 
provisions of Regulation Z (as interpreted by the commentary) unchanged 
by this final rule, because doing so would not comply with either of 
the permissible versions of Regulation Z (as interpreted by the 
commentary). For example, a creditor could not, during the optional 
compliance period, provide a RESPA good faith estimate followed by a 
Closing Disclosure to a consumer in a transaction secured by a 
cooperative unit, even though the creditor is permitted to provide 
either the RESPA disclosures (the good faith estimate and settlement 
statement) or the Integrated Disclosures (the Loan Estimate and Closing 
Disclosure) for transactions secured by cooperative units where State 
law does not treat the cooperative unit as real property during the 
optional compliance period. The creditor could not provide a RESPA good 
faith estimate and then provide a Closing Disclosure (instead of a 
RESPA settlement statement) because, in doing so, the creditor would 
violate Sec.  1026.38(i) in both permissible versions of Regulation Z, 
which requires that information that was disclosed on the Loan Estimate 
be included on the Closing Disclosure. Thus, during the optional 
compliance period, if State law provides that a transaction secured by 
a cooperative unit is not a transaction secured by real property, for a 
particular cooperative transaction, if the creditor provides a RESPA 
good faith estimate, the creditor would be required to provide a RESPA 
settlement statement rather than a Closing Disclosure. Conversely, if 
the creditor provides a Loan Estimate for a particular cooperative 
transaction described above, the creditor would be required to provide 
a Closing Disclosure. At the same time, creditors could still choose to 
phase in compliance for other 2017 TILA-RESPA Amendments in cooperative 
unit transactions that are disclosed using the Loan Estimate and the 
Closing Disclosure, even within the course of a transaction, for 
example, with respect to the provisions relating to the calculating 
cash to close table, so long as doing so complies with either of the 
two permissible versions of Regulation Z (as interpreted by the 
commentary).

VII. Dodd-Frank Act Section 1022(b)(2) Analysis

A. Overview

    In developing the final rule, the Bureau has considered the 
potential benefits, costs, and impacts.\118\ 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.
---------------------------------------------------------------------------

    \118\ 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.
---------------------------------------------------------------------------

    This final rule makes three substantive changes to the TILA-RESPA 
Final Rule, along with a number of technical corrections and 
clarifications: Tolerances for the total of payments, adjustment of the 
partial exemption under Sec.  1026.3(h), and coverage of loans secured 
by cooperative units, whether or not treated as real property under 
State law. The potential benefits and costs of the provisions contained 
in this final rule are evaluated relative to the baseline where the 
current provisions of the TILA-RESPA Rule remain in place.
    The first of these three substantive changes provides tolerances 
for the total of payments that parallel the existing tolerances for the 
finance charge. Prior to the TILA-RESPA Final Rule, the calculation of 
the total of payments was based directly on the finance charge. As a 
result, the disclosure of the total of payments was generally subject 
to the statutory tolerances for the finance charge and disclosures 
affected by the finance charge. The Bureau modified the calculation of 
the total of payments in the TILA-RESPA Final Rule, which may have 
introduced ambiguity as to whether the total of payments is a 
disclosure affected by the disclosed finance charge and therefore 
subject to the same tolerances. To apply the same tolerances for 
accuracy of the disclosed finance charge and other disclosures affected 
by the disclosed finance charge

[[Page 37766]]

unambiguously to the total of payments on the Closing Disclosure, the 
Bureau revises Sec.  1026.38(o)(1).
    The second change revises the partial exemption from the TILA-RESPA 
integrated disclosure requirements at Sec.  1026.3(h), which, as cross-
referenced at Regulation X Sec.  1024.5(d)(2), also provides an 
exemption from the RESPA disclosures. If a creditor is not subject to 
the TILA-RESPA integrated disclosure requirements and is not eligible 
for the partial exemption under Sec.  1026.3(h), the creditor must 
provide the pre-existing RESPA disclosures. The partial exemption often 
applies to low-cost down payment or other types of housing assistance 
loans originated by housing finance agencies (HFAs) or by creditors 
that partner with HFAs and originate loans in accord with HFA 
guidelines. The partial exemption was designed to facilitate such low 
cost lending by HFAs and their partners in the recognition that such 
loans provide consumers with significant benefits.
    The Bureau has heard from HFAs and others that, in some 
jurisdictions, the applicability of the partial exemption has been 
limited. Under the current rule, in order to satisfy the criteria for 
the partial exemption, the total costs of the loan payable by the 
consumer at consummation, including transfer taxes and recording fees, 
cannot exceed 1 percent of the total amount of credit extended. Many 
HFAs have told the Bureau that, due to the increase in both transfer 
taxes and recording fees in recent years and the small size of many of 
these housing assistance loans, often less than $5,000, these loans 
often have upfront costs exceeding the 1-percent threshold. 
Consequently, these loans do not meet criteria for the partial 
exemption in current Sec.  1026.3(h)(5) and are not eligible for the 
partial exemption from the RESPA disclosures in Regulation X Sec.  
1024.5(d)(2). This means that for loans that are not subject to the 
TILA-RESPA integrated disclosure requirements, creditors must continue 
to provide the RESPA disclosures.
    Following the introduction of the TILA-RESPA integrated 
disclosures, some vendors and loan originator systems no longer support 
the RESPA disclosures. Although the RESPA disclosures are still 
required for other loan types, such as reverse mortgages, many lenders 
do not offer such products, and those lenders that do offer such 
products often do so through separate divisions that do not engage 
with, or operate on separate systems that do not support, housing 
assistance loan programs. In addition, software systems used by HFAs 
may no longer support the RESPA disclosures, making it necessary to 
complete RESPA disclosures manually. Manual completion of the 
disclosures, while compliant, may be costly and error-prone. As a 
result of these additional difficulties, some creditors may be less 
willing to work with HFAs and other organizations to continue providing 
these housing assistance loans. As revised, Sec.  1026.3(h)(5) makes 
explicit that transfer taxes are among the permissible costs for these 
loans and provides that neither transfer taxes nor recording fees count 
towards the 1-percent threshold, thus expanding the scope of the 
partial exemption for the low-cost and deferred or contingent repayment 
lending envisioned by Sec.  1026.3(h). Additionally, the final rule 
revises Sec.  1026.3(h)(6) to permit creditors to provide either the 
TILA disclosures described in Sec.  1026.18 or the Loan Estimate and 
Closing Disclosure described in Sec.  1026.19(e) and (f), respectively, 
to meet the criteria for the partial exemption. The Bureau believes the 
flexibility provided by final Sec.  1026.3(h)(6) will further expand 
access to the partial exemption.
    The third change is to include loans secured by cooperative units 
in the TILA-RESPA Rule's coverage, whether or not cooperative units are 
treated as real property under applicable State law. As discussed in 
the section-by-section analysis of Sec.  1026.19, State law varies, 
sometimes even within the same State, as to whether cooperative units 
are treated as real property. This change creates uniform application 
where integrated disclosures are issued for all covered transactions 
secured by cooperative units.
    The final rule also includes a variety of technical corrections and 
clarifications, some of which may require one-time reprogramming costs, 
but otherwise the Bureau generally believes those changes to be burden 
reducing or burden neutral.

B. Potential Benefits and Costs to Consumers and Covered Persons

Tolerance for Total of Payments
    Under this final rule, the same tolerances apply to the total of 
payments as apply, by statute, to the finance charge and disclosures 
affected by the finance charge. Because the existing rule does not 
provide for a tolerance for the total of payments, other than to the 
extent a total of payments misdisclosure results from a misdisclosure 
of the finance charge, under the existing rule, any misdisclosure of 
the total of payments that does not result from a misdisclosure of the 
finance charge could potentially subject a creditor to liability under 
TILA.
    The Bureau believes that the adopted change will benefit creditors, 
in the limited circumstances where a small, within tolerance, 
misdisclosure in the total of payments occurs. Creditors and their 
assignees would be less likely to face litigation, and its accompanying 
costs and risks, over such errors.
    The Bureau does not believe that creditors would bear any 
associated costs from the adopted provision, aside from one-time 
reprogramming costs, for those creditors that use proprietary software 
systems.
    To the extent that creditors restrict credit in response to 
additional litigation or secondary market risks given the absence of 
explicit tolerances for the total of payments, the adopted provision 
would benefit consumers in the form of expanded credit or a reduced 
cost of credit.
Excluding Recording Fees and Transfer Taxes From Sec.  1026.3(h) 
Exemption Requirements
    Under this final rule, recording fees and transfer taxes will be 
excluded from the calculation of the 1-percent threshold (as specified 
in Sec.  1026.3(h)(5)). As a result, the Sec.  1026.3(h) partial 
exemption will be available for some loans that currently do not 
satisfy Sec.  1026.3(h)(5) but satisfy the other provisions of Sec.  
1026.3(h). Additionally, under this final rule, creditors issuing loans 
that satisfy the criteria in Sec.  1026.3(h), and thus qualify for the 
partial exemption in Regulation X Sec.  1024.5(d)(2), will be exempted 
from providing the RESPA disclosures and will have the choice to 
provide either a TILA disclosure (described in Sec.  1026.18) or a Loan 
Estimate and Closing Disclosure (described in Sec.  1026.19(e) and (f), 
respectively).
    These revisions benefit creditors by allowing them to provide the 
more streamlined disclosures described in Sec.  1026.18 or the Loan 
Estimate and Closing Disclosure described in Sec.  1026.19(e) and (f), 
respectively (without also having to provide the special information 
booklet described in Sec.  1026.19(g)), in connection with loans that 
satisfy the criteria for the partial exemption at Sec.  1026.3(h). In 
particular, more housing assistance loans originated by HFAs and others 
will qualify for the partial exemption, thereby reducing costs incurred 
under the baseline (described above), and increasing the wiliness of 
creditors to work with HFAs and other organizations in providing 
housing assistance loans. The Bureau does not believe that creditors 
would bear any

[[Page 37767]]

associated costs from the adopted amendments to Sec.  1026.3(h).
    This provision may benefit consumers by making down payment 
assistance loans and other non-interest bearing housing assistance 
loans potentially more accessible. While the Bureau notes that the 
Sec.  1026.18 disclosures do not require the provision of the full 
level of detailed disclosures required either by RESPA or under the 
TILA-RESPA integrated disclosure requirements, the loans eligible for 
the partial exemption at Sec.  1026.3(h) generally have a simpler cost 
structure that is adequately communicated by the Sec.  1026.18 TILA 
disclosures.
Including Cooperatives in the Coverage of the TILA-RESPA Final Rule
    Under this final rule, consumer credit transactions secured by a 
cooperative unit will be covered by the TILA-RESPA Rule, whether or not 
applicable State law treats cooperative units as real property. The 
adopted provision benefits creditors who originate mortgages on 
cooperative units by eliminating any uncertainty regarding the 
applicable disclosures. Creditors who currently issue RESPA disclosures 
for loans secured by cooperative units would have to switch to the 
integrated disclosure on such loans. The Bureau believes the cost of 
such change to be minimal: The systems that generate the integrated 
disclosures must already be in place for other types of property.
    The adopted provision may benefit consumers who borrow against 
cooperative units in States where such units are treated as personal 
property under applicable State law. Such consumers will receive an 
integrated disclosure which, the Bureau believes, is better designed to 
communicate cost information than is the legacy RESPA disclosure.
Other Technical Corrections and Clarifications
    This final rule contains numerous technical corrections and 
clarifications. Although some of them may require a one-time 
reprogramming cost, the Bureau does not believe these changes will 
increase ongoing origination costs. The Bureau believes creditors will 
generally benefit from the adopted changes through greater clarity, and 
in some cases, additional optionality, regarding compliance with 
existing law.
    Consumers would benefit from these changes by receiving more timely 
and more accurate disclosures.

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 any of the 
adopted provisions. One possible exception is creditors that provide 
loans that satisfy criteria in Sec.  1026.3(h): If the majority of such 
creditors have $10 billion or less in assets, the exemption of 
recording fees and transfer taxes from the Sec.  1026.3(h)(5) 1-percent 
threshold and the permissible provision of the Loan Estimate and 
Closing Disclosure under Sec.  1026.3(h)(6) would create a 
disproportional benefit for covered persons in that asset category.

D. Impact on Access to Credit

    As pointed out above, the exemption of recording fees and transfer 
taxes from the Sec.  1026.3(h)(5) 1-percent threshold and the increased 
flexibility in the permitted disclosures for loans that satisfy the 
criteria in Sec.  1026.3(h) has the potential to improve access to 
housing assistance loans for consumers. Generally, a reduction in 
ambiguity regarding compliance with the law may potentially improve 
access to credit for all consumers. None of the changes is likely to 
have an adverse impact on access to credit.

E. Impact on Rural Areas

    The Bureau believes that none of the changes is likely to have an 
adverse impact on consumers in rural areas.

VIII. 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.
    The undersigned certified that the proposal would not have a 
significant economic impact on a substantial number of small entities 
and that an IRFA was therefore not required. The Bureau's conclusion 
that the rule will not have a significant economic impact on a 
substantial number of small entities is unchanged. Therefore, a FRFA is 
not required.\119\
---------------------------------------------------------------------------

    \119\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    Accordingly, the undersigned hereby certifies that this final rule 
will not have a significant economic impact on a substantial number of 
small entities.

IX. 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 will not impose 
any significant change in ongoing the paperwork burden on covered 
persons. Some of the changes would require a one-time reprogramming 
cost.

List of Subjects in 12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance

    For the reasons set forth above, the Bureau amends Regulation Z, 12 
CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

[[Page 37768]]

Subpart A--General

0
2. Section 1026.1 is amended by revising paragraph (d)(5) to read as 
follows:


Sec.  1026.1  Authority, purpose, coverage, organization, enforcement, 
and liability.

* * * * *
    (d) * * *
    (5) Subpart E contains special rules for mortgage transactions. 
Section 1026.32 requires certain disclosures and provides limitations 
for closed-end credit transactions and open-end credit plans that have 
rates or fees above specified amounts or certain prepayment penalties. 
Section 1026.33 requires special disclosures, including the total 
annual loan cost rate, for reverse mortgage transactions. Section 
1026.34 prohibits specific acts and practices in connection with high-
cost mortgages, as defined in Sec.  1026.32(a). Section 1026.35 
prohibits specific acts and practices in connection with closed-end 
higher-priced mortgage loans, as defined in Sec.  1026.35(a). Section 
1026.36 prohibits specific acts and practices in connection with an 
extension of credit secured by a dwelling. Sections 1026.37 and 1026.38 
set forth special disclosure requirements for certain closed-end 
transactions secured by real property or a cooperative unit, as 
required by Sec.  1026.19(e) and (f).
* * * * *

0
3. Section 1026.3 is amended by revising paragraph (h) introductory 
text and paragraphs (h)(5) and (6) to read as follows:


Sec.  1026.3  Exempt transactions.

* * * * *
    (h) Partial exemption for certain mortgage loans. The special 
disclosure requirements in Sec.  1026.19(g) and, unless the creditor 
chooses to provide the disclosures described in Sec.  1026.19(e) and 
(f), in Sec.  1026.19(e) and (f) do not apply to a transaction that 
satisfies all of the following criteria:
* * * * *
    (5)(i) The costs payable by the consumer in connection with the 
transaction at consummation are limited to:
    (A) Recording fees;
    (B) Transfer taxes;
    (C) A bona fide and reasonable application fee; and
    (D) A bona fide and reasonable fee for housing counseling services; 
and
    (ii) The total of costs payable by the consumer under paragraph 
(h)(5)(i)(C) and (D) of this section is less than 1 percent of the 
amount of credit extended; and
    (6) The following disclosures are provided:
    (i) Disclosures described in Sec.  1026.18 that comply with this 
part; or
    (ii) Alternatively, disclosures described in Sec.  1026.19(e) and 
(f) that comply with this part.

Subpart C--Closed-End Credit

0
4. Section 1026.19 is amended by revising the paragraph (e) heading, 
paragraphs (e)(1)(i), (e)(3)(iii), (e)(3)(iv)(E) and (F), the paragraph 
(f) heading, and paragraphs (f)(1)(i), (f)(4)(i), and (g)(1) to read as 
follows:


Sec.  1026.19  Certain mortgage and variable-rate transactions.

* * * * *
    (e) Mortgage loans--early disclosures--(1) Provision of 
disclosures--(i) Creditor. In a closed-end consumer credit transaction 
secured by real property or a cooperative unit, other than a reverse 
mortgage subject to Sec.  1026.33, the creditor shall provide the 
consumer with good faith estimates of the disclosures in Sec.  1026.37.
* * * * *
    (3) * * *
    (iii) Variations permitted for certain charges. An estimate of any 
of the charges specified in this paragraph (e)(3)(iii) is in good faith 
if it is consistent with the best information reasonably available to 
the creditor at the time it is disclosed, regardless of whether the 
amount paid by the consumer exceeds the amount disclosed under 
paragraph (e)(1)(i) of this section. For purposes of paragraph 
(e)(1)(i) of this section, good faith is determined under this 
paragraph (e)(3)(iii) even if such charges are paid to the creditor or 
affiliates of the creditor, so long as the charges are bona fide:
    (A) Prepaid interest;
    (B) Property insurance premiums;
    (C) Amounts placed into an escrow, impound, reserve, or similar 
account;
    (D) Charges paid to third-party service providers selected by the 
consumer consistent with paragraph (e)(1)(vi)(A) of this section that 
are not on the list provided under paragraph (e)(1)(vi)(C) of this 
section; and
    (E) Property taxes and other charges paid for third-party services 
not required by the creditor.
    (iv) * * *
    (E) Expiration. The consumer indicates an intent to proceed with 
the transaction more than 10 business days, or more than any additional 
number of days specified by the creditor before the offer expires, 
after the disclosures required under paragraph (e)(1)(i) of this 
section are provided pursuant to paragraph (e)(1)(iii) of this section.
    (F) Delayed settlement date on a construction loan. In transactions 
involving new construction, where the creditor reasonably expects that 
settlement will occur more than 60 days after the disclosures required 
under paragraph (e)(1)(i) of this section are provided pursuant to 
paragraph (e)(1)(iii) of this section, the creditor may provide revised 
disclosures to the consumer if the original disclosures required under 
paragraph (e)(1)(i) of this section state clearly and conspicuously 
that at any time prior to 60 days before consummation, the creditor may 
issue revised disclosures. If no such statement is provided, the 
creditor may not issue revised disclosures, except as otherwise 
provided in paragraph (e)(3)(iv) of this section.
* * * * *
    (f) Mortgage loans--final disclosures--(1) Provision of 
disclosures--(i) Scope. In a transaction subject to paragraph (e)(1)(i) 
of this section, the creditor shall provide the consumer with the 
disclosures required under Sec.  1026.38 reflecting the actual terms of 
the transaction.
* * * * *
    (4) Transactions involving a seller--(i) Provision to seller. In a 
transaction subject to paragraph (e)(1)(i) of this section that 
involves a seller, the settlement agent shall provide the seller with 
the disclosures in Sec.  1026.38 that relate to the seller's 
transaction reflecting the actual terms of the seller's transaction.
* * * * *
    (g) Special information booklet at time of application--(1) 
Creditor to provide special information booklet. Except as provided in 
paragraphs (g)(1)(ii) and (iii) of this section, the creditor shall 
provide a copy of the special information booklet (required pursuant to 
section 5 of the Real Estate Settlement Procedures Act (12 U.S.C. 2604) 
to help consumers applying for federally related mortgage loans 
understand the nature and cost of real estate settlement services) to a 
consumer who applies for a consumer credit transaction secured by real 
property or a cooperative unit.
    (i) The creditor shall deliver or place in the mail the special 
information booklet not later than three business days after the 
consumer's application is received. However, if the creditor denies the 
consumer's application before the end of the three-business-day period, 
the creditor need not provide the booklet. If a consumer uses a 
mortgage broker, the mortgage broker shall provide the special 
information booklet and the creditor need not do so.

[[Page 37769]]

    (ii) In the case of a home equity line of credit subject to Sec.  
1026.40, a creditor or mortgage broker that provides the consumer with 
a copy of the brochure entitled ``When Your Home is On the Line: What 
You Should Know About Home Equity Lines of Credit,'' or any successor 
brochure issued by the Bureau, is deemed to be in compliance with this 
section.
    (iii) The creditor or mortgage broker need not provide the booklet 
to the consumer for a transaction, the purpose of which is not the 
purchase of a one-to-four family residential property, including, but 
not limited to, the following:
    (A) Refinancing transactions;
    (B) Closed-end loans secured by a subordinate lien; and
    (C) Reverse mortgages.
* * * * *

0
5. Section 1026.23 is amended by revising paragraphs (g)(1) and (2) and 
(h)(2) to read as follows:


Sec.  1026.23  Right of rescission.

