NAFCU Compliance Blog

Home is Where You Make It: RV Loan Disclosure Rules; New HMDA Tool

Written By: Reginald Watson, Regulatory Compliance Counsel

Happy Monday! The perils of winter often lead my mind to drift back to last summer when I spent time exploring some of the beautiful American landscape with my brother and his bandmates aboard a funky-looking RV. Being more settled into my role as a compliance practitioner, I sometimes find myself wondering about the nuances in the rules and how the financing disclosures cover similar yet slightly different secured transactions. I recently embarked upon a journey to fully investigate the disclosure rules with regard to recreational vehicles and found that the more I read, the more tripped up I became. Upon returning from this expedition, I've decided to share what I learned with you, my compliance friends. This blog will discuss the disclosure rules for recreational vehicles, boats and trailers.

The confusion when it comes to recreational vehicles arises from the fact that their characterization as either personal property versus real property is state specific, with most states taking the personal property approach. This tends to get even hazier when a borrower decides to make the RV their primary dwelling. Thus, it can be difficult to figure out which regulations apply since every situation does not neatly fit into either category, which is something the TILA-RESPA integrated disclosure (TRID) rules don't seem to want anything to do with. It seems the Bureau only intended for TRID to apply to loans secured by land (and cooperatives starting October 2018). The TRID preamble explains that applying the integrated disclosure rules to loans secured by personal property, including "chattel-dwelling" loans, "could reduce the intended consumer benefit of the disclosures because of those loans' unique characteristics. Excluding them from coverage of these integrated disclosures, however, would not excuse them from [TILA/Regulation Z's general] disclosure requirements."

Although an RV would not be considered a dwelling for TRID as well as most RESPA rules, it could be considered a dwelling for other purposes under sections 1026.17 and 1026.18 of Reg Z. These rules apply to all closed-end consumer credit transactions, including those that are secured by personal property that is not a dwelling and those that are secured by personal property that is a dwelling, but is not also real property. These disclosure would include things like the itemization of the amount financed, the finance charge, the annual percentage rate, the interest rate, the payment schedule, the number of payments, and any applicable late and prepayment fees among other requirements. See, 12 C.F.R. §1026.18 and related commentary.

Parts of Regulation Z have specific scope provisions, so there are rules that discuss applicability to a “dwelling” or a “principal dwelling” depending on the rule. Meanwhile, the staff commentary to the definition of "dwelling" clarifies that this can include RVs. Here's an excerpt from the commentary for reference:

1026.2(a)(19) Dwelling

1. Scope. A dwelling need not be the consumer's principal residence to fit the definition, and thus a vacation or second home could be a dwelling. However, for purposes of the definition of residential mortgage transaction and the right to rescind, a dwelling must be the principal residence of the consumer. (See the commentary to §§1026.2(a)(24), 1026.15, and 1026.23.)
2. Use as a residence. Mobile homes, boats, and trailers are dwellings if they are in fact used as residences, just as are condominium and cooperative units. Recreational vehicles, campers, and the like not used as residences are not dwellings. (Emphasis added).

Determining that an RV is used as a residence, or a principal residence, will impact when a loan on an RV or boat would be subject to a particular rule(i.e. the right to rescind only attaches if the dwelling is the borrower's principal residence).As another example, the requirement to provide periodic statements for residential mortgages applies for closed-end loans secured by a dwelling. The higher-priced mortgage loan escrow rule applies to certain loans secured by a first position lien on a principal dwelling. Generally, the regulations permit a consumer to have only one "principal dwelling," which is discussed in further detail in the CFPB’s staff commentary.

What about rules besides Reg Z and RESPA? Looking at both Regulation B's appraisal disclosure rules and HMDA's reporting rules, these have exclusions for recreational vehicles and boats. See, 12 C.F.R. 1002.14(b)(2), and Interp 1 to 12 C.F.R. §1003.2(f)-Comment 3. I hope you enjoy this photo of the RV from last summer's tour, somewhere in West Virginia I presume:

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HMDA LAR Formatting Tool

CFPB has launched a new formatting tool intended to help credit unions, typically those with small volumes of covered loans and applications, create an electronic file that can be submitted to the HMDA Platform. The 2018 LAR Formatting Tool should be used for data collected in 2018 and reported in 2019. The 2018 LAR Formatting Tool and the updated 2018 Filing Instructions Guide can be accessed from the Bureau's HMDA resources website.