* * * * *
    (g) Tolerances for accuracy--(1) One-half of 1 percent tolerance. 
Except as provided in paragraphs (g)(2) and (h)(2) of this section:
    (i) The finance charge and other disclosures affected by the 
finance charge (such as the amount financed and the annual percentage 
rate) shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (A) Is understated by no more than \1/2\ of 1 percent of the face 
amount of the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (ii) The total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of this 
section if the disclosed total of payments:
    (A) Is understated by no more than \1/2\ of 1 percent of the face 
amount of the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (2) One percent tolerance. In a refinancing of a residential 
mortgage transaction with a new creditor (other than a transaction 
covered by Sec.  1026.32), if there is no new advance and no 
consolidation of existing loans:
    (i) The finance charge and other disclosures affected by the 
finance charge (such as the amount financed and the annual percentage 
rate) shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (A) Is understated by no more than 1 percent of the face amount of 
the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (ii) The total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of this 
section if the disclosed total of payments:
    (A) Is understated by no more than 1 percent of the face amount of 
the note or $100, whichever is greater; or
    (B) Is greater than the amount required to be disclosed.
    (h) * * *
    (2) Tolerance for disclosures. After the initiation of foreclosure 
on the consumer's principal dwelling that secures the credit 
obligation:
    (i) The finance charge and other disclosures affected by the 
finance charge (such as the amount financed and the annual percentage 
rate) shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (A) Is understated by no more than $35; or
    (B) Is greater than the amount required to be disclosed.
    (ii) The total of payments for each transaction subject to Sec.  
1026.19(e) and (f) shall be considered accurate for purposes of this 
section if the disclosed total of payments:
    (A) Is understated by no more than $35; or
    (B) Is greater than the amount required to be disclosed.

Subpart D--Miscellaneous

0
6. Section 1026.25 is amended by revising the paragraph (c)(1) heading 
to read as follows:


Sec.  1026.25  Record retention.

* * * * *
    (c) * * *
    (1) Records related to requirements for loans secured by real 
property or a cooperative unit--* * *
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

0
7. Section 1026.37 is amended by revising paragraphs (b) introductory 
text, (b)(1), (c)(5)(i), (d)(2) introductory text, (d)(2)(i), 
(h)(1)(i), (h)(1)(iii), (h)(1)(v), (h)(1)(vii), (h)(2) introductory 
text, (h)(2)(ii) and (iii), and (o)(4) to read as follows:


Sec.  1026.37  Content of disclosures for certain mortgage transactions 
(Loan Estimate).

* * * * *
    (b) Loan terms. A separate table under the heading ``Loan Terms'' 
that contains the following information and that satisfies the 
following requirements:
    (1) Loan amount. The total amount the consumer will borrow, as 
reflected by the face amount of the note, labeled ``Loan Amount.''
* * * * *
    (c) * * *
    (5) * * *
    (i) The taxable assessed value of the real property or cooperative 
unit securing the transaction after consummation, including the value 
of any improvements on the property or to be constructed on the 
property, if known, whether or not such construction will be financed 
from the proceeds of the transaction, for property taxes; and
* * * * *
    (d) * * *
    (2) Optional alternative table for transactions without a seller or 
for simultaneous subordinate financing. For transactions that do not 
involve a seller or for simultaneous subordinate financing, instead of 
the amount and statements described in paragraph (d)(1)(ii) of this 
section, the creditor may alternatively disclose, using the label 
``Cash to Close'':
    (i) The amount calculated in accordance with paragraph (h)(2)(iv) 
of this section;
* * * * *
    (h) * * *
    (1) * * *
    (i) Total closing costs. The amount disclosed under paragraph 
(g)(6) of this section, labeled ``Total Closing Costs'';
* * * * *
    (iii) Down payment and other funds from borrower. Labeled ``Down 
Payment/Funds from Borrower'':
    (A)(1) In a purchase transaction as defined in paragraph (a)(9)(i) 
of this section, the amount determined by subtracting the sum of the 
loan amount disclosed under paragraph (b)(1) of this section and any 
amount of existing loans assumed or taken subject to that will be 
disclosed under Sec.  1026.38(j)(2)(iv) from the sale price of the 
property disclosed under paragraph (a)(7)(i) of this section, except as 
required by paragraph (h)(1)(iii)(A)(2) of this section;
    (2) In a purchase transaction as defined in paragraph (a)(9)(i) of 
this section that is a simultaneous subordinate financing transaction 
or that involves improvements to be made on the property, or when the 
sum of the loan amount disclosed under paragraph (b)(1) of this section 
and any amount of existing loans assumed or taken subject to that will 
be disclosed under Sec.  1026.38(j)(2)(iv) exceeds the sale price of 
the property disclosed under paragraph (a)(7)(i) of this section, the

[[Page 37770]]

amount of estimated funds from the consumer as determined in accordance 
with paragraph (h)(1)(v) of this section; or
    (B) In all transactions not subject to paragraph (h)(1)(iii)(A) of 
this section, the amount of estimated funds from the consumer as 
determined in accordance with paragraph (h)(1)(v) of this section;
* * * * *
    (v) Funds for borrower. The amount of funds for the consumer, 
labeled ``Funds for Borrower.'' The amount of the down payment and 
other funds from the consumer disclosed under paragraph 
(h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as applicable, and 
of funds for the consumer disclosed under this paragraph (h)(1)(v), are 
determined by subtracting the sum of the loan amount disclosed under 
paragraph (b)(1) of this section and any amount of existing loans 
assumed or taken subject to that will be disclosed under Sec.  
1026.38(j)(2)(iv) (excluding any closing costs financed disclosed under 
paragraph (h)(1)(ii) of this section) from the total amount of all 
existing debt being satisfied in the transaction;
    (A) If the calculation under this paragraph (h)(1)(v) yields an 
amount that is a positive number, such amount is disclosed under 
paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as 
applicable, and $0 is disclosed under this paragraph (h)(1)(v);
    (B) If the calculation under this paragraph (h)(1)(v) yields an 
amount that is a negative number, such amount is disclosed under this 
paragraph (h)(1)(v) as a negative number, and $0 is disclosed under 
paragraph (h)(1)(iii)(A)(2) or (h)(1)(iii)(B) of this section, as 
applicable;
    (C) If the calculation under this paragraph (h)(1)(v) yields $0, 
then $0 is disclosed under paragraph (h)(1)(iii)(A)(2) or 
(h)(1)(iii)(B) of this section, as applicable, and under this paragraph 
(h)(1)(v);
* * * * *
    (vii) Adjustments and other credits. The amount of all loan costs 
determined under paragraph (f) of this section and other costs 
determined under paragraph (g) of this section that are paid by persons 
other than the loan originator, creditor, consumer, or seller, together 
with any other amounts not otherwise disclosed under paragraph (f) or 
(g) of this section that are required to be paid by the consumer at 
closing in a transaction disclosed under paragraph (h)(1)(iii)(A)(1) of 
this section or pursuant to a purchase and sale contract, labeled 
``Adjustments and Other Credits''; and
* * * * *
    (2) Optional alternative calculating cash to close table for 
transactions without a seller or for simultaneous subordinate 
financing. For transactions that do not involve a seller or for 
simultaneous subordinate financing, instead of the table described in 
paragraph (h)(1) above, the creditor may alternatively provide, in a 
separate table, under the master heading ``Closing Cost Details,'' 
under the heading ``Calculating Cash to Close,'' the total amount of 
cash or other funds that must be provided by the consumer at 
consummation with an itemization of that amount into the following 
component amounts:
* * * * *
    (ii) Total closing costs. The amount disclosed under paragraph 
(g)(6) of this section, disclosed as a negative number if the amount 
disclosed under paragraph (g)(6) of this section is a positive number 
and disclosed as a positive number if the amount disclosed under 
paragraph (g)(6) of this section is a negative number, labeled ``Total 
Closing Costs'';
    (iii) Payoffs and payments. The total amount of payoffs and 
payments to be made to third parties not otherwise disclosed under 
paragraphs (f) and (g) of this section, labeled ``Total Payoffs and 
Payments'';
* * * * *
    (o) * * *
    (4) Rounding--(i) Nearest dollar. (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 
dollar amount required to be disclosed by paragraph (g)(2)(iii) of this 
section and the monthly dollar amounts required to be disclosed by 
paragraphs (g)(3)(i) through (iii) and (g)(3)(v) of this section shall 
not be rounded.
    (B) The dollar amount required to be disclosed by paragraph (b)(1) 
of this section shall not be rounded, and if the amount is a whole 
number then the amount disclosed shall be truncated at the decimal 
point.
    (C) The dollar amounts required to be disclosed by paragraph 
(c)(2)(iv) of this section shall be rounded to the nearest whole 
dollar, if any of the component amounts are required by paragraph 
(o)(4)(i)(A) of this section to be rounded to the nearest whole dollar.
    (ii) Percentages. The percentage amounts required to be disclosed 
under paragraphs (b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and 
(l)(2) and (3) of this section shall be disclosed by rounding the exact 
amounts to three decimal places and then dropping any trailing zeros 
that occur to the right of the decimal place.
* * * * *

0
8. Section 1026.38 is amended by revising paragraphs (a)(3)(iii), 
(d)(2) introductory text, (e) introductory text, (e)(2)(ii), 
(e)(2)(iii)(A)(3), (e)(4)(ii), (g)(1), (h)(3), (i)(1)(iii)(A)(3), 
(i)(4)(ii), (i)(6)(iv), (i)(7)(iii), (i)(8), (j)(2)(vi), (l)(7)(i), 
(o)(1), (t)(4)(ii), and (t)(5)(vii) introductory text to read as 
follows:


Sec.  1026.38  Content of disclosures for certain mortgage transactions 
(Closing Disclosure).

* * * * *
    (a) * * *
    (3) * * *
    (iii) Disbursement date. The date the amount disclosed under 
paragraph (j)(3)(iii) (cash to close from or to borrower) or 
(k)(3)(iii) (cash from or to seller) of this section is expected to be 
paid in a purchase transaction under Sec.  1026.37(a)(9)(i) to the 
consumer or seller, respectively, as applicable, except as provided in 
comment 38(a)(3)(iii)-1, or the date some or all of the loan amount 
disclosed under paragraph (b) of this section is expected to be paid to 
the consumer or a third party other than a settlement agent in a 
transaction that is not a purchase transaction under Sec.  
1026.37(a)(9)(i), labeled ``Disbursement Date.''
* * * * *
    (d) * * *
    (2) Alternative table for transactions without a seller or for 
simultaneous subordinate financing. For transactions that do not 
involve a seller or for simultaneous subordinate financing, if the 
creditor disclosed the optional alternative table under Sec.  
1026.37(d)(2), the creditor shall disclose, with the label ``Cash to 
Close,'' instead of the sum of the dollar amounts described in 
paragraph (d)(1)(ii) of this section:
* * * * *
    (e) Alternative calculating cash to close table for transactions 
without a seller or for simultaneous subordinate financing. For 
transactions that do not involve a seller or for simultaneous 
subordinate financing, if the creditor disclosed the optional 
alternative table under Sec.  1026.37(h)(2), the creditor shall 
disclose, instead of the table described in paragraph (i) of this 
section, in a separate table, under the heading ``Calculating Cash to 
Close,'' together with the statement ``Use this table to see what has 
changed from your Loan Estimate'':
* * * * *
    (2) * * *

[[Page 37771]]

    (ii) Under the subheading ``Final,'' the amount disclosed under 
paragraph (h)(1) of this section, disclosed as a negative number if the 
amount disclosed under paragraph (h)(1) of this section is a positive 
number and disclosed as a positive number if the amount disclosed under 
paragraph (h)(1) of this section is a negative number; and
    (iii) * * *
    (A) * * *
    (3) If the increase exceeds the limitations on increases in closing 
costs under Sec.  1026.19(e)(3), a statement that such increase exceeds 
the legal limits by the dollar amount of the excess and, if any refund 
is provided under Sec.  1026.19(f)(2)(v), a statement directing the 
consumer to the disclosure required under paragraph (h)(3) of this 
section or, if applicable, a statement directing the consumer to the 
principal reduction disclosure under paragraph (t)(5)(vii)(B) of this 
section. Such dollar amount shall equal the sum total of all excesses 
of the limitations on increases in closing costs under Sec.  
1026.19(e)(3), taking into account the different methods of calculating 
excesses of the limitations on increases in closing costs under Sec.  
1026.19(e)(3)(i) and (ii).
* * * * *
    (4) * * *
    (ii) Under the subheading ``Final,'' the total amount of payoffs 
and payments made to third parties disclosed under paragraph 
(t)(5)(vii)(B) of this section, to the extent known, disclosed as a 
negative number if the total amount disclosed under paragraph 
(t)(5)(vii)(B) of this section is a positive number and disclosed as a 
positive number if the total amount disclosed under paragraph 
(t)(5)(vii)(B) of this section is a negative number;
* * * * *
    (g) * * *
    (1) Taxes and other government fees. Under the subheading ``Taxes 
and Other Government Fees,'' an itemization of each amount that is 
expected to be paid to State and local governments for taxes and 
government fees and the total of all such itemized amounts that are 
designated borrower-paid at or before closing, as follows:
    (i) On the first line:
    (A) Before the columns described in paragraph (g) of this section, 
the total amount of fees for recording deeds and, separately, the total 
amount of fees for recording security instruments; and
    (B) In the applicable column as described in paragraph (g) of this 
section, the total amounts paid for recording fees (including, but not 
limited to, the amounts in paragraph (g)(1)(i)(A) of this section); and
    (ii) On subsequent lines, in the applicable column as described in 
paragraph (g) of this section, an itemization of transfer taxes, with 
the name of the government entity assessing the transfer tax.
* * * * *
    (h) * * *
    (3) The amount of lender credits as a negative number, labeled 
``Lender Credits'' and designated borrower-paid at closing, and if a 
refund is provided pursuant to Sec.  1026.19(f)(2)(v), a statement that 
this amount includes a credit for an amount that exceeds the 
limitations on increases in closing costs under Sec.  1026.19(e)(3), 
and the amount of such credit under Sec.  1026.19(f)(2)(v).
* * * * *
    (i) * * *
    (1) * * *
    (iii) * * *
    (A) * * *
    (3) If the increase exceeds the limitations on increases in closing 
costs under Sec.  1026.19(e)(3), a statement that such increase exceeds 
the legal limits by the dollar amount of the excess, and if any refund 
is provided under Sec.  1026.19(f)(2)(v), a statement directing the 
consumer to the disclosure required under paragraph (h)(3) of this 
section or, if a principal reduction is used to provide the refund, a 
statement directing the consumer to the principal reduction disclosure 
under paragraph (j)(1)(v) of this section. Such dollar amount shall 
equal the sum total of all excesses of the limitations on increases in 
closing costs under Sec.  1026.19(e)(3), taking into account the 
different methods of calculating excesses of the limitations on 
increases in closing costs under Sec.  1026.19(e)(3)(i) and (ii).
* * * * *
    (4) * * *
    (ii) Under the subheading ``Final'':
    (A)(1) In a purchase transaction as defined in Sec.  
1026.37(a)(9)(i), the amount determined by subtracting the sum of the 
loan amount disclosed under paragraph (b) of this section and any 
amount of existing loans assumed or taken subject to that is disclosed 
under paragraph (j)(2)(iv) of this section from the sale price of the 
property disclosed under paragraph (a)(3)(vii)(A) of this section, 
labeled ``Down Payment/Funds from Borrower,'' except as required by 
paragraph (i)(4)(ii)(A)(2) of this section;
    (2) In a purchase transaction as defined in Sec.  1026.37(a)(9)(i) 
that is a simultaneous subordinate financing transaction or that 
involves improvements to be made on the property, or when the sum of 
the loan amount disclosed under paragraph (b) of this section and any 
amount of existing loans assumed or taken subject to that is disclosed 
under paragraph (j)(2)(iv) of this section exceeds the sale price 
disclosed under paragraph (a)(3)(vii)(A) of this section, the amount of 
funds from the consumer as determined in accordance with paragraph 
(i)(6)(iv) of this section labeled ``Down Payment/Funds from 
Borrower;'' or
    (B) In all transactions not subject to paragraph (i)(4)(ii)(A) of 
this section, the amount of funds from the consumer as determined in 
accordance with paragraph (i)(6)(iv) of this section, labeled ``Down 
Payment/Funds from Borrower.''
* * * * *
    (6) * * *
    (iv) The ``Down Payment/Funds from Borrower'' to be disclosed under 
paragraph (i)(4)(ii)(A)(2) or (B) of this section, as applicable, and 
``Funds for Borrower'' to be disclosed under paragraph (i)(6)(ii) of 
this section are determined by subtracting the sum of the loan amount 
disclosed under paragraph (b) of this section and any amount for 
existing loans assumed or taken subject to that is disclosed under 
paragraph (j)(2)(iv) of this section (excluding any closing costs 
financed disclosed under paragraph (i)(3)(ii) of this section) from the 
total amount of all existing debt being satisfied in the transaction 
disclosed under paragraphs (j)(1)(ii), (iii), and (v) of this section.
    (A) If the calculation under this paragraph (i)(6)(iv) yields an 
amount that is a positive number, such amount shall be disclosed under 
paragraph (i)(4)(ii)(A)(2) or (B) of this section, as applicable, and 
$0 shall be disclosed under paragraph (i)(6)(ii) of this section.
    (B) If the calculation under this paragraph (i)(6)(iv) yields an 
amount that is a negative number, such amount shall be disclosed under 
paragraph (i)(6)(ii) of this section, stated as a negative number, and 
$0 shall be disclosed under paragraph (i)(4)(ii)(A)(2) or (i)(4)(ii)(B) 
of this section, as applicable.
    (C) If the calculation under this paragraph (i)(6)(iv) yields $0, 
$0 shall be disclosed under paragraph (i)(4)(ii)(A)(2) or (i)(4)(ii)(B) 
of this section, as applicable, and under paragraph (i)(6)(ii) of this 
section.
    (7) * * *
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(7):
    (A) If the amount disclosed under paragraph (i)(7)(ii) of this 
section is different than the amount disclosed under paragraph 
(i)(7)(i) of this section (unless the difference is due to