Breaking Down the TRID Fix: Rate Lock Revised LEs Are One and Done

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

How's 2018 treating you so far, credit union compliance world?

My year started out right. Last week, I contacted the CFPB through their Regulatory Inquiry website and got a call back same day. That's a response time that the NAFCU Regulatory Compliance Team can appreciate. And the informal answer from the Bureau: you don't have to do any extra work unless you want to. So I'm batting a thousand so far.

The Question: Rate Lock Revisions and the 2013 Preamble

Subsection 1026.19(e)(3)(iv) describes when a revised Loan Estimate can be used to reset tolerances. The subsection contains five paragraphs describing five sets of circumstances where a revised Loan Estimate can be issued and used to reset tolerance for good faith purposes. Four of these circumstances are permissive, meaning that a revised Loan Estimate can, but is not required to be, issued. In other words, if the credit union decides that reissuing the Loan Estimate is not worth the cost, it can chose not to, though it won't be able to reset tolerances due to the event.

One of the circumstances is not voluntary, it's required. That's paragraph 19(e)(3)(iv)(D). If the rate was not locked when the initial Loan Estimate was provided, and the applicant locks in the rate, a revised Loan Estimate is mandatory. The language of this paragraph is quite specific:

"(D) Interest rate dependent charges. The points or lender credits change because the interest rate was not locked when the disclosures required under paragraph (e)(1)(i) of this section were provided. No later than three business days after the date the interest rate is locked, the creditor shall provide a revised version of the disclosures required under paragraph (e)(1)(i) of this section to the consumer with the revised interest rate, the points disclosed pursuant to §1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms.” 12 C.F.R. § 1026.419(e)(3)(iv)(D) (Emphasis added).

Nothing in the regulation or the commentary directly addresses what happens when a rate lock agreement is entered into, the rate is locked, and then the lock expires. The 2013 preamble to original TRID referenced rate lock expiration, but only very briefly:

"Upon a review of the proposed rule text and commentary, the Bureau acknowledges that the  requires redisclosure where a rate lock agreement does not exist. But the Bureau intended that § 1026.19(e)(3)(iv)(D) only applies in situation where a rate lock agreement has been entered into between the creditor and borrower, or where such agreement has expired." 79 Fed. Reg. 79833 (Emphasis added).

But as you can see, paragraph 19(e)(3)(iv)(D) is pretty narrowly drawn. Reading a requirement into that paragraph to redisclose at the time a locked rate expires would be difficult to do.

The Answer: TRID Fix and Informal Guidance from the Bureau

In the TRID Fix amendments, the Bureau sought to clarify that the requirement to issue a revised disclosure under paragraph 19(e)(3)(iv)(D) would not apply repeatedly. In the preamble, the Bureau stated:

"When a revised Loan Estimate is provided as required by § 1026.19(e)(3)(iv)(D), the rate lock information disclosed pursuant to § 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, § 1026.19(e)(3)(iv)(D) does not subsequently require the disclosure of a revised Loan Estimate." 82 Fed. Reg. 37682 (Emphasis added).

So, no revised Loan Estimate is triggered under paragraph 19(e)(3)(iv)(D) when the rate lock expires. A change in circumstances may exist allowing a revised Loan Estimate to be issued and used to reset tolerances under another paragraph in subsection 1026.19(e)(3)(iv), but that would be at the credit union's option.

However, we still wanted to check on another variable. What if a second rate lock agreement is entered into with the borrower regarding the same application? Would each rate lock agreement create a new obligation to issue a revised Loan Estimate each time the rate was locked?

The Bureau's informal guidance indicated that the answer was no. The Bureau stated that paragraph 19(e)(3)(iv)(D) would apply only once. If the rate is locked again or the rate expires again, the credit union may wish to issue a revised Loan Estimate for the borrower's information and to ensure clarity; or it may wish to issue a revised Loan Estimate under another paragraph in subsection 1026.19(e)(3)(iv) to reset tolerances; but it is not required to do so by the regulation.