[[Page 37772]]

rounding), a statement of that fact, along with a statement that the 
consumer should see the details disclosed:
    (1) Under paragraph (j)(2)(v) of this section and in the seller-
paid column under paragraphs (f) and (g) of this section; or
    (2) Under either paragraph (j)(2)(v) of this section or in the 
seller-paid column under paragraphs (f) or (g) of this section, if the 
details are only disclosed under paragraph (j)(2)(v) or paragraph (f) 
or (g); or
    (B) If the amount disclosed under paragraph (i)(7)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(7)(i) of 
this section, a statement of that fact.
    (8) Adjustments and other credits. (i) Under the subheading ``Loan 
Estimate,'' the amount disclosed on the Loan Estimate under Sec.  
1026.37(h)(1)(vii), labeled ``Adjustments and Other Credits.''
    (ii) Under the subheading ``Final,'' the amount equal to the total 
of the amounts disclosed under paragraphs (j)(1)(iii) and (v) of this 
section, to the extent amounts in paragraphs (j)(1)(iii) and (v) were 
not included in the calculation required by paragraph (i)(4) or (6) of 
this section, and paragraphs (j)(1)(vi) through (x) of this section, 
reduced by the total of the amounts disclosed under paragraphs 
(j)(2)(vi) through (xi) of this section.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(8):
    (A) If the amount disclosed under paragraph (i)(8)(ii) of this 
section is different than the amount disclosed under paragraph 
(i)(8)(i) of this section (unless the difference is due to rounding), a 
statement of that fact, along with a statement that the consumer should 
see the details disclosed under paragraphs (j)(1)(iii) and (v) through 
(x) and (j)(2)(vi) through (xi) of this section, as applicable; or
    (B) If the amount disclosed under paragraph (i)(8)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(8)(i) of 
this section, a statement of that fact.
* * * * *
    (j) * * *
    (2) * * *
    (vi) Descriptions and amounts of other items paid by or on behalf 
of the consumer and not otherwise disclosed under paragraphs (f), (g), 
(h), and (j)(2) of this section, labeled ``Other Credits,'' and 
descriptions and the amounts of any additional amounts owed the 
consumer but payable to the seller before the real estate closing, 
under the heading ``Adjustments'';
* * * * *
    (l) * * *
    (7) * * *
    (i) Under the reference ``For now,'' a statement that an escrow 
account may also be called an impound or trust account, a statement of 
whether the creditor has established or will establish (at or before 
consummation) an escrow account in connection with the transaction, and 
the information required under paragraphs (l)(7)(i)(A) and (B) of this 
section:
    (A) A statement that the creditor may be liable for penalties and 
interest if it fails to make a payment for any cost for which the 
escrow account is established, a statement that the consumer would have 
to pay such costs directly in the absence of the escrow account, and a 
table, titled ``Escrow,'' that contains, if an escrow account is or 
will be established, an itemization of the amounts listed in paragraphs 
(l)(7)(i)(A)(1) through (4) of this section;
    (1) The total amount the consumer will be required to pay into an 
escrow account over the first year after consummation, labeled 
``Escrowed Property Costs over Year 1,'' together with a descriptive 
name of each charge to be paid (in whole or in part) from the escrow 
account, calculated as the amount disclosed under paragraph 
(l)(7)(i)(A)(4) of this section multiplied by the number of periodic 
payments scheduled to be made to the escrow account during the first 
year after consummation;
    (2) The estimated amount the consumer is likely to pay during the 
first year after consummation for the mortgage-related obligations 
described in Sec.  1026.43(b)(8) that are known to the creditor and 
that will not be paid using escrow account funds, labeled ``Non-
Escrowed Property Costs over Year 1,'' together with a descriptive name 
of each such charge and a statement that the consumer may have to pay 
other costs that are not listed;
    (3) The total amount disclosed under paragraph (g)(3) of this 
section, a statement that the payment is a cushion for the escrow 
account, labeled ``Initial Escrow Payment,'' and a reference to the 
information disclosed under paragraph (g)(3) of this section;
    (4) The amount the consumer will be required to pay into the escrow 
account with each periodic payment during the first year after 
consummation, labeled ``Monthly Escrow Payment.''
    (5) A creditor complies with the requirements of paragraphs 
(l)(7)(i)(A)(1) and (4) of this section if the creditor bases the 
numerical disclosures required by those paragraphs on amounts derived 
from the escrow account analysis required under Regulation X, 12 CFR 
1024.17.
    (B) A statement of whether the consumer will not have an escrow 
account, the reason why an escrow account will not be established, a 
statement that the consumer must pay all property costs, such as taxes 
and homeowner's insurance, directly, a statement that the consumer may 
contact the creditor to inquire about the availability of an escrow 
account, and a table, titled ``No Escrow,'' that contains, if an escrow 
account will not be established, an itemization of the following:
    (1) The estimated total amount the consumer will pay directly for 
the mortgage-related obligations described in Sec.  1026.43(b)(8) 
during the first year after consummation that are known to the creditor 
and a statement that, without an escrow account, the consumer must pay 
the identified costs, possibly in one or two large payments, labeled 
``Property Costs over Year 1''; and
    (2) The amount of any fee the creditor imposes on the consumer for 
not establishing an escrow account in connection with the transaction, 
labeled ``Escrow Waiver Fee.''
* * * * *
    (o) * * *
    (1) Total of payments. The ``Total of Payments,'' using that term 
and expressed as a dollar amount, and a statement that the disclosure 
is the total the consumer will have paid after making all payments of 
principal, interest, mortgage insurance, and loan costs, as scheduled. 
The disclosed total of payments shall be treated as accurate if the 
amount disclosed as the total of payments:
    (i) Is understated by no more than $100; or
    (ii) Is greater than the amount required to be disclosed.
* * * * *
    (t) * * *
    (4) * * *
    (ii) Percentages. The percentage amounts required to be disclosed 
under paragraphs (b), (f)(1), (n), and (o)(4) and (5) of this section 
shall be disclosed by rounding the exact amounts to three decimal 
places and then dropping any trailing zeros to the right of the decimal 
point.
* * * * *
    (5) * * *
    (vii) Transaction without a seller or simultaneous subordinate 
financing transaction. The following

[[Page 37773]]

modifications to form H-25 of appendix H to this part may be made for a 
transaction that does not involve a seller or for simultaneous 
subordinate financing, and for which the alternative tables are 
disclosed under paragraphs (d)(2) and (e) of this section, as 
illustrated by form H-25(J) of appendix H to this part:
* * * * *

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open End Credit Offered to College Students

0
9. In Supplement I to Part 1026--Official Interpretations:
0
a. Under Section 1026.1--Authority, Purpose, Coverage, Organization, 
Enforcement and Liability, under 1(d) Organization, Paragraph 1(d)(5) 
is revised.
0
b. Under Section 1026.2--Definitions and Rules of Construction, under 
2(a)(11) Consumer, paragraph 3 is revised.
0
c. Under Section 1026.3--Exempt Transactions, 3(h) Partial exemption 
for certain mortgage loans is revised.
0
d. Under Section 1026.17--General Disclosure Requirements:
0
i. Under 17(c) Basis of Disclosures and Use of Estimates, under 
Paragraph 17(c)(6), paragraph 5 is revised.
0
ii. Under 17(f) Early Disclosures, paragraphs 1 and 2 are revised.
0
e. Under Section 1026.18--Content of Disclosures:
0
i. Paragraph 3 is revised.
0
ii. Under 18(g) Payment Schedule, paragraph 6 is revised.
0
iii. Under 18(s) Interest Rate and Payment Summary for Mortgage 
Transactions, paragraphs 1 and 4 are revised.
0
f. Under Section 1026.19--Certain Mortgage and Variable-Rate 
Transactions:
0
i. Under 19(e) Mortgage loans secured by real property--Early 
disclosures:
0
A. The heading is revised.
0
B. 19(e)(1)(i) Creditor is revised.
0
C. Under 19(e)(1)(iii) Timing, paragraph 5 is added.
0
D. Under 19(e)(1)(vi) Shopping for settlement service providers, 
paragraphs 1 through 4 are revised.
0
E. Under 19(e)(3)(i) General rule, paragraph 1 is revised.
0
F. Under 19(e)(3)(ii) Limited increases permitted for certain charges, 
paragraphs 1 and 2 are revised and paragraph 6 is added.
0
G. Under 19(e)(3)(iii) Variations permitted for certain charges, 
paragraphs 2 and 3 are revised and paragraph 4 is added.
0
H. Under 19(e)(3)(iv) Revised estimates, paragraph 2 is revised and 
paragraphs 4 and 5 are added.
0
I. 19(e)(3)(iv)(D) Interest rate dependent charges is revised.
0
J. 19(e)(3)(iv)(E) Expiration is revised.
0
ii. Under 19(f) Mortgage loans secured by real property--Final 
disclosures:
0
A. The heading is revised.
0
B. Under 19(f)(1)(i) Scope, paragraph 1 is revised.
0
C. Under 19(f)(2)(iii) Changes due to events occurring after 
consummation, paragraph 2 is added.
0
D. 19(f)(2)(v) Refunds related to the good faith analysis is revised.
0
E. Under 19(f)(3)(ii) Average charge, paragraph 3 is revised.
0
F. 19(f)(4)(i) Provision to seller is revised.
0
g. Under Section 1026.23--Right of Rescission:
0
i. Under 23(g) Tolerances for Accuracy, paragraph 1 is added.
0
ii. Under 23(h) Special Rules for Foreclosures, 23(h)(2) Tolerance for 
Disclosures is revised.
0
h. Under Section 1026.25--Record Retention, under 25(c) Records Related 
to Certain Requirements for Mortgage Loans, the heading for 25(c)(1) is 
revised.
0
i. Under Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate):
0
i. Under 37(a) General information:
0
A. 37(a)(7) Sale price is revised.
0
B. Under 37(a)(8) Loan term, paragraph 3 is added.
0
C. Under 37(a)(9) Purpose, paragraph 1 is revised.
0
D. Under 37(a)(10) Product, paragraph 2 is revised.
0
E. Under 37(a)(13) Rate lock, paragraph 2 is revised and paragraph 4 is 
added.
0
ii. Under 37(b) Loan terms:
0
A. 37(b)(2) Interest rate is revised.
0
B. Under 37(b)(3) Principal and interest payment, paragraph 2 is 
revised.
0
C. Under 37(b)(6)(iii) Increase in periodic payment, paragraph 1 is 
revised.
0
iii. Under 37(c) Projected payments:
0
A. Paragraph 2 is added.
0
B. Paragraph 37(c)(1)(iii)(B) is revised.
0
C. Under Paragraph 37(c)(4)(iv), paragraph 2 is revised.
0
iv. Under 37(d) Costs at closing, the heading for 37(d)(2) and 
paragraph 1 are revised.
0
v. Under 37(f) Closing cost details; loan costs:
0
A. Paragraph 3 is added.
0
B. Under 37(f)(6) Use of addenda, paragraph 3 is added.
0
vi. Under 37(g) Closing cost details; other costs, under Paragraph 
37(g)(6)(ii), paragraph 1 is revised.
0
vii. Under 37(h) Calculating cash to close:
0
A. Under 37(h)(1) For all transactions, paragraph 2 is added.
0
B. 37(h)(1)(ii), 37(h)(1)(iii), 37(h)(1)(v), and 37(h)(1)(vi) are 
revised.
0
C. Under 37(h)(1)(vii) Adjustments and other credits, paragraphs 1, 4, 
5, and 6 are revised.
0
D. 37(h)(2) and 37(h)(2)(iii) are revised.
0
viii. Under 37(k) Contact information, paragraph 3 is revised.
0
ix. Under 37(l) Comparisons:
0
A. Under Paragraph 37(l)(1)(i), paragraph 1 is revised.
0
B. Under 37(l)(3) Total interest percentage, paragraph 1 is revised.
0
x. Under 37(o) Form of disclosures, 37(o)(4)(i)(A) and 37(o)(4)(ii) are 
revised.
0
j. Under Section 1026.38--Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure):
0
i. Paragraph 4 is added.
0
ii. Under 38(a) General information:
0
A. 38(a)(3)(iii) Disbursement date is added.
0
B. Under 38(a)(3)(vii) Sale price, paragraph 1 is revised.
0
C. Under 38(a)(4) Transaction information, paragraph 2 is revised and 
paragraph 4 is added.
0
iii. Under 38(d) Costs at closing, the heading for 38(d)(2) and 
paragraph 1 are revised.
0
iv. Under 38(e) Alternative calculating cash to close table for 
transactions without a seller:
0
A. The heading is revised, paragraphs 1 and 3 are revised, and 
paragraph 6 is added.
0
B. Under Paragraph 38(e)(2)(iii)(A), paragraphs 2 and 3 are revised.
0
C. Paragraph 38(e)(3)(iii)(B) is revised.
0
v. Under 38(f) Closing cost details; loan costs, paragraph 2 is added.
0
vi. Under 38(g) Closing costs details; other costs:
0
A. Under 38(g)(1) Taxes and other government fees, paragraph 3 is 
added.
0
B. Under 38(g)(2) Prepaids, paragraph 3 is revised.
0
vii. Under 38(i) Calculating cash to close:
0
A. Paragraphs 2 and 3 are revised and paragraph 5 is added.
0
B. Under Paragraph 38(i)(1)(iii)(A), paragraphs 2 and 3 are revised.
0
C. 38(i)(3) Closing costs financed is added.
0
D. Paragraph 38(i)(4)(ii)(A) is revised.
0
E. Paragraph 38(i)(4)(ii)(B) is revised.
0
F. Paragraph 38(i)(4)(iii)(A) is revised.
0
G. 38(i)(5) Deposit is revised.
0
H. Paragraph 38(i)(6)(ii) is revised.
0
I. Paragraph 38(i)(7)(iii)(A) is added.
0
J. Paragraph 38(i)(8)(ii) is revised.
0
viii. Under 38(j) Summary of borrower's transaction:
0
A. Paragraph 3 is revised.
0
B. Paragraph 38(j)(1)(ii) is revised.
0
C. Paragraph 38(j)(1)(v) is revised.
0
D. Under Paragraph 38(j)(2)(vi), paragraphs 2 and 5 are revised and 
paragraph 6 is added.

[[Page 37774]]

0
E. Paragraph 38(j)(2)(xi) is revised.
0
F. Under Paragraph 38(j)(4)(i), paragraph 1 is revised.
0
ix. Under 38(k) Summary of seller's transaction:
0
A. Paragraph 1 is revised.
0
B. 38(k)(1) Itemization of amounts due to seller is added.
0
C. Paragraph 38(k)(2)(vii) is added.
0
x. Under 38(l) Loan disclosures:
0
A. Under 38(l)(7) Escrow account, paragraphs 1 and 2 are added.
0
B. Paragraph 38(l)(7)(i)(A)(2) is revised.
0
C. Paragraph 38(l)(7)(i)(A)(4) is revised.
0
D. Paragraph 38(l)(7)(i)(A)(5) is added.
0
E. Paragraph 38(l)(7)(i)(B)(1) is revised.
0
xi. Under 38(o) Loan calculations:
0
A. Paragraph 1 is added.
0
B. 38(o)(1) Total of payments is revised.
0
xii. Under 38(t) Form of disclosures:
0
A. 38(t)(3) Form is revised.
0
B. 38(t)(5)(v) and 38(t)(5)(vi) are added.
0
C. The heading for 38(t)(5)(vii) and paragraph 2 are revised.
0
D. Paragraph 38(t)(5)(vii)(B) is added.
0
k. Under Appendix D--Multiple-Advance Construction Loans, paragraph 7 
is revised.
    The revisions and additions read as follows:

Supplement I to Part 1026--Official Interpretations

Section 1026.1--Authority, Purpose, Coverage, Organization, 
Enforcement and Liability

* * * * *
    1(d) Organization.
    Paragraph 1(d)(5).
    1. Effective date. i. General. The Bureau's revisions to 
Regulation X and Regulation Z published on December 31, 2013 (the 
TILA-RESPA Final Rule) apply to covered loans (closed-end credit 
transactions that are secured by real property or a cooperative 
unit, whether or not treated as real property under State or other 
applicable law) for which the creditor or mortgage broker receives 
an application on or after October 3, 2015 (the effective date), 
except that Sec.  1026.19(e)(2), the amendments to Sec.  
1026.28(a)(1), and the amendments to the commentary to Sec.  1026.29 
became effective on October 3, 2015, without respect to whether an 
application was received as of that date. Additionally, Sec. Sec.  
1026.20(e) and 1026.39(d)(5), as amended or adopted by the TILA-
RESPA Final Rule, took effect on October 3, 2015, for transactions 
for which the creditor or mortgage broker received an application on 
or after October 3, 2015, and take effect October 1, 2018, with 
respect to transactions for which a creditor or mortgage broker 
received an application prior to October 3, 2015.
    ii. Pre-application activities. The provisions of Sec.  
1026.19(e)(2) apply prior to a consumer's receipt of the disclosures 
required by Sec.  1026.19(e)(1)(i) and therefore restrict activity 
that may occur prior to receipt of an application by a creditor or 
mortgage broker. These provisions include Sec.  1026.19(e)(2)(i), 
which restricts the fees that may be imposed on a consumer, Sec.  
1026.19(e)(2)(ii), which requires a statement to be included on 
written estimates of terms or costs specific to a consumer, and 
Sec.  1026.19(e)(2)(iii), which prohibits creditors from requiring 
the submission of documents verifying information related to the 
consumer's application. Accordingly, the provisions of Sec.  
1026.19(e)(2) are effective on October 3, 2015, without respect to 
whether an application has been received on that date.
    iii. Determination of preemption. The amendments to Sec.  
1026.28 and the commentary to Sec.  1026.29 govern the preemption of 
State laws, and thus the amendments to those provisions and 
associated commentary made by the TILA-RESPA Final Rule are 
effective on October 3, 2015, without respect to whether an 
application has been received on that date.
    iv. Post-consummation escrow cancellation disclosure and partial 
payment disclosure. A creditor, servicer, or covered person, as 
applicable, must provide the disclosures required by Sec. Sec.  
1026.20(e) and 1026.39(d)(5) for transactions for which the 
conditions in Sec.  1026.20(e) or Sec.  1026.39(d)(5), as 
applicable, exist on or after October 1, 2018, regardless of when 
the corresponding applications were received. For transactions in 
which such conditions exist on or after October 3, 2015, through 
September 30, 2018, a creditor, servicer, or covered person, as 
applicable, complies with Sec. Sec.  1026.20(e) and 1026.39(d)(5) if 
it provides the mandated disclosures in all cases or if it provides 
them only in cases where the corresponding applications were 
received on or after October 3, 2015.
    v. Examples. For purposes of the following examples, an 
application received before or after the effective date is any 
submission for the purpose of obtaining an extension of credit that 
satisfies the definition in Sec.  1026.2(a)(3), as adopted by the 
TILA-RESPA Final Rule, even if that definition was not yet in effect 
on the date in question. Cross-references in the following examples 
to provisions of Regulation Z refer to those provisions as adopted 
or amended by the TILA-RESPA Final Rule, together with any 
subsequent amendments, unless noted otherwise.
    A. Application received on or after effective date of the TILA-
RESPA Final Rule. Assume a creditor receives an application on 
October 3, 2015, and that consummation of the transaction occurs on 
October 31, 2015. The amendments of the TILA-RESPA Final Rule, 
including the requirement to provide the Loan Estimate and Closing 
Disclosure under Sec.  1026.19(e) and (f), apply to the transaction. 
The creditor is also required to provide the special information 
booklet under Sec.  1026.19(g).
    B. Application received before effective date of the TILA-RESPA 
Final Rule. Assume a creditor receives an application on September 
30, 2015, and that consummation of the transaction occurs on October 
30, 2015. The requirement to provide the Loan Estimate and Closing 
Disclosure under Sec.  1026.19(e) and (f) does not apply to the 
transaction. Instead, the creditor and the settlement agent must 
provide the disclosures required by Sec.  1026.19, as it existed 
prior to the effective date of the TILA-RESPA Final Rule, and by 
Regulation X, 12 CFR 1024.8. Similarly, the creditor must provide 
the special information booklet required by Regulation X, 12 CFR 
1024.6. However, the provisions of Sec.  1026.19(e)(2) apply to the 
transaction beginning on October 3, 2015, because they became 
effective on October 3, 2015, without respect to whether an 
application was received by the creditor or mortgage broker on that 
date.
    C. Predisclosure written estimates. Assume a creditor receives a 
request from a consumer for a written estimate of terms or costs 
specific to the consumer on October 3, 2015, before the consumer 
submits an application to the creditor and thus before the consumer 
has received the disclosures required by Sec.  1026.19(e)(1)(i). The 
creditor, if it provides such a written estimate to the consumer, 
must comply with Sec.  1026.19(e)(2)(ii) and provide the required 
statement on the written estimate, even though the creditor has not 
received an application on that date.
    D. Request for preemption determination. Assume a creditor 
submits a request to the Bureau under Sec.  1026.28(a)(1) for a 
determination of whether a State law is inconsistent with the 
disclosure requirements in Regulation Z on October 3, 2015. Because 
the amendments to Sec.  1026.28(a)(1) are effective on that date and 
do not depend on whether the creditor has received an application, 
Sec.  1026.28(a)(1) is applicable to the request on that date, and 
the Bureau would make a determination based on the provisions of 
Regulation Z in effect on that date, including the requirements of 
Sec.  1026.19(e) and (f).
    E. Effective dates for the post-consummation escrow cancelation 
disclosure and partial payment disclosure. Assume a creditor 
receives an application on October 10, 2010, and that the loan was 
consummated on November 19, 2010. Assume further that, on December 
19, 2016, the escrow account established in connection with the 
mortgage loan was canceled or the loan is sold to another covered 
person. A creditor, servicer, or covered person, as applicable, may 
provide the disclosures required under Sec. Sec.  1026.20(e) and 
1026.39(d)(5) to the consumer, but the creditor, servicer, or 
covered person, as applicable, is not required to provide those 
disclosures in this case. Assume the same circumstances, except that 
the escrow account established in connection with the loan is 
canceled or the mortgage loan is sold to another covered person on 
April 14, 2020. A creditor, servicer, or covered person, as 
applicable, must provide the disclosures in Sec. Sec.  1026.20(e) 
and 1026.39(d)(5), as applicable, because a condition requiring 
these disclosures occurred after October 1, 2018 (thus the date the 
application was received is irrelevant).
    2. 2017 TILA-RESPA Amendments. i. Generally. Except as provided 
in comment 1(d)(5)-2.ii, compliance with the

[[Page 37775]]

amendments to this part effective on October 10, 2017 (the 2017 
TILA-RESPA Amendments) is mandatory with respect to transactions for 
which a creditor or mortgage broker received an application on or 
after October 1, 2018. Except as provided in comment 1(d)(5)-2.ii, 
for transactions for which a creditor or mortgage broker received an 
application prior to October 1, 2018, from the effective date of the 
2017 TILA-RESPA Amendments:
    A. A person has the option of complying either: with 12 CFR part 
1026 as it is in effect; or with 12 CFR part 1026 as it was in 
effect on October 9, 2017, together with any amendments to 12 CFR 
part 1026 that become effective after October 9, 2017, other than 
the 2017 TILA-RESPA Amendments; and
    B. An act or omission violates 12 CFR part 1026 only if it 
violates both: 12 CFR part 1026 as it is in effect; and 12 CFR part 
1026 as it was in effect on October 9, 2017, together with any 
amendments to 12 CFR part 1026 that become effective after October 
9, 2017, other than the 2017 TILA-RESPA Amendments.
    ii. Post-consummation escrow cancellation disclosure and partial 
payment disclosure. Comment 1(d)(5)-1.iv sets forth the transactions 
to which the disclosures required by Sec. Sec.  1026.20(e) and 
1026.39(d)(5) are applicable.

Section 1026.2--Definitions and Rules of Construction

* * * * *

2(a)(11) Consumer

* * * * *
    3. Trusts. Credit extended to trusts established for tax or 
estate planning purposes or to land trusts, as described in comment 
3(a)-10, is considered to be extended to a natural person for 
purposes of the definition of consumer.
* * * * *

Section 1026.3--Exempt Transactions

* * * * *
    3(h) Partial exemption for certain mortgage loans.
    1. Partial exemption. Section 1026.3(h) exempts certain 
transactions from the disclosures described in Sec.  1026.19(g), 
and, under certain circumstances, Sec.  1026.19(e) and (f). Section 
1026.3(h) exempts transactions from Sec.  1026.19(e) and (f) if the 
creditor chooses to provide disclosures described in Sec.  1026.18 
that comply with this part pursuant to Sec.  1026.3(h)(6)(i), but 
does not exempt transactions from Sec.  1026.19(e) and (f) if the 
creditor chooses to provide disclosures described in Sec.  
1026.19(e) and (f) that comply with this part pursuant to Sec.  
1026.3(h)(6)(ii). Creditors may provide, at their option, either the 
disclosures described in Sec.  1026.18 or the disclosures described 
in Sec.  1026.19(e) and (f). In providing these disclosures, 
creditors must comply with all provisions of this part relating to 
those disclosures. Section 1026.3(h) does not exempt transactions 
from any of the other requirements of this part, to the extent they 
are applicable. For transactions that would otherwise be subject to 
Sec.  1026.19(e), (f), and (g), creditors must comply with all other 
applicable requirements of this part, including the consumer's right 
to rescind the transaction under Sec.  1026.23, to the extent that 
provision is applicable.
    2. Establishing compliance. The conditions that the transaction 
not require the payment of interest under Sec.  1026.3(h)(3) and 
that repayment of the amount of credit extended be forgiven or 
deferred in accordance with Sec.  1026.3(h)(4) must be reflected in 
the loan contract. The other requirements of Sec.  1026.3(h) need 
not be reflected in the loan contract, but the creditor must retain 
evidence of compliance with those provisions, as required by Sec.  
1026.25(a) or (c), as applicable. In particular, because the 
exemption in Sec.  1026.3(h) means the creditor is not required to 
provide the disclosures of closing costs under Sec.  1026.37 or 
Sec.  1026.38 (unless the creditor chooses to provide disclosures 
described in Sec.  1026.19(e) and (f) that comply with this part), 
the creditor must retain evidence reflecting that the costs payable 
by the consumer in connection with the transaction at consummation 
are limited to recording fees, transfer taxes, a bona fide and 
reasonable application fee, and a bona fide and reasonable housing 
counseling fee, and that the total of application and housing 
counseling fees is less than 1 percent of the amount of credit 
extended, in accordance with Sec.  1026.3(h)(5). Unless the 
itemization of the amount financed provided to the consumer 
sufficiently details this requirement, the creditor must establish 
compliance with Sec.  1026.3(h)(5) by some other written document 
and retain it in accordance with Sec.  1026.25(a) or (c), as 
applicable.
    3. Relationship to partial exemption for certain federally 
related mortgage loans. Regulation X provides a partial exemption 
from certain Regulation X disclosure requirements in 12 CFR 
1024.5(d). The partial exemption in Regulation X, 12 CFR 
1024.5(d)(2) provides that certain Regulation X disclosure 
requirements do not apply to a federally related mortgage loan, as 
defined in Regulation X, 12 CFR 1024.2(b), that satisfies the 
criteria in Sec.  1026.3(h) of this part. For a federally related 
mortgage loan that is not otherwise covered by Regulation Z, lenders 
may satisfy the criteria in Sec.  1026.3(h)(6) by providing the 
disclosures described in Sec.  1026.18 that comply with this part or 
the disclosures described in Sec.  1026.19(e) and (f) that comply 
with this part.
    4. Recording fees. See comment 37(g)(1)-1 for a discussion of 
what constitutes a recording fee.
    5. Transfer taxes. See comment 37(g)(1)-3 for a discussion of 
what constitutes a transfer tax.
* * * * *

Section 1026.17--General Disclosure Requirements

* * * * *

17(c) Basis of Disclosures and Use of Estimates

* * * * *

Paragraph 17(c)(6)

* * * * *
    5. Allocation of costs. When a creditor uses the special rule in 
Sec.  1026.17(c)(6) to disclose credit extensions as multiple 
transactions, fees and charges must be allocated for purposes of 
calculating disclosures. In the case of a construction-permanent 
loan that a creditor chooses to disclose as multiple transactions, 
the creditor must allocate to the construction transaction finance 
charges under Sec.  1026.4 and points and fees under Sec.  
1026.32(b)(1) that would not be imposed but for the construction 
financing. For example, inspection and handling fees for the staged 
disbursement of construction loan proceeds must be included in the 
disclosures for the construction phase and may not be included in 
the disclosures for the permanent phase. If a creditor charges 
separate amounts for finance charges under Sec.  1026.4 and points 
and fees under Sec.  1026.32(b)(1) for the construction phase and 
the permanent phase, such amounts must be allocated to the phase for 
which they are charged. If a creditor charges an origination fee for 
construction financing only but charges a greater origination fee 
for construction-permanent financing, the difference between the two 
fees must be allocated to the permanent phase. All other finance 
charges under Sec.  1026.4 and points and fees under Sec.  
1026.32(b)(1) must be allocated to the permanent financing. Fees and 
charges that are not used to compute the finance charge under Sec.  
1026.4 or points and fees under Sec.  1026.32(b)(1) may be allocated 
between the transactions in any manner the creditor chooses. For 
example, a reasonable appraisal fee paid to an independent, third-
party appraiser may be allocated in any manner the creditor chooses 
because it would be excluded from the finance charge pursuant to 
Sec.  1026.4(c)(7) and excluded from points and fees pursuant to 
Sec.  1026.32(b)(1)(iii).
* * * * *

17(f) Early Disclosures

    1. Change in rate or other terms. Redisclosure is required for 
changes that occur between the time disclosures are made and 
consummation if the annual percentage rate in the consummated 
transaction exceeds the limits prescribed in Sec.  1026.17(f) even 
if the prior disclosures would be considered accurate under the 
tolerances in Sec.  1026.18(d) or 1026.22(a). To illustrate:
    i. Transactions not secured by real property or a cooperative 
unit. A. For transactions not secured by real property or a 
cooperative unit, if disclosures are made in a regular transaction 
on July 1, the transaction is consummated on July 15, and the actual 
annual percentage rate varies by more than \1/8\ of 1 percentage 
point from the disclosed annual percentage rate, the creditor must 
either redisclose the changed terms or furnish a complete set of new 
disclosures before consummation. Redisclosure is required even if 
the disclosures made on July 1 are based on estimates and marked as 
such.
    B. In a regular transaction not secured by real property or a 
cooperative unit, if early disclosures are marked as estimates and 
the disclosed annual percentage rate is within \1/8\ of 1 percentage 
point of the rate at consummation, the creditor need not redisclose 
the changed terms (including the annual percentage rate).
    C. If disclosures for transactions not secured by real property 
or a cooperative unit

[[Page 37776]]

are made on July 1, the transaction is consummated on July 15, and 
the finance charge increased by $35 but the disclosed annual 
percentage rate is within the permitted tolerance, the creditor must 
at least redisclose the changed terms that were not marked as 
estimates. See Sec.  1026.18(d)(2).
    ii. Reverse mortgages. In a transaction subject to Sec.  
1026.19(a) and not Sec.  1026.19(e) and (f), assume that, at the 
time the disclosures required by Sec.  1026.19(a) are prepared in 
July, the loan closing is scheduled for July 31 and the creditor 
does not plan to collect per-diem interest at consummation. Assume 
further that consummation actually occurs on August 5, and per-diem 
interest for the remainder of August is collected as a prepaid 
finance charge. The creditor may rely on the disclosures prepared in 
July that were accurate when they were prepared. However, if the 
creditor prepares new disclosures in August that will be provided at 
consummation, the new disclosures must take into account the amount 
of the per-diem interest known to the creditor at that time.
    iii. Transactions secured by real property or a cooperative unit 
other than reverse mortgages. For transactions secured by real 
property or a cooperative unit other than reverse mortgages, assume 
that, at the time the disclosures required by Sec.  1026.19(e) are 
prepared in July, the loan closing is scheduled for July 31 and the 
creditor does not plan to collect per-diem interest at consummation. 
Assume further that consummation actually occurs on August 5, and 
per-diem interest for the remainder of August is collected as a 
prepaid finance charge. The creditor must make the disclosures 
required by Sec.  1026.19(f) three days before consummation, and the 
disclosures required by Sec.  1026.19(f) must take into account the 
amount of per-diem interest that will be collected at consummation.
    2. Variable rate. The addition of a variable rate feature to the 
credit terms, after early disclosures are given, requires new 
disclosures. See Sec.  1026.19(e) and (f) to determine when new 
disclosures are required for transactions secured by real property 
or a cooperative unit, other than reverse mortgages.
* * * * *

Section 1026.18--Content of Disclosures

* * * * *
    3. Scope of coverage. i. Section 1026.18 applies to closed-end 
consumer credit transactions, other than transactions that are 
subject to Sec.  1026.19(e) and (f). Section 1026.19(e) and (f) 
applies to closed-end consumer credit transactions that are secured 
by real property or a cooperative unit, other than reverse mortgages 
subject to Sec.  1026.33. Accordingly, the disclosures required by 
Sec.  1026.18 apply only to closed-end consumer credit transactions 
that are:
    A. Unsecured;
    B. Secured by personal property that is not a dwelling;
    C. Secured by personal property (other than a cooperative unit) 
that is a dwelling and are not also secured by real property; or
    D. Reverse mortgages subject to Sec.  1026.33.
    ii. Of the foregoing transactions that are subject to Sec.  
1026.18, the creditor discloses a payment schedule under Sec.  
1026.18(g) for those described in paragraphs i.A and i.B of this 
comment. For transactions described in paragraphs i.C and i.D of 
this comment, the creditor discloses an interest rate and payment 
summary table under Sec.  1026.18(s). See also comments 18(g)-6 and 
18(s)-4 for additional guidance on the applicability to different 
transaction types of Sec. Sec.  1026.18(g) or (s) and 1026.19(e) and 
(f).
    iii. Because Sec.  1026.18 does not apply to transactions 
secured by real property or a cooperative unit, other than reverse 
mortgages, references in the section and its commentary to 
``mortgages'' refer only to transactions described in paragraphs i.C 
and i.D of this comment, as applicable.
* * * * *

18(g) Payment Schedule

* * * * *
    6. Mortgage transactions. Section 1026.18(g) applies to closed-
end transactions, other than transactions that are subject to Sec.  
1026.18(s) or Sec.  1026.19(e) and (f). Section 1026.18(s) applies 
to closed-end transactions secured by real property or a dwelling, 
unless they are subject to Sec.  1026.19(e) and (f). Section 
1026.19(e) and (f) applies to closed-end transactions secured by 
real property or a cooperative unit, other than reverse mortgages. 
Thus, if a closed-end consumer credit transaction is secured by real 
property, a cooperative unit, or a dwelling and the transaction is a 
reverse mortgage or the dwelling is personal property but not a 
cooperative unit, then the creditor discloses an interest rate and 
payment summary table in accordance with Sec.  1026.18(s). See 
comment 18(s)-4. If a closed-end consumer credit transaction is 
secured by real property or a cooperative unit and is not a reverse 
mortgage, the creditor discloses a projected payments table in 
accordance with Sec. Sec.  1026.37(c) and 1026.38(c), as required by 
Sec.  1026.19(e) and (f). In all such cases, the creditor is not 
subject to the requirements of Sec.  1026.18(g). On the other hand, 
if a closed-end consumer credit transaction is not secured by real 
property or a dwelling (for example, if it is unsecured or secured 
by an automobile), the creditor discloses a payment schedule in 
accordance with Sec.  1026.18(g) and is not subject to the 
requirements of Sec.  1026.18(s) or Sec. Sec.  1026.37(c) and 
1026.38(c).
* * * * *

18(s) Interest Rate and Payment Summary for Mortgage Transactions

    1. In general. Section 1026.18(s) prescribes format and content 
for disclosure of interest rates and monthly (or other periodic) 
payments for reverse mortgages and certain transactions secured by 
dwellings that are personal property but not cooperative units. The 
information in Sec.  1026.18(s)(2) through (4) is required to be in 
the form of a table, except as otherwise provided, with headings and 
format substantially similar to model clause H-4(E), H-4(F), H-4(G), 
or H-4(H) in appendix H to this part. A disclosure that does not 
include the shading shown in a model clause but otherwise follows 
the model clause's headings and format is substantially similar to 
that model clause. Where Sec.  1026.18(s)(2) through (4) or the 
applicable model clause requires that a column or row of the table 
be labeled using the word ``monthly'' but the periodic payments are 
not due monthly, the creditor should use the appropriate term, such 
as ``bi-weekly'' or ``quarterly.'' In all cases, the table should 
have no more than five vertical columns corresponding to applicable 
interest rates at various times during the loan's term; 
corresponding payments would be shown in horizontal rows. Certain 
loan types and terms are defined for purposes of Sec.  1026.18(s) in 
Sec.  1026.18(s)(7).
* * * * *
    4. Scope of coverage in relation to Sec.  1026.19(e) and (f). 
Section 1026.18(s) applies to transactions secured by real property 
or a dwelling, other than transactions that are subject to Sec.  
1026.19(e) and (f). Those provisions apply to closed-end 
transactions secured by real property or a cooperative unit, other 
than reverse mortgages. Accordingly, Sec.  1026.18(s) governs only 
closed-end reverse mortgages and closed-end transactions secured by 
a dwelling, other than a cooperative, that is personal property 
(such as a mobile home that is not deemed real property under State 
or other applicable law).
* * * * *

Section 1026.19--Certain Mortgage and Variable-Rate Transactions

* * * * *
    19(e) Mortgage loans--Early disclosures.
* * * * *
    19(e)(1) Provision of disclosures.
    19(e)(1)(i) Creditor.
    1. Requirements. Section 1026.19(e)(1)(i) requires early 
disclosure of credit terms in closed-end credit transactions that 
are secured by real property or a cooperative unit, other than 
reverse mortgages. These disclosures must be provided in good faith. 
Except as otherwise provided in Sec.  1026.19(e), a disclosure is in 
good faith if it is consistent with Sec.  1026.17(c)(2)(i). Section 
1026.17(c)(2)(i) provides that if 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 to the creditor at the time the disclosure is provided to 
the consumer. 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 for an explanation 
of the standard set forth in Sec.  1026.17(c)(2)(i). See comment 
17(c)(2)(i)-2 for labeling disclosures required under Sec.  
1026.19(e) that are estimates.
    2. Cooperative units. Section 1026.19(e)(1)(i) requires early 
disclosure of credit terms in closed-end credit transactions, other 
than reverse mortgages, that are secured by real property or a 
cooperative unit, regardless of whether a cooperative unit is 
treated as real property under State or other applicable law.
* * * * *
    19(e)(1)(iii) Timing.
* * * * *

[[Page 37777]]

    5. Multiple-advance construction loans. Section 
1026.19(e)(1)(iii) generally requires a creditor to deliver the Loan 
Estimate or place it in the mail not later than the third business 
day after the creditor receives the consumer's application and not 
later than the seventh business day before consummation. When a 
multiple-advance loan to finance the construction of a dwelling may 
be permanently financed by the same creditor, Sec.  
1026.17(c)(6)(ii) and comment 17(c)(6)-2 permit creditors to treat 
the construction phase and the permanent phase as either one 
transaction, with one combined disclosure, or more than one 
transaction, with a separate disclosure for each transaction. For 
construction--permanent transactions disclosed as one transaction, 
the creditor complies with Sec.  1026.19(e)(1)(iii) by delivering or 
placing in the mail one combined disclosure required by Sec.  
1026.19(e)(1)(i) not later than the third business day after the 
creditor receives an application and not later than the seventh 
business day before consummation. For construction--permanent 
transactions disclosed as a separate construction phase and a 
separate permanent phase for which an application for both the 
construction and permanent financing has been received, the creditor 
complies with Sec.  1026.19(e)(1)(iii) by delivering or placing in 
the mail the separate disclosures required by Sec.  1026.19(e)(1)(i) 
for both the construction financing and the permanent financing not 
later than the third business day after the creditor receives the 
application and not later than the seventh business day before 
consummation. A creditor may also provide a separate disclosure 
required by Sec.  1026.19(e)(1)(i) for the permanent phase before 
receiving an application for permanent financing at any time not 
later than the seventh business day before consummation. To 
illustrate:
    i. Assume a creditor receives a consumer's application for 
construction financing only on Monday, June 1. The creditor must 
deliver or place in the mail the disclosures required by Sec.  
1026.19(e)(1)(i) for only the construction financing no later than 
Thursday, June 4, the third business day after the creditor received 
the consumer's application, and not later than the seventh business 
day before consummation of the transaction.
    ii. Assume the creditor receives a consumer's application for 
both construction and permanent financing on Monday, June 1. The 
creditor must deliver or place in the mail the disclosures required 
by Sec.  1026.19(e)(1)(i) for both the construction and permanent 
financing, disclosed as either one transaction or separate 
transactions, no later than Thursday, June 4, the third business day 
after the creditor received the consumer's application, and not 
later than the seventh business day before consummation of the 
transaction.
    iii. Assume the creditor receives a consumer's application for 
construction financing only on Monday, June 1. Assume further that 
the creditor receives the consumer's application for permanent 
financing on Monday, June 8. The creditor must deliver or place in 
the mail the disclosures required by Sec.  1026.19(e)(1)(i) for the 
construction financing no later than Thursday, June 4, the third 
business day after the creditor received the consumer's application 
for the construction financing only, and not later than the seventh 
business day before consummation of the construction transaction. 
The creditor must deliver or place in the mail the disclosures 
required by Sec.  1026.19(e)(1)(i) for the permanent financing no 
later than Thursday, June 11, the third business day after the 
creditor received the consumer's application for the permanent 
financing, and not later than the seventh business day before 
consummation of the permanent financing transaction.
    iv. Assume the same facts as in comment 19(e)(1)(iii)-5.ii, 
under which the creditor provides the disclosures required by Sec.  
1026.19(e)(1)(i) for both construction financing and permanent 
financing. If the creditor generally conducts separate closings for 
the construction financing and the permanent financing or expects 
that the construction financing and the permanent financing may have 
separate closings, providing separate Loan Estimates for the 
construction financing and for the permanent financing allows the 
creditor to deliver separate Closing Disclosures for the separate 
phases. For example, assume further that the consumer has requested 
permanent financing after receiving separate Loan Estimates for the 
construction financing and for the permanent financing, that 
consummation of the construction financing is scheduled for July 1, 
and that consummation of the permanent financing is scheduled on or 
about June 1 of the following year. The creditor may provide the 
construction financing Closing Disclosure at least three business 
days before consummation of that transaction on July 1 and delay 
providing the permanent financing Closing Disclosure until three 
business days before consummation of that transaction on or about 
June 1 of the following year, in accordance with Sec.  
1026.19(f)(1)(ii). The creditor may also issue a revised Loan 
Estimate for the permanent financing at any time prior to 60 days 
before consummation, following the procedures under Sec.  
1026.19(e)(3)(iv)(F).
* * * * *
    19(e)(1)(vi) Shopping for settlement service providers.
    1. Permission to shop. Section 1026.19(e)(1)(vi)(A) permits 
creditors to impose reasonable requirements regarding the 
qualifications of the provider. For example, the creditor may 
require that a settlement agent chosen by the consumer must be 
appropriately licensed in the relevant jurisdiction. In contrast, a 
creditor does not permit a consumer to shop for purposes of Sec.  
1026.19(e)(1)(vi) if the creditor requires the consumer to choose a 
provider from a list provided by the creditor. Whether the creditor 
permits the consumer to shop consistent with Sec.  
1026.19(e)(1)(vi)(A) is determined based on all the relevant facts 
and circumstances. The requirements of Sec.  1026.19(e)(1)(vi)(B) 
and (C) do not apply if the creditor does not permit the consumer to 
shop consistent with Sec.  1026.19(e)(1)(vi)(A).
    2. Disclosure of services for which the consumer may shop. If a 
creditor permits a consumer to shop for a settlement service, Sec.  
1026.19(e)(1)(vi)(B) requires the creditor to identify settlement 
services required by the creditor for which the consumer is 
permitted to shop in the disclosures provided pursuant to Sec.  
1026.19(e)(1)(i). See Sec.  1026.37(f)(3) regarding the content and 
format for disclosure of services required by the creditor for which 
the consumer is permitted to shop.
    3. Written list of providers. If the creditor permits the 
consumer to shop for a settlement service it requires, Sec.  
1026.19(e)(1)(vi)(C) requires the creditor to provide the consumer 
with a written list identifying at least one available provider of 
that service and stating that the consumer may choose a different 
provider for that service. The settlement service providers 
identified on the written list required by Sec.  
1026.19(e)(1)(vi)(C) must correspond to the required settlement 
services for which the consumer may shop, disclosed under Sec.  
1026.37(f)(3). See form H-27 in appendix H to this part for a model 
list. Creditors using form H-27 in appendix H properly are deemed to 
be in compliance with Sec.  1026.19(e)(1)(vi)(C). Creditors may make 
changes in the format or content of form H-27 in appendix H and be 
deemed to be in compliance with Sec.  1026.19(e)(1)(vi)(C), so long 
as the changes do not affect the substance, clarity, or meaningful 
sequence of the form. An acceptable change to form H-27 in appendix 
H includes, for example, deleting the column for estimated fee 
amounts.
    4. Identification of available providers. Section 
1026.19(e)(1)(vi)(C) provides that the creditor must identify 
settlement service providers, that are available to the consumer, 
for the settlement services that are required by the creditor for 
which a consumer is permitted to shop. A creditor does not comply 
with the identification requirement in Sec.  1026.19(e)(1)(vi)(C) 
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. Similarly, 
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.
* * * * *
    19(e)(3) Good faith determination for estimates of closing 
costs.
    19(e)(3)(i) General rule.
    1. Requirement. Section 1026.19(e)(3)(i) provides the general 
rule that an estimated closing cost disclosed under Sec.  1026.19(e) 
is not in good faith if the charge paid by or imposed on the 
consumer exceeds the amount originally disclosed under Sec.  
1026.19(e)(1)(i). Although Sec.  1026.19(e)(3)(ii) and (iii) provide 
exceptions to the general rule, the charges that are generally 
subject to Sec.  1026.19(e)(3)(i) include, but are not limited to, 
the following:
    i. Fees paid to the creditor.
    ii. Fees paid to a mortgage broker.
    iii. Fees paid to an affiliate of the creditor or a mortgage 
broker.
    iv. Fees paid to an unaffiliated third party if the creditor did 
not permit the consumer to shop for a third party service provider 
for a settlement service.