Good to know!

 

TRID Amendments – Tolerances, Expiration of Loan Estimates and Updated Forms Guide; Zoolights!

Written by Brandy Bruyere, Vice President of Regulatory Compliance

Once in a while, our blog schedule is updated and I blog twice in a row. We ended last week with HMDA, and we'll start the week off with TRID.

Tolerances

TRID requires credit unions to provide a Loan Estimate in good faith and based on the best information reasonably available, with certain costs being subject to zero tolerance, 10 percent tolerance or no tolerance. Some of the 2017 amendments incorporate past guidance or imperfect attempts to fix errors in the rules relating to tolerances. For example, in February 2016, the CFPB amended the preamble to TRID to correct a mistake regarding which fees are subject to no tolerance, and now the 2017 rule formally incorporate this change. This clarifies that property taxes, homeowner's association dues, condominium fees and cooperative fees are subject to no tolerance when the figures on the Loan Estimate are based on the best information reasonably available. This chart summarizes the tolerance categories as tweaked by the TRID amendments:

	TRID Tolerances for Settlement Costs
Zero tolerance	·   All other fees which are not either 10% tolerance or subject to no tolerance. Examples include: -   Fees paid to the credit union, mortgage broker, or an affiliate of either -   Any fees paid to any party if the member was not permitted to shop -   Transfer taxes
10% tolerance	·   Recording fees ·   Fees paid to unaffiliated 3rd-party  when the member is permitted to shop (examples could include settlement agent fees, notary fees)
No tolerance limitation	·   The following IF the estimate was “consistent with the best information reasonably available”* to the credit union at the time of disclosure -   Prepaid interest -   Property taxes -   Property insurance premiums -   Homeowner's association fees -   Condominium fees -   Cooperative fees -   Amounts placed into an escrow or similar account -   Charges paid to 3rd-party service providers selected by the member that are NOT on a list provided by the credit union -   Charges paid for 3rd-party services NOT required by the credit union, including charges to affiliates *Note, estimates cannot be unreasonably low in order to meet this standard

The CFPB also added commentary to clarify that the 10 percent tolerance applies in the aggregate as opposed to a specific charge. For example, if a fee subject to 10 percent tolerance was left out of the Loan Estimate, it could be on the Closing Disclosure (and charged to the borrower) so long as the aggregate amount of fees does not exceed ten percent of the amount shown on the Loan Estimate. The CFPB provided an example in comment 19(e)(3)(ii)-2:

1. Assume that, [in the Loan Estimate], the creditor includes a $300 estimated fee for a settlement agent, the settlement agent fee is included in the category of charges subject to [10 percent tolerance], and the sum of all charges subject to [10 percent tolerance] (including the settlement agent fee) equals $1,000. In this case, the creditor does not violate [tolerance limitations] 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).

Expiration of the Loan Estimates.

Section 1026.19(e)(3)(iv)(E) allows credit unions to revise charges originally disclosed on the Loan Estimate if the consumer indicates an intent to proceed with the loan more than ten business days after receiving the Loan Estimate. There was uncertainty under TRID as to whether the credit union could voluntarily extend this ten business day window. The amended rule clarifies that credit unions may do this. However, the consumer must be permitted to rely on the Loan Estimate and to indicate their intent to proceed within the specified window of time. For example, if a credit union decides to extend the expiration date for a total of 14 business days, then the member must be allowed to indicate their intent to proceed under the terms in the Loan Estimate such as the disclosed rate.

Updated Forms Guide.

Finally, last week the CFPB updated its TRID Guide to Forms to incorporate the 2017 changes to TRID. Updates include:

• The Loan Estimate in the General Requirements, General Information, Loan Terms, Projected Payments table, Costs at Closing, Loan Costs and Other Costs, Calculating Cash to Close table, Alternative Calculating Cash to Close table, Comparisons, and Confirm Receipt.
• The Closing Disclosure in the General Requirements, General Information, Costs at Closing table, Other Costs, Calculating Cash to Close table, Summaries of Transactions, Borrower’s Transaction, Seller’s Transaction, Escrow Account, Loan Calculations, and Confirm Receipt.  
• Coverage of closed-end credit transactions secured by a cooperative unit in various sections of the guide.