[[Page 37778]]

    v. Transfer taxes.
* * * * *
    19(e)(3)(ii) Limited increases permitted for certain charges.
    1. Requirements. Section 1026.19(e)(3)(ii) provides that certain 
estimated charges are in good faith if the sum of all such charges 
paid by or imposed on the consumer does not exceed the sum of all 
such charges disclosed pursuant to Sec.  1026.19(e) by more than 10 
percent. Section 1026.19(e)(3)(ii) permits this limited increase for 
only the following items:
    i. Fees paid to an unaffiliated third party if the creditor 
permitted the consumer to shop for the third-party service, 
consistent with Sec.  1026.19(e)(1)(vi)(A).
    ii. Recording fees.
    2. Aggregate increase limited to ten percent. Under Sec.  
1026.19(e)(3)(ii)(A), 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) increases by 
more than 10 percent, regardless of whether a particular charge 
increases by more than 10 percent. This is true even if an 
individual charge was omitted from the estimate provided under Sec.  
1026.19(e)(1)(i) and then imposed at consummation. The following 
examples illustrate the determination of good faith for charges 
subject to Sec.  1026.19(e)(3)(ii):
    i. Assume that, in the disclosures provided under Sec.  
1026.19(e)(1)(i), the creditor includes a $300 estimated fee for a 
settlement agent, the settlement agent fee is included in the 
category of charges subject to Sec.  1026.19(e)(3)(ii), and the sum 
of all charges subject to Sec.  1026.19(e)(3)(ii) (including the 
settlement agent fee) equals $1,000. In this case, the creditor does 
not violate Sec.  1026.19(e)(3)(ii) if the actual settlement agent 
fee exceeds the estimated settlement agent fee by more than 10 
percent (i.e., the fee exceeds $330), provided that the sum of all 
such actual charges does not exceed the sum of all such estimated 
charges by more than 10 percent (i.e., the sum of all such charges 
does not exceed $1,100).
    ii. Assume that, in the disclosures provided under Sec.  
1026.19(e)(1)(i), the sum of all estimated charges subject to Sec.  
1026.19(e)(3)(ii) equals $1,000. If the creditor does not include an 
estimated charge for a notary fee but a $10 notary fee is charged to 
the consumer, and the notary fee is subject to Sec.  
1026.19(e)(3)(ii), then the creditor does not violate Sec.  
1026.19(e)(1)(i) if the sum of all amounts charged to the consumer 
subject to Sec.  1026.19(e)(3)(ii) does not exceed $1,100, even 
though an individual notary fee was not included in the estimated 
disclosures provided under Sec.  1026.19(e)(1)(i).
* * * * *
    6. Shopping for a third-party service. For good faith to be 
determined under Sec.  1026.19(e)(3)(ii) a creditor must permit a 
consumer to shop consistent with Sec.  1026.19(e)(1)(vi)(A). Section 
1026.19(e)(1)(vi)(A) provides that a creditor permits a consumer to 
shop for a settlement service if the creditor permits the consumer 
to select the provider of that service, subject to reasonable 
requirements. If the creditor permits the consumer to shop 
consistent with Sec.  1026.19(e)(1)(vi)(A) good faith is determined 
under Sec.  1026.19(e)(3)(ii), unless the settlement service 
provider is the creditor or an affiliate of the creditor, in which 
case good faith is determined under Sec.  1026.19(e)(3)(i). As noted 
in comment 19(e)(1)(vi)-1, whether the creditor permits the consumer 
to shop consistent with Sec.  1026.19(e)(1)(vi)(A) is determined 
based on all the relevant facts and circumstances.
    19(e)(3)(iii) Variations permitted for certain charges.
* * * * *
    2. Good faith requirement for required services chosen by the 
consumer. If a service is required by the creditor, the creditor 
permits the consumer to shop for that service consistent with Sec.  
1026.19(e)(1)(vi)(A), the creditor provides the list required under 
Sec.  1026.19(e)(1)(vi)(C), and the consumer chooses a service 
provider that is not on that list to perform that service, then the 
actual amounts of such fees need not be compared to the original 
estimates for such fees to perform the good faith analysis required 
under Sec.  1026.19(e)(3)(i) or (ii). Differences between the 
amounts of such charges disclosed under Sec.  1026.19(e)(1)(i) and 
the amounts of such charges paid by or imposed on the consumer do 
not constitute a lack of good faith, so long as the original 
estimated charge, or lack of an estimated charge for a particular 
service, was based on the best information reasonably available to 
the creditor at the time the disclosure was provided. For example, 
if the consumer informs the creditor that the consumer will choose a 
settlement agent not identified by the creditor on the written list 
provided under Sec.  1026.19(e)(1)(vi)(C), and the creditor 
discloses an unreasonably low estimated settlement agent fee of $20 
when the average prices for settlement agent fees in that area are 
$150, then the under-disclosure does not comply with Sec.  
1026.19(e)(3)(iii) and good faith is determined under Sec.  
1026.19(e)(3)(i). If the creditor permits the consumer to shop 
consistent with Sec.  1026.19(e)(1)(vi)(A) but fails to provide the 
written list required under Sec.  1026.19(e)(1)(vi)(C), good faith 
is determined under Sec.  1026.19(e)(3)(ii) instead of Sec.  
1026.19(e)(3)(iii) unless the settlement service provider is the 
creditor or an affiliate of the creditor in which case good faith is 
determined under Sec.  1026.19(e)(3)(i). As noted in comment 
19(e)(1)(vi)-1 whether the creditor permits the consumer to shop 
consistent with Sec.  1026.19(e)(1)(vi)(A) is determined based on 
all the relevant facts and circumstances.
    3. Good faith requirement for property taxes or non-required 
services chosen by the consumer. Differences between the amounts of 
estimated charges for property taxes or services not required by the 
creditor disclosed under Sec.  1026.19(e)(1)(i) and the amounts of 
such charges paid by or imposed on the consumer do not constitute a 
lack of good faith, so long as the original estimated charge, or 
lack of an estimated charge for a particular service, was based on 
the best information reasonably available to the creditor at the 
time the disclosure was provided. For example, if the consumer 
informs the creditor that the consumer will obtain a type of 
inspection not required by the creditor, the creditor must include 
the charge for that item in the disclosures provided under Sec.  
1026.19(e)(1)(i), but the actual amount of the inspection fee need 
not be compared to the original estimate for the inspection fee to 
perform the good faith analysis required by Sec.  
1026.19(e)(3)(iii). The original estimated charge, or lack of an 
estimated charge for a particular service, complies with Sec.  
1026.19(e)(3)(iii) if it is made based on the best information 
reasonably available to the creditor at the time that the estimate 
was provided. But, for example, if the subject property is located 
in a jurisdiction where consumers are customarily represented at 
closing by their own attorney, even though it is not a requirement, 
and the creditor fails to include a fee for the consumer's attorney, 
or includes an unreasonably low estimate for such fee, on the 
original estimates provided under Sec.  1026.19(e)(1)(i), then the 
creditor's failure to disclose, or unreasonably low estimation, does 
not comply with Sec.  1026.19(e)(3)(iii). Similarly, the amount 
disclosed for property taxes must be based on the best information 
reasonably available to the creditor at the time the disclosure was 
provided. For example, if the creditor fails to include a charge for 
property taxes, or includes an unreasonably low estimate for that 
charge, on the original estimates provided under Sec.  
1026.19(e)(1)(i), then the creditor's failure to disclose, or 
unreasonably low estimation, does not comply with Sec.  
1026.19(e)(3)(iii) and the charge for property tax would be subject 
to the good faith determination under Sec.  1026.19(e)(3)(i).
    4. Bona fide charges. In covered transactions, Sec.  
1026.19(e)(1)(i) requires the creditor to provide the consumer with 
good faith estimates of the disclosures in Sec.  1026.37. Section 
1026.19(e)(3)(iii) provides that an estimate of the charges listed 
in Sec.  1026.19(e)(3)(iii) is in good faith if it is consistent 
with the best information reasonably available to the creditor at 
the time the disclosure is provided and that good faith is 
determined under Sec.  1026.19(e)(3)(iii) even if such charges are 
paid to the creditor or affiliates of the creditor, so long as the 
charges are bona fide. For determining good faith under Sec.  
1026.19(e)(1)(i), to be bona fide, charges must be lawful and for 
services that are actually performed.

19(e)(3)(iv) Revised estimates.

* * * * *
    2. Actual increase. A creditor may determine good faith under 
Sec.  1026.19(e)(3)(i) and (ii) based on the increased charges 
reflected on revised disclosures only to the extent that the reason 
for revision, as identified in Sec.  1026.19(e)(3)(iv)(A) through 
(F), actually increased the particular charge. For example, if a 
consumer requests a rate lock extension, then the revised 
disclosures on which a creditor relies for purposes of determining 
good faith under Sec.  1026.19(e)(3)(i) may reflect a new rate lock 
extension fee, but the fee may be no more than the rate lock 
extension fee charged by the creditor in its usual course of 
business, and the creditor may not rely on changes to other charges 
unrelated to the rate lock extension for purposes of determining 
good faith under Sec.  1026.19(e)(3)(i) and (ii).
* * * * *

[[Page 37779]]

    4. Revised disclosures for general informational purposes. 
Section 1026.19(e)(3)(iv) does not prohibit the creditor from 
issuing revised disclosures for informational purposes, e.g., to 
keep the consumer apprised of updated information, even if the 
revised disclosures may not be used for purposes of determining good 
faith under Sec.  1026.19(e)(3)(i) and (ii). See comment 
19(e)(3)(iv)(A)-1.ii for an example in which the creditor issues 
revised disclosures even though the sum of all costs subject to the 
10 percent tolerance category has not increased by more than 10 
percent.
    5. Best information reasonably available. Regardless of whether 
a creditor may use particular disclosures for purposes of 
determining good faith under Sec.  1026.19(e)(3)(i) and (ii), except 
as otherwise provided in Sec.  1026.19(e), any disclosures must be 
based on the best information reasonably available to the creditor 
at the time they are provided to the consumer. See Sec.  
1026.17(c)(2)(i) and comment 17(c)(2)(i)-1. For example, if the 
creditor issues revised disclosures reflecting a new rate lock 
extension fee for purposes of determining good faith under Sec.  
1026.19(e)(3)(i), other charges unrelated to the rate lock extension 
must be reflected on the revised disclosures based on the best 
information reasonably available to the creditor at the time the 
revised disclosures are provided. Nonetheless, any increases in 
those other charges unrelated to the rate lock extension may not be 
used for the purposes of determining good faith under Sec.  
1026.19(e)(3).
* * * * *

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, then, 
no later than three business days after the date the interest rate 
is subsequently 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 under Sec.  1026.37(f)(1), lender credits, and 
any other interest rate dependent charges and terms. The following 
example illustrates 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 under 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 under 
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 
three business days 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 under Sec.  
1026.37(f)(1), lender credits, and any other 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 under 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 under Sec.  1026.19(e)(3)(i).
    2. After the Closing Disclosure is provided. Under Sec.  
1026.19(e)(3)(iv)(D), no later than three business days after the 
date the interest rate is locked, the creditor must provide to the 
consumer a revised version of the Loan Estimate as required by Sec.  
1026.19(e)(1)(i). Section 1026.19(e)(4)(ii) prohibits a creditor 
from providing a revised version of the Loan Estimate as required by 
Sec.  1026.19(e)(1)(i) on or after the date on which the creditor 
provides the Closing Disclosure as required by Sec.  
1026.19(f)(1)(i). If the interest rate is locked on or after the 
date on which the creditor provides the Closing Disclosure and the 
Closing Disclosure is inaccurate as a result, then the creditor must 
provide the consumer a corrected Closing Disclosure, at or before 
consummation, reflecting any changed terms, pursuant to Sec.  
1026.19(f)(2). If the rate lock causes the Closing Disclosure to 
become inaccurate before consummation in a manner listed in Sec.  
1026.19(f)(2)(ii), the creditor must ensure that the consumer 
receives a corrected Closing Disclosure no later than three business 
days before consummation, as provided in that paragraph.

19(e)(3)(iv)(E) Expiration.

    1. Requirements. If the consumer indicates an intent to proceed 
with the transaction more than 10 business days after the 
disclosures were originally provided under Sec.  1026.19(e)(1)(iii), 
for the purpose 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). Section 1026.19(e)(3)(iv)(E) requires no 
justification for the change to the original estimate other than the 
lapse of 10 business days. For example, assume a creditor includes a 
$500 underwriting fee on the disclosures provided under Sec.  
1026.19(e)(1)(i) and the creditor delivers those disclosures on a 
Monday. If the consumer indicates intent to proceed 11 business days 
later, the creditor may provide new disclosures with a $700 
underwriting fee. In this example, Sec.  1026.19(e) and Sec.  
1026.25 require the creditor to document that a new disclosure was 
provided under Sec.  1026.19(e)(3)(iv)(E) but do not require the 
creditor to document a reason for the increase in the underwriting 
fee.
    2. Longer time period. For transactions in which the interest 
rate is locked for a specific period of time, Sec.  
1026.37(a)(13)(ii) requires the creditor to provide the date and 
time (including the applicable time zone) when that period ends. If 
the creditor establishes a period greater than 10 business days 
after the disclosures were originally provided (or subsequently 
extends it to such a longer period) before the estimated closing 
costs expire, notwithstanding the 10-business-day period discussed 
in comment 19(e)(3)(iv)(E)-1, that longer time period becomes the 
relevant time period for purposes of Sec.  1026.19(e)(3)(iv)(E). 
Accordingly, in such a case, the creditor may not issue revised 
disclosures for purposes of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii) under Sec.  1026.19(e)(3)(iv)(E) until 
after the longer time period has expired. A creditor establishes 
such a period greater than 10 business days by communicating the 
greater time period to the consumer, including through oral 
communication.
* * * * *
    19(f) Mortgage loans--Final disclosures.
    19(f)(1) Provision of disclosures.
    19(f)(1)(i) Scope.
    1. Requirements. Section 1026.19(f)(1)(i) requires disclosure of 
the actual terms of the credit transaction, and the actual costs 
associated with the settlement of that transaction, for closed-end 
credit transactions that are secured by real property or a 
cooperative unit, other than reverse mortgages subject to Sec.  
1026.33. For example, if the creditor requires the consumer to pay 
money into a reserve account for the future payment of taxes, the 
creditor must disclose to the consumer the exact amount that the 
consumer is required to pay into the reserve account. If the 
disclosures provided under 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). For example, if 
the creditor provides the disclosures required by Sec.  
1026.19(f)(1)(i) on Monday, June 1, but the consumer adds a mobile 
notary service to the terms of the transaction on Tuesday, June 2, 
the creditor complies with Sec.  1026.19(f)(1)(i) if it provides 
disclosures reflecting the revised terms of the transaction on or 
after Tuesday, June 2, assuming that the corrected disclosures are 
also provided at or before consummation, under Sec.  
1026.19(f)(2)(i).
* * * * *
    19(f)(2) Subsequent changes.
* * * * *
    19(f)(2)(iii) Changes due to events occurring after 
consummation.
* * * * *
    2. Per-diem interest. Under Sec.  1026.19(f)(2)(iii), if during 
the 30-day period following consummation, an event in connection 
with the settlement of the transaction occurs that causes the 
disclosures to become inaccurate, and such inaccuracy results in a 
change to an amount actually paid by the consumer from that amount 
disclosed under Sec.  1026.19(f)(1)(i), the creditor must provide 
the consumer corrected disclosures, except as described in this 
comment. A creditor is not required to provide corrected disclosures 
under Sec.  1026.19(f)(2)(iii) if the only changes that would be 
required to be disclosed in the corrected disclosure are changes to 
per-diem interest and any disclosures affected by the change in per-
diem interest, even if the amount of per-diem interest actually paid 
by

[[Page 37780]]

the consumer differs from the amount disclosed under Sec.  
1026.38(g)(2) and (o). Nonetheless, if a creditor is providing a 
corrected disclosure under Sec.  1026.19(f)(2)(iii) for reasons 
other than changes in per-diem interest and the per-diem interest 
has changed as well, the creditor must disclose in the corrected 
disclosures under Sec.  1026.19(f)(2)(iii) the correct amount of the 
per-diem interest and provide corrected disclosures for any 
disclosures that are affected by the change in per-diem interest.
* * * * *
    19(f)(2)(v) Refunds related to the good faith analysis.
    1. Requirements. Section 1026.19(f)(2)(v) provides that, if 
amounts paid at consummation exceed the amounts specified under 
Sec.  1026.19(e)(3)(i) or (ii), the creditor does not violate Sec.  
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer 
no later than 60 days after consummation, and the creditor does not 
violate Sec.  1026.19(f)(1)(i) if the creditor delivers or places in 
the mail disclosures corrected to reflect the refund of such excess 
no later than 60 days after consummation. For example, assume that 
at consummation the consumer must pay four itemized charges that are 
subject to the good faith determination under Sec.  
1026.19(e)(3)(i). If the actual amounts paid by the consumer for the 
four itemized charges subject to Sec.  1026.19(e)(3)(i) exceed their 
respective estimates on the disclosures required under Sec.  
1026.19(e)(1)(i) by $30, $25, $25, and $15, then the total would 
exceed the limitations prescribed by Sec.  1026.19(e)(3)(i) by $95. 
If, further, the amounts paid by the consumer for services that are 
subject to the good faith determination under Sec.  
1026.19(e)(3)(ii) totaled $1,190, but the respective estimates on 
the disclosures required under Sec.  1026.19(e)(1)(i) totaled only 
$1,000, then the total would exceed the limitations prescribed by 
Sec.  1026.19(e)(3)(ii) by $90. The creditor does not violate Sec.  
1026.19(e)(1)(i) if the creditor refunds $185 to the consumer no 
later than 60 days after consummation. The creditor does not violate 
Sec.  1026.19(f)(1)(i) if the creditor delivers or places in the 
mail corrected disclosures reflecting the $185 refund of the excess 
amount collected no later than 60 days after consummation. See 
comments 38-4 and 38(h)(3)-2 for additional guidance on disclosing 
refunds.
    19(f)(3) Charges disclosed.
* * * * *
    19(f)(3)(ii) Average charge.
* * * * *
    3. Uniform use. If a creditor chooses to use an average charge 
for a settlement service for a particular loan within a class, Sec.  
1026.19(f)(3)(ii)(C) requires the creditor to use that average 
charge for that service on all loans within the class. For example:
    i. Assume a creditor elects to use an average charge for 
appraisal fees. The creditor defines a class of transactions as all 
fixed rate loans originated between January 1 and April 30 secured 
by real property or a cooperative unit located within a particular 
metropolitan statistical area. The creditor must then charge the 
average appraisal charge to all consumers obtaining fixed rate loans 
originated between May 1 and August 30 secured by real property or a 
cooperative unit located within the same metropolitan statistical 
area.
    ii. The example in paragraph i of this comment assumes that a 
consumer would not be required to pay the average appraisal charge 
unless an appraisal was required on that particular loan. Using the 
example above, if a consumer applies for a loan within the defined 
class, but already has an appraisal report acceptable to the 
creditor from a prior loan application, the creditor may not charge 
the consumer the average appraisal fee because an acceptable 
appraisal report has already been obtained for the consumer's 
application. Similarly, although the creditor defined the class 
broadly to include all fixed rate loans, the creditor may not 
require the consumer to pay the average appraisal charge if the 
particular fixed rate loan program the consumer applied for does not 
require an appraisal.
* * * * *
    19(f)(4) Transactions involving a seller.
    19(f)(4)(i) Provision to seller.
    1. Requirement. Section 1026.19(f)(4)(i) requires the settlement 
agent to provide the seller with the disclosures required under 
Sec.  1026.38 that relate to the seller's transaction reflecting the 
actual terms of the seller's transaction. The settlement agent 
complies with this provision by providing a copy of the Closing 
Disclosure provided to the consumer, if the Closing Disclosure also 
contains the information under Sec.  1026.38 relating to the 
seller's transaction or, alternatively, by providing the disclosures 
under Sec.  1026.38(t)(5)(v) or (vi), as applicable.
    2. Simultaneous subordinate financing. In a purchase transaction 
with simultaneous subordinate financing, the settlement agent 
complies with Sec.  1026.19(f)(4)(i) by providing the seller with 
only the first-lien transaction disclosures required under Sec.  
1026.38 that relate to the seller's transaction reflecting the 
actual terms of the seller's transaction in accordance with comment 
19(f)(4)(i)-1 if the first-lien Closing Disclosure records the 
entirety of the seller's transaction. If the first-lien Closing 
Disclosure does not record the entirety of the seller's transaction, 
the settlement agent complies with Sec.  1026.19(f)(4)(i) by 
providing the seller with both the first-lien and simultaneous 
subordinate financing transaction disclosures required under Sec.  
1026.38 that relate to the seller's transaction reflecting the 
actual terms of the seller's transaction in accordance with comment 
19(f)(4)(i)-1.
* * * * *

Section 1026.23--Right of Rescission

* * * * *

23(g) Tolerances for Accuracy

    1. Example. See comment 38(o)-1 for examples illustrating the 
interaction of the finance charge and total of payments accuracy 
requirements for each transaction subject to Sec.  1026.19(e) and 
(f).
* * * * *
    23(h) Special Rules for Foreclosures
* * * * *
    23(h)(2) Tolerance for Disclosures
    1. General. The tolerance for disclosure of the finance charge 
is based on the accuracy of the total finance charge rather than its 
component charges. For transactions subject to Sec.  1026.19(e) and 
(f), the tolerance for disclosure of the total of payments is based 
on the accuracy of the total of payments, taken as a whole, rather 
than its component charges.
    2. Example. See comment 38(o)-1 for examples illustrating the 
interaction of the finance charge and total of payments accuracy 
requirements for each transaction subject to Sec.  1026.19(e) and 
(f).
* * * * *

Section 1026.25--Record Retention

* * * * *
    25(c) Records Related to Certain Requirements for Mortgage 
Loans.
    25(c)(1) Records related to requirements for loans secured by 
real property or a cooperative unit.
* * * * *

Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate)

* * * * *
    37(a) General information.
* * * * *
    37(a)(7) Sale price.
    1. Estimated property value. In transactions where there is no 
seller, such as in a refinancing, Sec.  1026.37(a)(7)(ii) requires 
the creditor to disclose the estimated value of the property 
identified in Sec.  1026.37(a)(6) based on the best information 
reasonably available to the creditor at the time the disclosure is 
provided to the consumer, which may include, at the creditor's 
option, the estimated value of the improvements to be made on the 
property in transactions involving construction. The creditor may 
use the estimate provided by the consumer at application unless it 
has performed its own estimate of the property value by the time the 
disclosure is provided to the consumer, in which case the creditor 
must use its own estimate. If the creditor has obtained any 
appraisals or valuations of the property for the application at the 
time the disclosure is issued to the consumer, the value determined 
by the appraisal or valuation to be used during underwriting for the 
application is disclosed as the estimated property value. If the 
creditor has obtained multiple appraisals or valuations and has not 
yet determined which one will be used during underwriting, it may 
disclose the value from any appraisal or valuation it reasonably 
believes it may use in underwriting the transaction. In a 
transaction that involves a seller, if the sale price is not yet 
known, the creditor complies with Sec.  1026.37(a)(7) if it 
discloses the estimated value of the property that it used as the 
basis for the disclosures in the Loan Estimate.
    2. Personal property. In transactions involving personal 
property that is separately valued from real property, only the 
value of the real property or cooperative unit is disclosed under 
Sec.  1026.37(a)(7). Where personal property is included in the sale 
price of the real property or cooperative unit

[[Page 37781]]

(for example, if the consumer is purchasing the furniture inside the 
dwelling), however, Sec.  1026.37(a)(7) permits disclosure of the 
aggregate price without any reduction for the appraised or estimated 
value of the personal property.
    37(a)(8) Loan term.
* * * * *
    3. Loan term start date. See comment app. D-7.i for an 
explanation of how a creditor discloses the loan term of a multiple-
advance loan to finance the construction of a dwelling that may be 
permanently financed by the same creditor.
    37(a)(9) Purpose.
    1. General. Section 1026.37(a)(9) requires disclosure of the 
consumer's intended use of the credit. In ascertaining the 
consumer's intended use, Sec.  1026.37(a)(9) requires the creditor 
to consider all relevant information known to the creditor at the 
time of the disclosure. If the purpose is not known, the creditor 
may rely on the consumer's stated purpose. The following examples 
illustrate when each of the permissible purposes should be 
disclosed:
    i. Purchase. The consumer intends to use the proceeds from the 
transaction to purchase the property that will secure the extension 
of credit. In a purchase transaction with simultaneous subordinate 
financing, the simultaneous subordinate loan is also disclosed with 
the purpose ``Purchase.''
    ii. Refinance. The consumer refinances an existing obligation 
already secured by the consumer's dwelling to change the rate, term, 
or other loan features and may or may not receive cash from the 
transaction. For example, in a refinance with no cash provided, the 
new amount financed does not exceed the unpaid principal balance, 
any earned unpaid finance charge on the existing debt, and amounts 
attributed solely to the costs of the refinancing. Conversely, in a 
refinance with cash provided, the consumer refinances an existing 
mortgage obligation and receives money from the transaction that is 
in addition to the funds used to pay the unpaid principal balance, 
any earned unpaid finance charge on the existing debt, and amounts 
attributed solely to the costs of the refinancing. In such a 
transaction, the consumer may, for example, use the newly-extended 
credit to pay off the balance of the existing mortgage and other 
consumer debt, such as a credit card balance.
    iii. Construction. Section 1026.37(a)(9)(iii) requires the 
creditor to disclose that the loan is for construction in 
transactions where the creditor extends credit to finance only the 
cost of initial construction (construction-only loan), not 
renovations to existing dwellings, and in transactions where a 
multiple advance loan may be permanently financed by the same 
creditor (construction-permanent loan). In a construction-only loan, 
the borrower may be required to make interest-only payments during 
the loan term with the balance commonly due at the end of the 
construction project. For additional guidance on disclosing 
construction-permanent loans, see Sec.  1026.17(c)(6)(ii), comments 
17(c)(6)-2, -3, and -5, and appendix D to this part.
    iv. Home equity loan. The creditor is required to disclose that 
the credit is for a ``home equity loan'' if the creditor intends to 
extend credit for any purpose other than a purchase, refinancing, or 
construction. This disclosure applies whether the loan is secured by 
a first or subordinate lien.
* * * * *
    37(a)(10) Product.
* * * * *
    2. Additional features. When disclosing a loan product with at 
least one of the features described in Sec.  1026.37(a)(10)(ii), 
Sec.  1026.37(a)(10)(iii) and (iv) require the disclosure of only 
the first applicable feature in the order of Sec.  
1026.37(a)(10)(ii) and that it be preceded by the time period or the 
length of the introductory period and the frequency of the first 
adjustment period, as applicable, followed by a description of the 
loan product and its time period as provided for in Sec.  
1026.37(a)(10)(i). For example:
    i. Negative amortization. Some loan products, such as ``payment 
option'' loans, permit the borrower to make payments that are 
insufficient to cover all of the interest accrued, and the unpaid 
interest is added to the principal balance. Where the loan product 
includes a loan feature that may cause the loan balance to increase, 
the disclosure required by Sec.  1026.37(a)(10)(ii)(A) is preceded 
by the time period that the borrower is permitted to make payments 
that result in negative amortization (e.g., ``2 Year Negative 
Amortization''), followed by the loan product type. Thus, a fixed 
rate product with a step-payment feature for the first two years of 
the legal obligation that may negatively amortize is disclosed as 
``2 Year Negative Amortization, Fixed Rate.''
    ii. Interest only. When disclosing an ``Interest Only'' feature, 
as defined in Sec.  1026.18(s)(7)(iv), the applicable time period 
must precede the label ``Interest Only.'' Thus, a fixed rate loan 
with only interest due for the first five years of the loan term is 
disclosed as ``5 Year Interest Only, Fixed Rate.'' If the interest 
only feature fails to cover the total interest due, then, as 
required by Sec.  1026.37(a)(10)(iii), the disclosure must reference 
the negative amortization feature and not the interest only feature 
(e.g., ``5 Year Negative Amortization, Fixed Rate''). See comment 
app. D-7.ii for an explanation of the disclosure of the time period 
of an interest only feature for a construction loan or a 
construction-permanent loan.
    iii. Step payment. When disclosing a step payment feature (which 
is sometimes referred to instead as a graduated payment), the period 
of time at the end of which the scheduled payments will change must 
precede the label ``Step Payment'' (e.g., ``5 Year Step Payment'') 
followed by the name of the loan product. Thus, a fixed rate 
mortgage subject to a 5-year step payment plan is disclosed as a ``5 
Year Step Payment, Fixed Rate.''
    iv. Balloon payment. If a loan product includes a ``balloon 
payment,'' as that term is defined in Sec.  1026.37(b)(5), the 
disclosure of the balloon payment feature, including the year the 
payment is due, precedes the disclosure of the loan product. Thus, 
if the loan product is a step rate with an introductory rate that 
lasts for three years and adjusts each year thereafter until the 
balloon payment is due in the seventh year of the loan term, the 
disclosure required is ``Year 7 Balloon Payment, 3/1 Step Rate.'' If 
the loan product includes more than one balloon payment, only the 
earliest year that a balloon payment is due shall be disclosed.
    v. Seasonal payment. If a loan product includes a seasonal 
payment feature, Sec.  1026.37(a)(10)(ii)(E) requires that the 
creditor disclose the feature. The feature is not, however, required 
to be disclosed with any preceding time period. Disclosure of the 
label ``Seasonal Payment'' without any preceding number of years 
satisfies this requirement.
* * * * *
    37(a)(13) Rate lock.
* * * * *
    2. Expiration date. The disclosure required by Sec.  
1026.37(a)(13)(ii) related to estimated closing costs is required 
regardless of whether the interest rate is locked for a specific 
period of time or whether the terms and costs are otherwise accepted 
or extended. If the consumer fails to indicate an intent to proceed 
with the transaction within 10 business days after the disclosures 
were originally provided under Sec.  1026.19(e)(1)(iii) (or within 
any longer time period established by the creditor), then, for 
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). See 
comment 19(e)(3)(iv)(E)-2.
* * * * *
    4. Revised disclosures. Once the consumer indicates an intent to 
proceed within the time specified by the creditor under Sec.  
1026.37(a)(13)(ii), the date and time at which estimated closing 
costs expire are left blank on any subsequent revised disclosures. 
The creditor may extend the period of availability to expire beyond 
the time disclosed under Sec.  1026.37(a)(13)(ii). If the consumer 
indicates an intent to proceed within that longer time period, the 
date and time at which estimated closing costs expire are left blank 
on subsequent revised disclosures, if any. See comment 19(e)(3)(iv)-
5.
    37(b) Loan terms.
* * * * *
    37(b)(2) Interest rate.
    1. Interest rate at consummation not known. Where the interest 
rate that will apply at consummation is not known at the time the 
creditor must deliver the disclosures required by Sec.  1026.19(e), 
Sec.  1026.37(b)(2) requires disclosure of the fully-indexed rate, 
defined as the index plus the margin at consummation. Although Sec.  
1026.37(b)(2) refers to the index plus margin ``at consummation,'' 
if the index value that will be in effect at consummation is unknown 
at the time the disclosures are provided under Sec.  
1026.19(e)(1)(iii), i.e., within three business days after receipt 
of a consumer's application, the fully-indexed rate disclosed under 
Sec.  1026.37(b)(2) may be based on the index in effect at the time 
the disclosure is delivered. The index in effect at consummation (or 
the time the disclosure is delivered under Sec.  1026.19(e)) need 
not be used if the contract provides for a delay in the 
implementation of changes in an index value. For example, if the 
contract specifies

[[Page 37782]]

that rate changes are based on the index value in effect 45 days 
before the change date, creditors may use any index value in effect 
during the 45 days before consummation (or any earlier date of 
disclosure) in calculating the fully-indexed rate to be disclosed. 
See comment app. D-7.iii for an explanation of the disclosure of the 
permanent financing interest rate for a construction-permanent loan.
    37(b)(3) Principal and interest payment.
* * * * *
    2. Initial periodic payment if not known. Under Sec.  
1026.37(b)(3), the initial periodic payment amount that will be due 
under the terms of the legal obligation must be disclosed. If the 
initial periodic payment is not known because it will be based on an 
interest rate at consummation that is not known at the time the 
disclosures required by Sec.  1026.19(e) must be provided, for 
example, if it is based on an external index that may fluctuate 
before consummation, Sec.  1026.37(b)(3) requires that the 
disclosure be based on the fully-indexed rate disclosed under Sec.  
1026.37(b)(2). See comment 37(b)(2)-1 for guidance regarding 
calculating the fully-indexed rate.
* * * * *
    37(b)(6) Adjustments after consummation.
* * * * *
    37(b)(6)(iii) Increase in periodic payment.
    1. Additional information regarding increase in periodic 
payment. A creditor complies with the requirement under Sec.  
1026.37(b)(6)(iii) to disclose additional information indicating the 
scheduled frequency of adjustments to the periodic principal and 
interest payment by using the phrases ``Adjusts every'' and 
``starting in.'' A creditor complies with the requirement under 
Sec.  1026.37(b)(6)(iii) to disclose additional information 
indicating the maximum possible periodic principal and interest 
payment, and the date when the periodic principal and interest 
payment may first equal the maximum principal and interest payment 
by using the phrase ``Can go as high as'' and then indicating the 
date at the end of that phrase or, for a scheduled maximum amount, 
such as under a step payment loan, ``Goes as high as.'' A creditor 
complies with the requirement under Sec.  1026.37(b)(6)(iii) to 
indicate that there is a period during which only interest is 
required to be paid and the due date of the last periodic payment of 
such period using the phrase ``Includes only interest and no 
principal until.'' See form H-24 of appendix H to this part for the 
required format of such phrases, which is required for federally 
related mortgage loans under Sec.  1026.37(o)(3). See comment app. 
D-7.iv for an explanation of the disclosure of an increase in the 
periodic payment for a construction or construction-permanent loan.
* * * * *
    37(c) Projected payments.
* * * * *
    2. Construction loans. See comment app. D-7.v for an explanation 
of the projected payments disclosure for a construction or 
construction-permanent loan.
    37(c)(1) Periodic payment or range of payments.
* * * * *
    Paragraph 37(c)(1)(iii).
* * * * *
    Paragraph 37(c)(1)(iii)(B).
    1. Multiple events occurring in a single year. If multiple 
changes to periodic principal and interest payments would result in 
more than one separate periodic payment or range of payments in a 
single year, Sec.  1026.37(c)(1)(iii)(B) requires the creditor to 
disclose the range of payments that would apply during the year in 
which the events occur. For example:
    i. Assume a loan with a 30-year term with a payment that adjusts 
every month for the first 12 months and is fixed thereafter, where 
mortgage insurance is not required, and where no escrow account 
would be established for the payment of charges described in Sec.  
1026.37(c)(4)(ii). The creditor discloses as a single range of 
payments the initial periodic payment and the periodic payment that 
would apply after each payment adjustment during the first 12 
months, which single range represents the minimum payment and 
maximum payment, respectively. Under Sec.  1026.37(c)(1)(i)(D), the 
creditor also discloses, as an additional separate periodic payment 
or range of payments, the periodic principal and interest payment or 
range of payments that would apply after the payment becomes fixed.
    ii. Assume instead a loan with a 30-year term with a payment 
that adjusts upward at three months and at six months and is fixed 
thereafter, where mortgage insurance is not required, and where no 
escrow account would be established for the payment of charges 
described in Sec.  1026.37(c)(4)(ii). The creditor discloses as a 
single range of payments the initial periodic payment, the periodic 
payment that would apply after the payment adjustment that occurs at 
three months, and the periodic payment that would apply after the 
payment adjustment that occurs at six months, which single range 
represents the minimum payment and maximum payment, respectively, 
which would apply during the first year of the loan. Under Sec.  
1026.37(c)(1)(i)(D), the creditor also discloses as an additional 
separate periodic payment or range of payments, the principal and 
interest payment that would apply on the first anniversary of the 
due date of the initial periodic payment or range of payments, 
because that is the anniversary that immediately follows the 
occurrence of the multiple payments or ranges of payments that 
occurred during the first year of the loan.
    iii. Assume that the same loan has a payment that, instead of 
becoming fixed after the adjustment at six months, adjusts once more 
at 18 months and becomes fixed thereafter. The creditor discloses 
the same single range of payments for year one. Under Sec.  
1026.37(c)(1)(i)(D), the creditor separately discloses the principal 
and interest payment that would apply on the first anniversary of 
the due date of the initial periodic payment in year two. Under 
Sec.  1026.37(c)(1)(i)(A) and (c)(3)(ii), beginning in the next year 
in the sequence (i.e., in year three), the creditor separately 
discloses the periodic payment that would apply after the payment 
adjustment that occurs at 18 months. See comment 37(c)(3)(ii)-1 
regarding subheadings that state the years.
* * * * *
    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 under Sec.  
1026.37(c)(4)(ii) will be paid by the creditor using escrow account 
funds. If only a portion of the amounts disclosed under Sec.  
1026.37(c)(4)(ii), including, without limitation, property taxes, 
homeowner's insurance, and assessments, will be paid by the creditor 
using escrow account funds, the creditor may indicate that only a 
portion of the amounts disclosed will be paid using escrow account 
funds, such as by using the word ``some.''
    37(d) Costs at closing.
    37(d)(2) Optional alternative table for transactions without a 
seller or for simultaneous subordinate financing.
    1. Optional use. The optional alternative disclosure of the 
estimated cash to close provided for in Sec.  1026.37(d)(2) may be 
used by a creditor only in a transaction without a seller or a 
simultaneous subordinate financing transaction. In a purchase 
transaction, the optional alternative disclosure may be used for the 
simultaneous subordinate financing Loan Estimate only if the first-
lien Closing Disclosure will record the entirety of the seller's 
transaction. Creditors may only use this alternative estimated cash 
to close disclosure in conjunction with the alternative disclosure 
under Sec.  1026.37(h)(2).
* * * * *
    37(f) Closing cost details; loan costs.
* * * * *
    3. Construction loan inspection and handling fees. Inspection 
and handling fees for the staged disbursement of construction loan 
proceeds, including draw fees, are loan costs associated with the 
transaction for purposes of Sec.  1026.37(f). If inspection and 
handling fees are collected at or before consummation, the total of 
such fees is disclosed in the loan costs table. If inspection and 
handling fees will be collected after consummation, the total of 
such fees is disclosed in a separate addendum and the fees are not 
counted for purposes of the calculating cash to close table. See 
comment 37(f)(6)-3 for a description of an addendum used to disclose 
inspection and handling fees that will be collected after 
consummation. See also comments 38(f)-2 and app. D-7.vii. If the 
number of inspections and disbursements is not known at the time the 
disclosures are provided, the creditor discloses the fees that will 
be collected based on the best information reasonably available to 
the creditor at the time the disclosure is provided. See comment 
19(e)(1)(i)-1. See Sec.  1026.17(e) and its commentary for an 
explanation of the effect of subsequent events that cause 
inaccuracies in disclosures.
* * * * *