Palate Cleanser. Since I started the week off with TRID, I thought I'd share a photo of Nolan at Zoolights. He was a big fan of the train!

Breaking Down the TRID Fix: It's the Same with Affiliates, Only Different

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

As we tackle the painful job of picking apart the CFPB's TRID "Fix" final rule, we are reminded again of the Bureau's deep appetite for technical minutiae. It's a regulation in the style of ancient filigree, complex to behold and not particularly easy to use. Identifying and absorbing these hyper-intricate changes is just step one in the mission to actually understand what will change for credit unions who have to use this rule.

So, today, we are going to look at one piece of the amendments: clarification regarding costs paid to affiliates for which there is no applicable tolerance.

Paragraph 19(e)(3)(iii) Amounts Paid To Affiliates

Paragraph 19(e)(3)(iii) is the paragraph that describes the five categories of charges for which there is no applicable tolerance or comparison to the Closing Disclosure to determine good faith. Currently, it reads like this:

"(iii) Variations permitted for certain charges. An estimate of the following charges 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:

(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 pursuant to paragraph (e)(1)(vi)(C) of this section; and

(E) Charges paid for third-party services not required by the creditor. These charges may be paid to affiliates of the creditor." 12 C.F.R. § 1026.19(e)(3)(iii) (Emphasis added).

As you can see, the phrase "[t]hese charges may be paid to affiliates of the creditor" is attached only to subparagraph (E). In the proposal, the Bureau stated:

"The Bureau understands that there is uncertainty whether all five of the § 1026.19(e)(3)(iii) categories include charges paid to affiliates of the creditor or if only the § 1026.19(e)(3)(iii)(E) category (i.e., charges paid for third-party services not required by the creditor) includes charges paid to affiliates of the creditor. The Bureau believes there are reasonable arguments to support either of those interpretations under the current rule but is proposing to change the rule prospectively so that all five categories expressly include charges paid to affiliates." 81 Fed. Reg. 54332.

In exchange for choosing the more expansive of these possible interpretations, the CFPB is adding a caveat: a charge paid to an affiliate must be "bona fide" in order for it to have no applicable tolerance rules. The Bureau stated that this addition was intended to limit any potential harm associated with allowing variations without regard to tolerances on charges paid to affiliates.

In the final rule, the Bureau moves the phrase addressing affiliates out of sub-paragraph (E) and into paragraph 19(e)(3)(iii) itself, and adds the language about the charges being bona fide:

"(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 affiliates of the creditor, so long as the charges are bona fide: […]" 81 Fed. Reg. 37768 (Emphasis added).

The final rule also adds new comment 4 to paragraph 19(e)(3)(iii), which describes that a charge is bona fide if it is "lawful and for services that are actually performed."

The comment also reinforces that just because a charge has no applicable tolerance does not mean it is automatically in good faith under section 1026.19(e)(3)(i). The charge must still be consistent with the best information reasonably available to the creditor at the time the disclosure is provided. The existing commentary to section 19(e)(1)(i) directs readers to the commentary to section 1026.17(c)(2)(i) for an explanation of that standard.

The good news is that more fees may not be subject to a tolerance requirement for good faith analysis. The bad news is that there is now yet another hoop in the TRID rules to push a fee through before it can be confidently charged to a borrower. But credit unions and their affiliates are not in the business of charging their members illegal or sham fees, so this one should be relatively painless.

Breaking Down the TRID Fix: 60 Days Isn't Really 60 Days, Except When It Is; Two Upcoming CECL Webcasts

 Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

On July 6^th, the CFPB finalized its TRID "Fix" rule. Unfortunately, the CFPB continues to punt on addressing some obvious issues with TRID, including declining to address the obvious errors in their own sample forms. In TRID-land, we'll take what we can get.

Before jumping into the nuts and bolts of the final rule itself, it's important to get one thing straight: the effective date.

TRID "Fix" Implementation Dates

The proposal included a 120-day effective date for the implementation of the changes to TRID.