[[Page 37783]]

    37(f)(6) Use of addenda.
* * * * *
    3. Addendum for post-consummation inspection and handling fees. 
A creditor makes the disclosures required by Sec.  1026.37(f) and 
comment 37(f)-3 for construction loan inspection and handling fees 
collected after consummation by disclosing the total of such fees 
under the heading ``Inspection and Handling Fees Collected After 
Closing'' in an addendum, which may be the addendum pursuant to 
Sec.  1026.37(f)(6) or any other addendum or additional page under 
Sec.  1026.37. See comment 37(o)(1)-1. For purposes of comment 
38(f)-2, the addendum may be any addendum or additional page under 
Sec.  1026.38. If the actual amount of such fees is not known at the 
time the disclosures are provided, the disclosures in the addendum 
are based upon the best information reasonably available to the 
creditor at the time the disclosure is provided. See comment 
19(e)(1)(i)-1. For example, such information could include amounts 
the creditor has previously charged in similar construction 
transactions or the amount of estimated inspection and handling fees 
used by the creditor for purposes of setting the construction loan's 
commitment amount.
    37(g) Closing cost details; other costs.
* * * * *
    37(g)(6) Total closing costs.
    Paragraph 37(g)(6)(ii).
    1. Lender credits. Section 1026.19(e)(1)(i) requires disclosure 
of lender credits as provided in Sec.  1026.37(g)(6)(ii). Such 
lender credits include non-specific lender credits as well as 
specific lender credits. See comment 19(e)(3)(i)-5.
* * * * *
    37(h) Calculating cash to close.
    37(h)(1) For all transactions.
* * * * *
    2. Simultaneous subordinate financing. On the Loan Estimate for 
simultaneous subordinate financing purchase transactions, the sale 
price disclosed under Sec.  1026.37(a)(7)(i) is not used under Sec.  
1026.37(h)(1) for the calculating cash to close table calculations 
that include the sale price as a component of the calculation. For 
example, sale price is generally included in the closing costs 
financed calculation under Sec.  1026.37(h)(1)(ii) as a component of 
the estimated total amount of payments to third parties. However, 
for simultaneous subordinate financing transactions, the estimated 
total amount of payments to third parties would not include the sale 
price. The estimated total amount of payments to third parties only 
includes payments occurring in the simultaneous subordinate 
financing transaction other than payments toward the sale price.
    37(h)(1)(ii) Closing costs financed.
    1. Calculation of 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 under Sec.  1026.37(f) and (g) from the loan 
amount disclosed under Sec.  1026.37(b)(1). The estimated total 
amount of payments to third parties includes the sale price 
disclosed under Sec.  1026.37(a)(7)(i), if applicable, unless 
otherwise excluded under comment 37(h)(1)-2. Other examples of 
payments to third parties not otherwise disclosed under Sec.  
1026.37(f) and (g) include the amount of construction costs for 
transactions that involve improvements to be made on the property 
and payoffs of secured or unsecured debt. If the result of the 
calculation is zero or negative, the amount of $0 is disclosed under 
Sec.  1026.37(h)(1)(ii). 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 the absolute 
value of the amount disclosed under Sec.  1026.37(h)(1)(ii) does not 
exceed the total amount of closing costs disclosed under Sec.  
1026.37(g)(6).
    2. Loan amount. The loan amount disclosed under Sec.  
1026.37(b)(1), a component of the closing costs financed 
calculation, is the total amount the consumer will borrow, as 
reflected by the face amount of the note.
    37(h)(1)(iii) Down payment and other funds from borrower.
    1. Down payment and funds from borrower calculation. For 
purposes of Sec.  1026.37(h)(1)(iii)(A)(1), the down payment and 
funds from borrower amount is calculated as the difference between 
the sale price of the property disclosed under Sec.  
1026.37(a)(7)(i) and the sum of the loan amount and any amount of 
existing loans assumed or taken subject to that will be disclosed on 
the Closing Disclosure under Sec.  1026.38(j)(2)(iv). The 
calculation is independent of any loan program or investor 
requirements.
    2. Funds for borrower. Section 1026.37(h)(1)(iii)(A)(2) requires 
that, in a purchase transaction as defined in paragraph (a)(9)(i) of 
this section that is a simultaneous subordinate financing 
transaction or that involves improvements to be made on the 
property, or when the sum of the loan amount disclosed under Sec.  
1026.37(b)(1) and any amount of existing loans assumed or taken 
subject to that will be disclosed under Sec.  1026.38(j)(2)(iv) 
exceeds the sale price disclosed under Sec.  1026.37(a)(7)(i), the 
amount of funds from the consumer is determined in accordance with 
Sec.  1026.37(h)(1)(v). Section 1026.37(h)(1)(iii)(B) requires that, 
for all non-purchase transactions, the amount of estimated funds 
from the consumer is determined in accordance with Sec.  
1026.37(h)(1)(v). Pursuant to Sec.  1026.37(h)(1)(v), the amount to 
be disclosed under Sec.  1026.37(h)(1)(iii)(A)(2) or (B) is 
determined by subtracting the sum of the loan amount disclosed under 
Sec.  1026.37(b)(1) and any amount of existing loans assumed or 
taken subject to that will be disclosed under Sec.  
1026.38(j)(2)(iv) (excluding any closing costs financed disclosed 
under Sec.  1026.37(h)(1)(ii)) from the total amount of all existing 
debt being satisfied in the transaction. The total amount of all 
existing debt being satisfied in the transaction is the sum of the 
amounts that will be disclosed on the Closing Disclosure in the 
summaries of transactions table under Sec.  1026.38(j)(1)(ii), 
(iii), and (v), as applicable. When the result of the calculation is 
positive, that amount is disclosed under Sec.  1026.37(h)(1)(iii) as 
``Down Payment/Funds from Borrower,'' and $0 is disclosed under 
Sec.  1026.37(h)(1)(v) as ``Funds for Borrower.'' When the result of 
the calculation is negative, that amount is disclosed as a negative 
number under Sec.  1026.37(h)(1)(v) as ``Funds for Borrower,'' and 
$0 is disclosed under Sec.  1026.37(h)(1)(iii) as ``Down Payment/
Funds from Borrower.'' When the result is $0, $0 is disclosed as 
``Down Payment/Funds from Borrower'' and ``Funds for Borrower'' 
under Sec.  1026.37(h)(1)(iii) and (v), respectively.
* * * * *
    37(h)(1)(v) Funds for borrower.
    1. No funds for borrower. When the down payment and other funds 
from the borrower is determined in accordance with Sec.  
1026.37(h)(1)(iii)(A)(1), the amount disclosed under Sec.  
1026.37(h)(1)(v) as funds for the borrower is $0.
    2. Total amount of existing debt satisfied in the transaction. 
The amounts disclosed under Sec.  1026.37(h)(1)(iii)(A)(2) or (B), 
as applicable, and (h)(1)(v) are determined by subtracting the sum 
of the loan amount disclosed under Sec.  1026.37(b)(1) and any 
amount of existing loans assumed or taken subject to that will be 
disclosed on the Closing Disclosure under Sec.  1026.38(j)(2)(iv) 
(excluding any closing costs financed disclosed under Sec.  
1026.37(h)(1)(ii)) from the total amount of all existing debt being 
satisfied in the transaction. The total amount of all existing debt 
being satisfied in the transaction is the sum of the amounts that 
will be disclosed on the Closing Disclosure in the summaries of 
transactions table under Sec.  1026.38(j)(1)(ii), (iii), and (v), as 
applicable.
    37(h)(1)(vi) Seller credits.
    1. Non-specific seller credits to be disclosed. Non-specific 
seller credits, i.e., general payments from the seller to the 
consumer that do not pay for a particular fee on the disclosures 
provided under Sec.  1026.19(e)(1), known to the creditor at the 
time of delivery of the Loan Estimate, are disclosed under Sec.  
1026.37(h)(1)(vi). For example, a creditor may learn the amount of 
seller credits that will be paid in the transaction from information 
obtained from the consumer, from a review of the purchase and sale 
contract, or from information obtained from a real estate agent in 
the transaction.
    2. Seller credits for specific charges. To the extent known by 
the creditor at the time of delivery of the Loan Estimate, specific 
seller credits, i.e., seller credits for specific items disclosed 
under Sec.  1026.37(f) and (g), may be either disclosed under Sec.  
1026.37(h)(1)(vi) or reflected in the amounts disclosed for those 
specific items under Sec.  1026.37(f) and (g). For example, if the 
creditor knows at the time of the delivery of the Loan Estimate that 
the seller has agreed to pay half of a $100 required pest inspection 
fee, the creditor may either disclose the required pest inspection 
fee as $100 under Sec.  1026.37(f) with a $50 seller credit 
disclosed under Sec.  1026.37(h)(1)(vi) or disclose the required 
pest inspection fee as $50 under Sec.  1026.37(f), reflecting the 
specific seller credit in the amount disclosed for the pest 
inspection fee. If the creditor knows at the time of the delivery of 
the Loan Estimate that the seller has agreed to pay the entire $100 
pest

[[Page 37784]]

inspection fee, the creditor may either disclose the required pest 
inspection fee as $100 under Sec.  1026.37(f) with a $100 seller 
credit disclosed under Sec.  1026.37(h)(1)(vi) or disclose nothing 
under Sec.  1026.37(f), reflecting that the specific seller credit 
will cover the entire pest inspection fee.
    37(h)(1)(vii) Adjustments and other credits.
    1. Other credits known at the time the Loan Estimate is issued. 
Amounts expected to be paid at closing by third parties not 
otherwise associated with the transaction, such as gifts from family 
members and not otherwise identified under Sec.  1026.37(h)(1), are 
included in the amount disclosed under Sec.  1026.37(h)(1)(vii). 
Amounts expected to be provided in advance of closing by third 
parties, including family members, not otherwise associated with the 
transaction are not required to be disclosed under Sec.  
1026.37(h)(1)(vii).
* * * * *
    4. Other credits to be disclosed. Credits other than those from 
the creditor or seller are disclosed under Sec.  1026.37(h)(1)(vii). 
Disclosure of other credits is, like other disclosures under Sec.  
1026.37, subject to the good faith requirement under Sec.  
1026.19(e)(1)(i). See Sec.  1026.19(e)(1)(i) and comments 
17(c)(2)(i)-1 and 19(e)(1)(i)-1. The creditor may obtain information 
regarding items to be disclosed under Sec.  1026.37(h)(1)(vii), for 
example, from the consumer, from a review of the purchase and sale 
contract, or from information obtained from a real estate agent in 
the transaction.
    5. Proceeds from subordinate financing or other source. Funds 
that are provided to the consumer from the proceeds of subordinate 
financing, local or State housing assistance grants, or other 
similar sources are included in the amount disclosed under Sec.  
1026.37(h)(1)(vii) on the first-lien transaction Loan Estimate.
    6. Reduction in amounts for adjustments. Adjustments that 
require additional funds from the consumer in a transaction 
disclosed using the formula under Sec.  1026.37(h)(1)(iii)(A)(1) or 
pursuant to the real estate purchase and sale contract, such as for 
additional personal property that will be disclosed on the Closing 
Disclosure under Sec.  1026.38(j)(1)(iii) or adjustments that will 
be disclosed on the Closing Disclosure under Sec.  1026.38(j)(1)(v), 
are only included in the amount disclosed under Sec.  
1026.37(h)(1)(vii) if such amounts are not included in the 
calculation under Sec.  1026.37(h)(1)(iii)(A)(2) or (B) or Sec.  
1026.37(h)(1)(v) as debt being satisfied in the transaction. Other 
examples of adjustments for additional funds from the consumer 
include payoffs of secured or unsecured debt in a purchase 
transaction disclosed using the formula under Sec.  
1026.37(h)(1)(iii)(A)(1) or prorations for property taxes and 
homeowner's association dues. The total amount disclosed under Sec.  
1026.37(h)(1)(vii) is a sum of adjustments requiring additional 
funds from the consumer, calculated as positive amounts, and other 
credits, such as those provided for in comment 37(h)(1)(vii)-1, 
calculated as negative amounts.
* * * * *
    37(h)(2) Optional alternative calculating cash to close table 
for transactions without a seller or for simultaneous subordinate 
financing.
    1. Optional use. The optional alternative disclosure of the 
calculating cash to close table in Sec.  1026.37(h)(2) may only be 
provided by a creditor in a transaction without a seller or for 
simultaneous subordinate financing. In a purchase transaction, the 
optional alternative disclosure may be used for the simultaneous 
subordinate financing Loan Estimate only if the first-lien Closing 
Disclosure will record the entirety of the seller's transaction. The 
use of this alternative table for transactions without a seller or 
for simultaneous subordinate financing is optional, but creditors 
may only use this alternative estimated cash to close disclosure in 
conjunction with the alternative disclosure under Sec.  
1026.37(d)(2).
    37(h)(2)(iii) Payoffs and payments.
    1. Examples. Examples of the amounts incorporated in the total 
amount disclosed under Sec.  1026.37(h)(2)(iii) include, but are not 
limited to: Payoffs of existing liens secured by the property 
identified under Sec.  1026.37(a)(6) such as existing mortgages, 
deeds of trust, judgments that have attached to the real property, 
mechanics' and materialmen's liens, and local, State and Federal tax 
liens; payments of unsecured outstanding debts of the consumer; 
construction costs associated with the transaction that the consumer 
will be obligated to pay in any transaction in which the creditor is 
otherwise permitted to use the alternative calculating cash to close 
table; and payments to other third parties for outstanding debts of 
the consumer, excluding settlement services, as required to be paid 
as a condition for the extension of credit. Amounts that will be 
paid with funds provided by the consumer, including partial 
payments, such as a portion of construction costs, or amounts that 
will be paid by third parties and will be disclosed on the Closing 
Disclosure under Sec.  1026.38(t)(5)(vii)(B), are calculated as 
credits, using positive numbers, in the total amount disclosed under 
Sec.  1026.37(h)(2)(iii).
    2. Disclosure of subordinate financing. i. First-lien Loan 
Estimate. On the Loan Estimate for a first-lien transaction 
disclosed with the optional alternative table pursuant to Sec.  
1026.37(h)(2), such as a refinance transaction that also has 
simultaneous subordinate financing, the proceeds of the simultaneous 
subordinate financing are included, as a positive number, in the 
total amount disclosed under Sec.  1026.37(h)(2)(iii). The total 
amount disclosed under Sec.  1026.37(h)(2)(iii) is a negative number 
unless the proceeds from the subordinate financing and any amounts 
entered as credits as discussed in comment 37(h)(2)(iii)-1 equal or 
exceed the total amount of other payoffs and payments that are 
included in the calculation under Sec.  1026.37(h)(2)(iii). If the 
proceeds from the subordinate financing and any amounts entered as 
credits as discussed in comment 37(h)(2)(iii)-1 equal or exceed the 
total amount of other payoffs and payments that are included in the 
calculation under Sec.  1026.37(h)(2)(iii), the total amount 
disclosed under Sec.  1026.37(h)(2)(iii) is disclosed as $0 or a 
positive number.
    ii. Simultaneous subordinate financing Loan Estimate. On the 
simultaneous subordinate financing Loan Estimate disclosed with the 
optional alternative table pursuant to Sec.  1026.37(h)(2), the 
proceeds of the subordinate financing that will be applied to the 
first-lien transaction may be included in the payoffs and payments 
disclosure under Sec.  1026.37(h)(2)(iii).
* * * * *
    37(k) Contact information.
* * * * *
    3. Contact. Section 1026.37(k)(2) requires the disclosure of the 
name and NMLSR ID of the person who is the primary contact for the 
consumer, labeled ``Loan Officer.'' The loan officer is generally 
the natural person employed by the creditor or mortgage broker 
disclosed under Sec.  1026.37(k)(1) who interacts most frequently 
with the consumer and who has an NMLSR ID or, if none, a license 
number or other unique identifier to be disclosed under Sec.  
1026.37(k)(2), as applicable.
* * * * *
    37(l) Comparisons.
    37(l)(1) In five years.
* * * * *
    Paragraph 37(l)(1)(i).
    1. Calculation of total payments in five years. The amount 
disclosed under Sec.  1026.37(l)(1)(i) is the sum of principal, 
interest, mortgage insurance, and loan costs scheduled to be paid 
through the end of the 60th month after the due date of the first 
periodic payment. For guidance on how to calculate interest for 
mortgage loans that are Adjustable Rate products under Sec.  
1026.37(a)(10)(i)(A) for purposes of Sec.  1026.37(l)(1)(i), see 
comment 17(c)(1)-10. In addition, for purposes of Sec.  
1026.37(l)(1)(i), the creditor should assume that the consumer makes 
payments as scheduled and on time. For purposes of Sec.  
1026.37(l)(1)(i), mortgage insurance means ``mortgage insurance or 
any functional equivalent'' as defined under comment 37(c)(1)(i)(C)-
1 and includes prepaid or escrowed mortgage insurance. Loan costs 
are those costs disclosed under Sec.  1026.37(f).
* * * * *
    37(l)(3) Total interest percentage.
    1. General. When calculating the total interest percentage, the 
creditor assumes that the consumer will make each payment in full 
and on time and will not make any additional payments. The creditor 
includes prepaid interest that the consumer will pay when 
calculating the total interest percentage. Prepaid interest that is 
disclosed as a negative number under Sec. Sec.  1026.37(g)(2) or 
1026.38(g)(2) is included as a negative value when calculating the 
total interest percentage.
* * * * *
    37(o) Form of disclosures.
* * * * *
    37(o)(4) Rounding.
* * * * *
    37(o)(4)(i) Nearest dollar.
    Paragraph 37(o)(4)(i)(A).
    1. Rounding of dollar amounts. Section 1026.37(o)(4)(i)(A) 
requires that certain dollar amounts be rounded to the nearest whole 
dollar. For example, under Sec.  1026.37(o)(4)(i)(A), periodic 
mortgage

[[Page 37785]]

insurance payments are rounded and disclosed to the nearest dollar, 
such that a periodic mortgage insurance payment of $164.50 is 
disclosed under Sec.  1026.37(c)(2)(ii) as $165, but a periodic 
mortgage insurance payment of $164.49 is disclosed as $164. The per-
diem amount disclosed under Sec.  1026.37(g)(2)(iii) and the monthly 
amounts for the initial escrow payment at closing disclosed pursuant 
to Sec.  1026.37(g)(3)(i) through (iii) and (v) do not include 
partial cents. Dollar amounts are rounded or truncated to the 
nearest whole cent. For example, under Sec.  1026.37(g)(2)(iii), the 
creditor discloses per-diem interest of $68.1254 as $68.13 or 
$68.12. See form H-24(B) in appendix H to this part for an 
illustration of per-diem amounts for homeowner's insurance disclosed 
pursuant to Sec.  1026.37(g)(3)(i).
* * * * *
    37(o)(4)(ii) Percentages.
    1. Decimal places. Section 1026.37(o)(4)(ii) requires the 
percentage amounts disclosed rounding exact amounts to three decimal 
places, but the creditor does not disclose trailing zeros to the 
right of the decimal point. For example, a 2.4999 percent annual 
percentage rate is disclosed as ``2.5%'' under Sec.  
1026.37(o)(4)(ii). Similarly, a 7.005 percent annual percentage rate 
is disclosed as ``7.005%,'' and a 7.000 percent annual percentage 
rate is disclosed as ``7%.''
* * * * *

Section 1026.38--Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure)