It its comment letter on the proposed rule, NAFCU reminded the CFPB that, as with the initial implementation of the TRID rule, credit unions will have to work with vendors to update processes and systems, perform testing and provide training to incorporate the changes. As such, the proposed 120 day time period for implementation was simply not realistic.

NAFCU also specifically asked for an extended period or 12 months to implement the changes, and for the Bureau to allow for early compliance where possible. Apparently NAFCU's requests were echoed by the majority of other industry commenters and the Bureau heard us.

For the majority of the changes, the rules themselves will become effective in the Code of Federal Regulations 60 days after they are published. However, compliance with the changes will not become mandatory at that time. Instead, compliance will become mandatory for applications received on or after October 1, 2018.

Regarding how credit unions can begin to implement the changes, the Bureau stated:

"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…" Final Rule, p. 416.

Exceptions for Two Post-Consummation Requirements

There is an exception to this implementation framework regarding a change to commentary implicating two requirements: (1) subsection 1026.20(e) regarding escrow cancellation notices and (2) the partial payment policy disclosure required by paragraph 1026.39(d)(5). Both of these provisions address notices which may be required during the life of the loan, possibly long after consummation.

There has been some confusion as to when exactly these post-consummation requirements applied to loans that might have been applied for or originated before the October 3, 2015 TRID implementation deadline. To clarify the issue, the CFPB is amending comment 1 to the scope of Subpart E to address this. New comment 1 to paragraph 1(d)(5) explains when these post-consummation requirements apply:

"Additionally, §§ 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." Final Rule, p. 461.

This commentary becomes effective 60 days after publication of the final rule in the Federal Register, and there is no delayed implementation for that guidance. We will continue to dig into the so-called TRID Fix, and we will let you know what we find.

Two Upcoming CECL Webcasts

CECL - A Deep Dive Into 5 Implementation Models (For Purchase)
Wednesday, July 19 | 2:00 p.m. – 3:30 p.m. ET

NAFCU teamed up with a renowned team of data scientists to analyze the pros and cons of five implementation models for the new CECL rules. Hear what we found so you can choose the best model for your credit union.

 

CECL Roadmap - Understanding Requirements, Dispelling Myths & Planning Implementation (Free)
Thursday, July 20 | 2:00 p.m. – 3:30 p.m. ET 

Hear directly from FASB regulators the key steps and actions credit unions should take for a successful CECL implementation. You'll also gain a general understanding of CECL requirements.

 

ICYMI: The Neverending Story on Mortgage Servicing, New COPPA Guidance and More Payments Data; TRID "Fix" Final Rule

Written by Jennifer Aguilar, Regulatory Compliance Counsel

2016 Mortgage Servicing Amendments

Enforcement. Late last month the CFPB issued a policy statement on the new mortgage servicing rules set to go into effect later this year and early next year. In the statement, the CFPB explains that credit unions will be permitted to implement the new rules three days prior to the compliance deadline of October 19 and April 19. The CFPB does not intend to take enforcement action for violations of the current mortgage servicing rules that occur between October 16 – 18 and April 16 – 18 resulting from a credit union's compliance with the new rules.

The CFPB issued this statement to allow credit unions more time to update and test their systems. In its statement, the CFPB explained that it has heard concerns that the compliance deadline may raise some operational issues since both dates fall midweek, on a Thursday. This would mean that credit unions would have from the close of business on Wednesday to the start of business on Thursday to update and test systems to ensure they are set for full compliance on Thursday. The CFPB believes that credit unions will benefit from being able to update and test systems over the weekend prior to the compliance deadline. 

Technical Corrections. The CFPB has also issued a number of technical corrections to the new mortgage servicing rules. These corrections go into effect on October 19. The corrections address two errors in the new Regulation X rules – a typo in model clause MS-4(D) and a cross reference in comment 39(d)(2)-1.