* * * * *
    4. Reductions in principal balance. A principal reduction that 
occurs immediately or very soon after closing must be disclosed in 
the summaries of transactions table on the standard Closing 
Disclosure pursuant to Sec.  1026.38(j)(1)(v) or in the payoffs and 
payments table on the alternative Closing Disclosure pursuant to 
Sec.  1026.38(t)(5)(vii)(B). The disclosure of a principal reduction 
under Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B) includes the 
following elements: (1) The amount of the principal reduction; (2) 
the phrase ``principal reduction'' or a similar phrase; (3) for a 
principal reduction disclosure under Sec.  1026.38(t)(5)(vii)(B) 
only, the name of the payee; (4) if applicable to the transaction, 
the phrase ``Paid Outside of Closing'' or ``P.O.C.'' and the name of 
the party making the payment; and (5) if the principal reduction is 
used to satisfy the requirements of Sec.  1026.19(f)(2)(v), a 
statement that the principal reduction is being provided to offset 
charges that exceed the legal limits, using any language that meets 
the clear and conspicuous standard under Sec.  1026.38(t)(1)(i). If 
a creditor is required to disclose the name of the party making the 
payment or that the principal reduction is being provided to offset 
charges that exceed the legal limits, and there is insufficient 
space under the Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure 
for these elements of the principal reduction disclosure, the 
creditor may omit these elements from the Sec.  1026.38(j)(1)(v) or 
(t)(5)(vii)(B) disclosure. If the creditor omits these elements from 
the Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure, the 
creditor must provide a complete principal reduction disclosure 
under an appropriate heading on an additional page, in accordance 
with Sec.  1026.38(j) and (t)(5)(ix), as applicable, with a 
reference to the abbreviated principal reduction disclosure under 
Sec.  1026.38(j)(1)(v) or (t)(5)(vii)(B).
    i. Principal reduction not paid with closing funds. A principal 
reduction is disclosed in the summaries of transactions table under 
Sec.  1026.38(j)(1)(v) and marked with the phrase ``Paid Outside of 
Closing'' or the abbreviation ``P.O.C.'' pursuant to Sec.  
1026.38(j)(4)(i), or in the payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B) marked with the phrase ``Paid Outside of 
Closing'' or the abbreviation ``P.O.C.,'' if it is not paid from 
closing funds. For a principal reduction disclosed under Sec.  
1026.38(j)(1)(v) that is not paid from closing funds, the amount of 
the principal reduction is not included in computing the summaries 
of transactions totals under Sec.  1026.38(j) or the cash to close 
disclosures under Sec.  1026.38(i). For a principal reduction 
disclosed under Sec.  1026.38(t)(5)(vii)(B) that is not paid from 
closing funds, the amount of the principal reduction is not included 
in computing the total payoffs and payments amount disclosed under 
Sec.  1026.38(t)(5)(vii)(B) or the cash to close amount disclosed 
under Sec.  1026.38(e)(5)(ii). For example, a creditor providing a 
$500 principal reduction to satisfy the refund requirements of Sec.  
1026.19(f)(2)(v) discloses the principal reduction under Sec.  
1026.38(j)(1)(v) by providing in Section K of the summaries of 
transactions table a statement such as ``$500.00 Principal Reduction 
for exceeding legal limits P.O.C. Lender,'' and not including the 
amount of the principal reduction in the summaries of transactions 
totals under Sec.  1026.38(j) or the calculating cash to close 
disclosures under Sec.  1026.38(i). Alternatively, if there is 
insufficient space under Sec.  1026.38(j)(1)(v) for a creditor to 
disclose the name of the party making the payment or a statement 
that the principal reduction is being provided to offset charges 
that exceed the legal limits, a creditor may disclose a statement 
such as ``$500.00 Principal Reduction P.O.C.'' under Sec.  
1026.38(j)(1)(v) and a statement on an additional page such as 
``$500.00 Principal Reduction for exceeding legal limits P.O.C. 
Lender. See Section K on page 3.''
    ii. Principal reduction paid with closing funds. A principal 
reduction is disclosed in the summaries of transactions table under 
Sec.  1026.38(j)(1)(v) or in the payoffs and payments table under 
Sec.  1026.38(t)(5)(vii)(B) without the phrase ``Paid Outside of 
Closing'' or the abbreviation ``P.O.C.'' if it is paid from closing 
funds. The amount of a principal reduction that is paid with closing 
funds is included in the applicable calculations required under 
Sec.  1026.38. For example, in a refinance transaction using the 
alternative tables on the Closing Disclosure, a creditor discloses a 
$1,000 principal reduction to reduce the cash provided to the 
consumer by providing in the payoffs and payments table under Sec.  
1026.38(t)(5)(vii)(B) a statement such as ``Principal Reduction to 
Consumer'' under the column heading ``TO'' and ``$1,000.00'' under 
the column heading ``AMOUNT,'' and by including such amount in the 
total payoffs and payments amount under Sec.  1026.38(t)(5)(vii)(B) 
and in the cash to close amount under Sec.  1026.38(e)(5)(ii). In 
this example, the creditor must disclose the following elements 
under Sec.  1026.38(t)(5)(vii)(B): The amount of the principal 
reduction, the phrase ``principal reduction'' or a similar phrase, 
and the name of the payee. The creditor should not include in the 
disclosure the phrase ``Paid Outside of Closing'' or ``P.O.C.'' and 
the name of the party making the payment, or a statement that the 
principal reduction is being provided to offset charges that exceed 
the legal limits, because those principal reduction disclosure 
elements are not applicable to the transaction in this particular 
example. The creditor may not use an addendum for the principal 
reduction disclosure in this example.
    38(a) General information.
    38(a)(3) Closing information.
* * * * *
    38(a)(3)(iii) Disbursement date.
    1. Simultaneous subordinate financing disbursement date. The 
disbursement date on the simultaneous subordinate financing Closing 
Disclosure is the date some or all of the subordinate financing loan 
amount disclosed under Sec.  1026.38(b) is expected to be paid to 
the consumer or a third party other than a settlement agent.
* * * * *
    38(a)(3)(vii) Sale price.
    1. No seller. In transactions where there is no seller, such as 
in a refinancing, Sec.  1026.38(a)(3)(vii)(B) requires the creditor 
to disclose the appraised value of the property. To comply with this 
requirement, the creditor discloses the value determined by the 
appraisal or valuation used to determine approval of the credit 
transaction. If the creditor has not obtained an appraisal, the 
creditor may disclose the estimated value of the property. Where an 
estimate is disclosed, rather than an appraisal, the label for the 
disclosure is changed to ``Estimated Prop. Value.'' The creditor may 
use the estimate provided by the consumer at application but, if it 
has performed its own estimate of the property value for purposes of 
approving the credit transaction by the time the disclosure is 
provided to the consumer, the creditor must disclose the estimate it 
used for purposes of approving the credit transaction. For 
transactions involving construction where there is no seller, the 
creditor must disclose the value of the property that is used to 
determine the approval of the credit transaction, including 
improvements to be made on the property if those improvements are 
used in determining the approval of the credit transaction.
* * * * *
    38(a)(4) Transaction information.
    2. No seller transactions or simultaneous subordinate financing 
transactions. In transactions where there is no seller, such as in a 
refinancing or home equity loan, or for simultaneous subordinate 
financing purchase transactions if the first-lien Closing Disclosure 
will record the entirety of the seller's transaction, the disclosure 
under Sec.  1026.38(a)(4)(ii) may be left blank. See also Sec.  
1026.38(t)(5)(vii)(A).
* * * * *

[[Page 37786]]

    4. Consumers. Section 1026.38(a)(4)(i) requires disclosure of 
the consumer's name and mailing address, labeled ``Borrower.'' For 
purposes of Sec.  1026.38(a)(4)(i), the term ``consumer'' is limited 
to persons to whom the credit is offered or extended. For guidance 
on how to disclose multiple consumers, see comment 38(a)(4)-1.
* * * * *
    38(d) Costs at closing.
    38(d)(2) Alternative table for transactions without a seller or 
for simultaneous subordinate financing.
    1. Required use. The disclosure of the alternative cash to close 
table in Sec.  1026.38(d)(2) may only be provided by a creditor in a 
transaction without a seller or for a simultaneous subordinate 
financing transaction. In a purchase transaction, the alternative 
disclosure may be used for the simultaneous subordinate financing 
Closing Disclosure only if the first-lien Closing Disclosure records 
the entirety of the seller's transaction. The use of this 
alternative table for transactions without a seller or for 
simultaneous subordinate financing transactions is required if the 
Loan Estimate provided to the consumer disclosed the optional 
alternative table under Sec.  1026.37(d)(2) and must be used in 
conjunction with the use of the alternative calculating cash to 
close disclosure under Sec.  1026.38(e). See comments 38(j)-3 and 
38(k)(2)(vii)-1 for disclosure requirements applicable to the first-
lien transaction when the alternative disclosures are used for a 
simultaneous subordinate financing transaction and a seller 
contributes to the costs of the subordinate financing. See also 
comments 38(t)(5)(vii)(B)-1 and -2 for the requirement to disclose 
the seller's contributions, if any, toward the subordinate financing 
in the payoffs and payments table on the simultaneous subordinate 
financing Closing Disclosure.
* * * * *
    38(e) Alternative calculating cash to close table for 
transactions without a seller or for simultaneous subordinate 
financing.
    1. Required use. The disclosure of the table in Sec.  1026.38(e) 
may only be provided by a creditor in a transaction without a seller 
or for a simultaneous subordinate financing transaction. In a 
purchase transaction, the alternative disclosure may be used for the 
simultaneous subordinate financing Closing Disclosure only if the 
first-lien Closing Disclosure records the entirety of the seller's 
transaction. The use of this alternative calculating cash to close 
table for transactions without a seller or for simultaneous 
subordinate financing is required for transactions in which the Loan 
Estimate provided to the consumer disclosed the optional alternative 
table under Sec.  1026.37(h)(2), and must be used in conjunction 
with the alternative disclosure under Sec.  1026.38(d)(2).
* * * * *
    3. Statements of differences. The dollar amounts disclosed under 
Sec.  1026.38 generally are shown to two decimal places unless 
otherwise required. See comment 38(t)(4)-1. Any amount in the 
``Final'' column of the alternative calculating cash to close table 
under Sec.  1026.38(e) is shown to two decimal places unless 
otherwise required. Pursuant to Sec.  1026.38(t)(4)(i)(C), however, 
any amount in the ``Loan Estimate'' column of the alternative 
calculating cash to close table under Sec.  1026.38(e) is rounded to 
the nearest dollar amount to match the corresponding estimated 
amount disclosed on the Loan Estimate's calculating cash to close 
table under Sec.  1026.37(h). For purposes of Sec.  
1026.38(e)(1)(iii), (2)(iii), and (4)(iii), each statement of a 
change between the amounts disclosed on the Loan Estimate and the 
Closing Disclosure is based on the actual, non-rounded estimate that 
would have been disclosed on the Loan Estimate under Sec.  
1026.37(h) if it had been shown to two decimal places rather than a 
whole dollar amount. For example, if the amounts in the ``Loan 
Estimate'' column of the total closing costs row disclosed under 
Sec.  1026.38(e)(2)(i) is $12,500, but the non-rounded estimate of 
total closing costs is $12,500.35, and the ``Final'' column of the 
total closing costs row disclosed under Sec.  1026.38(e)(2)(ii) is 
$12,500.35, then, even though the table would appear to show a $0.35 
increase in total closing costs, no statement of such increase is 
given under Sec.  1026.38(e)(2)(iii).
* * * * *
    6. Estimated amounts. The amounts disclosed on the alternative 
calculating cash to close table under the subheading ``Loan 
Estimate'' under Sec.  1026.38(e)(1)(i), (2)(i), (4)(i), and (5)(i) 
are the amounts disclosed on the most recent Loan Estimate provided 
to the consumer under Sec.  1026.19(e).
* * * * *
    38(e)(2) Total closing costs.
* * * * *
    Paragraph 38(e)(2)(iii)(A).
* * * * *
    2. Disclosure of excess amounts above limitations on increases 
in closing costs.
    i. Because certain closing costs, individually, are generally 
subject to the limitations on increases in closing costs under Sec.  
1026.19(e)(3)(i) (e.g., fees paid to the creditor, transfer taxes, 
fees paid to an affiliate of the creditor), while other closing 
costs are collectively subject to the limitations on increases in 
closing costs under Sec.  1026.19(e)(3)(ii) (e.g., recording fees, 
fees paid to an unaffiliated third party identified by the creditor 
if the creditor permitted the consumer to shop for the service 
provider), Sec.  1026.38(e)(2)(iii)(A) requires the creditor or 
closing agent to calculate subtotals for each type of excess amount, 
and then add such subtotals together to yield the dollar amount to 
be disclosed in the table. See commentary to Sec.  1026.19(e)(3) for 
additional guidance on calculating excess amounts above the 
limitations on increases in closing costs under Sec.  1026.19(e)(3).
    ii. Under Sec.  1026.38(e)(2)(iii)(A), calculation of the excess 
amounts above the limitations on increases in closing costs takes 
into account that the itemized, estimated closing costs disclosed on 
the Loan Estimate will not result in charges to the consumer if the 
service is not actually provided at or before consummation. For 
example, if the Loan Estimate included under ``Services You Cannot 
Shop For'' a $30 charge for a ``title courier fee,'' but the title 
company elects to hand-deliver the title documents package to the 
creditor at no charge, the $30 fee is not factored into the 
calculation of the ``Total Closing Costs'' that are subject to the 
limitations on increases in closing costs. However, if the title 
courier fee was assessed, but at only $15, the charge is factored 
into the calculation because the third party service was actually 
provided, albeit at a lower amount than estimated. For an example, 
see form H-25 of appendix H to this part.
    iii. Under Sec.  1026.38(e)(2)(iii)(A), calculation of the 
excess amounts above the limitations on increases in closing costs 
takes into account that certain itemized charges listed on the Loan 
Estimate under the subheading ``Services You Can Shop For'' may be 
subject to different limitations depending on the circumstances. 
Although Sec.  1026.19(e)(3)(iii) provides exceptions to the general 
rule, such a charge would generally be subject to the limitations 
under Sec.  1026.19(e)(3)(i) if the consumer decided to use a 
provider affiliated with the creditor. However, the same charge 
would instead be subject to the limitations under Sec.  
1026.19(e)(3)(ii) if the consumer selected a third party service 
provider unaffiliated with but identified by the creditor, and the 
creditor permitted the consumer to shop for the service provider. 
See commentary to Sec.  1026.19(e)(3) for additional guidance on 
calculating excess amounts above the limitations on increases in 
closing costs under Sec.  1026.19(e)(3).
    3. Statements regarding excess amount and any credit to the 
consumer. Section 1026.38(e)(2)(iii)(A) requires a statement 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) or a 
principal reduction under Sec.  1026.38(t)(5)(vii)(B), if provided 
under Sec.  1026.19(f)(2)(v). See form H-25(F) in appendix H to this 
part for examples of such statements under Sec.  1026.38(h)(3). See 
also comments 38-4 and 38(h)(3)-2.
    38(e)(3) Closing costs paid before closing.
* * * * *
    Paragraph 38(e)(3)(iii)(B).
    1. Equal amount. Under Sec.  1026.38(e)(3)(iii)(B), the creditor 
gives a statement that the ``Final'' amount disclosed under Sec.  
1026.38(e)(3)(ii) is equal to the ``Loan Estimate'' amount disclosed 
under Sec.  1026.38(e)(3)(i), only if the ``Final'' amount is $0, 
because the ``Loan Estimate'' amount is always disclosed as $0 under 
Sec.  1026.38(e)(3)(i). See comment 38(e)(3)(i)-1.
    38(f) Closing cost details; loan costs.
* * * * *
    2. Construction loan inspection and handling fees. Construction 
loan inspection and handling fees are loan costs associated with the 
transaction for purposes of Sec.  1026.38(f). For information on how 
to disclose inspection and handling fees for the staged disbursement 
of construction loan proceeds if the amount or number of such fees 
or when they will be collected is not known at or before 
consummation, see comments 37(f)-3, 37(f)(6)-3, and app. D-7.vii. 
See Sec.  1026.17(e) and its commentary

[[Page 37787]]

concerning the effect of subsequent events that cause inaccuracies 
in disclosures.
* * * * *
    38(g) Closing costs details; other costs.
    38(g)(1) Taxes and other government fees.
* * * * *
    3. Recording fees. i. Fees for recording deeds and security 
instruments. Section 1026.38(g)(1)(i)(A) requires, on the first line 
under the subheading ``Taxes and Other Government Fees'' and before 
the columns described in Sec.  1026.38(g), disclosure of the total 
fees expected to be paid to State and local governments for 
recording deeds and, separately, the total fees expected to be paid 
to State and local governments for recording security instruments. 
On a line labeled ``Recording Fees,'' form H-25 of appendix H to 
this part illustrates such disclosures with the additional labels 
``Deed'' and ``Mortgage,'' respectively.
    ii. Total of all recording fees. Section 1026.38(g)(1)(i)(B) 
requires, on the first line under the subheading ``Taxes and Other 
Government Fees'' and in the applicable column described in Sec.  
1026.38(g), disclosure of the total amounts paid for recording fees, 
including but not limited to the amounts subject to Sec.  
1026.38(g)(1)(i)(A). The total amount disclosed under Sec.  
1026.38(g)(1)(i)(B) also includes recording fees expected to be paid 
to State and local governments for recording any other instrument or 
document to preserve marketable title or to perfect the creditor's 
security interest in the property. See comments 37(g)(1)-1, -2, and 
-3 for discussions of the difference between transfer taxes and 
recording fees.
    38(g)(2) Prepaids.
* * * * *
    3. No prepaid interest. If interest is not collected for any 
period between closing and the date from which interest will be 
collected with the first monthly payment, then $0.00 is disclosed 
under Sec.  1026.38(g)(2).
* * * * *
    38(i) Calculating cash to close.
* * * * *
    2. Statements of differences. The dollar amounts disclosed under 
Sec.  1026.38 generally are shown to two decimal places unless 
otherwise required. See comment 38(t)(4)-1. Any amount in the 
``Final'' column of the calculating cash to close table under Sec.  
1026.38(i) is shown to two decimal places unless otherwise required. 
Under Sec.  1026.38(t)(4)(i)(C), however, any amount in the ``Loan 
Estimate'' column of the calculating cash to close table under Sec.  
1026.38(i) is rounded to the nearest dollar amount to match the 
corresponding estimated amount disclosed on the Loan Estimate's 
calculating cash to close table under Sec.  1026.37(h). For purposes 
of Sec.  1026.38(i)(1)(iii), (3)(iii), (4)(iii), (5)(iii), (6)(iii), 
(7)(iii), and (8)(iii), each statement of a change between the 
amounts disclosed on the Loan Estimate and the Closing Disclosure is 
based on the actual, non-rounded estimate that would have been 
disclosed on the Loan Estimate under Sec.  1026.37(h) if it had been 
shown to two decimal places rather than a whole dollar amount. For 
example, if the amount in the ``Loan Estimate'' column of the total 
closing costs row disclosed under Sec.  1026.38(i)(1)(i) is $12,500, 
but the non-rounded estimate of total closing costs is $12,500.35, 
and the amount in the ``Final'' column of the total closing costs 
row disclosed under Sec.  1026.38(i)(1)(ii) is $12,500.35, then, 
even though the table would appear to show a $0.35 increase in total 
closing costs, no statement of such increase is given under Sec.  
1026.38(i)(1)(iii).
    3. Statements that the consumer should see details. The 
provisions of Sec.  1026.38(i)(4)(iii)(A), (5)(iii)(A), (7)(iii)(A), 
and (8)(iii)(A) each require a statement that the consumer should 
see certain details of the closing costs disclosed under Sec.  
1026.38(j). Form H-25 of appendix H to this part contains some 
examples of these statements. For example, Sec.  
1026.38(i)(5)(iii)(A) requires a statement that the consumer should 
see the details disclosed under Sec.  1026.38(j)(2)(ii). The 
following statement, which is similar to that shown on form H-25(B) 
of appendix H to this part for Sec.  1026.38(i)(7)(iii)(A), ``See 
Deposit in Section L,'' in which the words ``Section L'' are in 
boldface font, complies with this provision. In addition, for 
example, the statement ``See details in Sections K and L,'' in which 
the words ``Sections K and L'' are in boldface font, complies with 
the requirement under Sec.  1026.38(i)(8)(iii)(A). See form H-25(B) 
of appendix H to this part for an example of the statement required 
by Sec.  1026.38(i)(8)(iii)(A). See also comment 38(i)(7)(iii)(A)-1 
for additional examples that comply with the requirements under 
Sec.  1026.38(i)(7)(iii)(A).
* * * * *
    5. Estimated amounts. The amounts disclosed in the ``Loan 
Estimate'' column of the calculating cash to close table under Sec.  
1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), 
and (9)(i) are the amounts disclosed on the most recent Loan 
Estimate provided to the consumer.
    38(i)(1) Total closing costs.
    Paragraph 38(i)(1)(iii)(A).
* * * * *
    2. Disclosure of excess amounts above limitations on increases 
in closing costs.
    i. Because certain closing costs, individually, are generally 
subject to the limitations on increases in closing costs under Sec.  
1026.19(e)(3)(i) (e.g., fees paid to the creditor, transfer taxes, 
fees paid to an affiliate of the creditor), while other closing 
costs are collectively subject to the limitations on increases in 
closing costs under Sec.  1026.19(e)(3)(ii) (e.g., recording fees, 
fees paid to an unaffiliated third party identified by the creditor 
if the creditor permitted the consumer to shop for the service 
provider), Sec.  1026.38(i)(1)(iii)(A) requires the creditor or 
closing agent to calculate subtotals for each type of excess amount, 
and then add such subtotals together to yield the dollar amount to 
be disclosed in the table. See commentary to Sec.  1026.19(e)(3) for 
additional guidance on calculating excess amounts above the 
limitations on increases in closing costs under Sec.  1026.19(e)(3).
    ii. Under Sec.  1026.38(i)(1)(iii)(A), calculation of the excess 
amounts above the limitations on increases in closing costs takes 
into account that the itemized, estimated closing costs disclosed on