The corrections also address a few of the new provisions relating to periodic statements in Regulation Z. First, the effective date of April 19, 2018 for comment 41(c)-5 is added to the relevant amendatory instruction. Second, the effective date for model forms H-30(E), H-30(F) and commentary to section 1026.41(e) and (f) is changed from October 19 to April 19. This brings these forms and the commentary into conformity with the revisions to section 1026.41(e) and (f) which are effective April 19. Finally, the corrections add 12 U.S.C. 3533 as an authority citation for the Regulation Z amendments.

Updated COPPA Guidance

Last month, the FTC issued new guidance on the Children’s Online Privacy Protection Rule (COPPA) in order to address new developments, such as internet-connected devices for kids. The revised Six-Step Compliance Plan contains updates to assist credit unions in determining whether they are covered by COPPA and what they need to do to comply. For example, the new Plan explains that internet-connected toys or other devices are included in the definition of a “website or online service.” The Plan also expands the methods for obtaining a parent’s verifiable consent to collect information from children. Now, credit unions may verify that it really is the child’s parent giving the consent by using knowledge-based authentication questions or facial recognition to get a match with a verified photo ID. For a bit of a COPPA refresher, you can find some past blog posts here.

Federal Reserve’s Payments Study

The Federal Reserve has released additional data from its 2016 Payments Study. The Payments Study was developed in 2001 to evaluate trends in noncash payments in the US and is conducted every three years. Initial data from the 2016 Study was released last December. The additional data focuses on recent changes in both consumer and business payment methods. Here are some key findings from the Study:

• Noncash payments are on the rise. Households made 79% noncash payments per month in 2015. In 2000, households made 40% noncash payments per month.
• Consumers and businesses are writing fewer checks. In 2015, checks accounted for 13% of noncash payments, compared with 58% in 2000.
• The top four noncash payments among consumers were non-prepaid debit cards, general-purpose credit cards, checks and ACH debit transfers. The top four noncash payments among businesses were ACH credit transfers, checks, general-purpose credit cards and non-prepaid debit cards.
• The number of payments made with general-purpose credit cards and non-prepaid debit cards grew the fastest among all payment types between 2012 and 2015.

CFPB Issues Final TRID "Fix" Rule

Last Friday, the CFPB announced that it has finalized the amendments to the TILA-RESPA integrated disclosures that were proposed last year. The final rule seeks to provide additional guidance and clarity on the TRID requirements and makes a few technical corrections. Among other things, the final rule addresses tolerances, housing assistance loans and sharing disclosures with third parties. In the same announcement, the CFPB also issued a proposed rule on when it is permissible to use a Closing Disclosure for determining good faith and tolerances. NAFCU is reviewing both the final rule and the proposed rule and will have blogs and other tools available for members in the coming weeks.

CFPB May Be Reading TRID Email Again – Gifts of Equity; MLA Update

Written by Brandy Bruyere, Director of Regulatory Compliance

Does this look familiar to anybody? It’s at the bottom of all of the CFPB’s compliance landing pages for various rules, pointing you in the Bureau’s direction if you need more help:

Leading up to the effective date for TRID, many of our members would email the CFPB as advised here on their website. We would also submit questions on a member’s behalf or where we saw many credit unions having trouble with the same issue. While this process had a rather lengthy turnaround, sometimes we would receive helpful (although unofficial and nonbinding) guidance from the CFPB.

Then around September 2015, a few weeks before TRID went “live,” we would no longer receive responses to TRID-related questions. We would resubmit them, and still no reply. Many of our members reported the same experience – TRID questions sent to this CFPB email address just went unanswered. Several weeks ago, figuring it couldn’t hurt to try, a member of our compliance team resubmitted a question that we first sent nearly a year ago because the question came up again. Lo and behold, last week we received a response! Keep in mind that this guidance is informal. In fact, here’s the Bureau’s usual disclaimer that they place on their webcasts and similar items:

“[This] does not represent legal interpretation, guidance or advice of the Bureau. While efforts have been made to ensure accuracy, this presentation is not a substitute for the rule. Only the rule and its Official Interpretations can provide complete and definitive information regarding requirements. This document does not bind the Bureau and does not create any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner.”

Now that we have that out of the way, here is the question we submitted:

Multiple members asked how to disclose a “gift of equity” (as often seen in a non-arms’ length sale with below-market sales price where someone essentially “gifts” equity to the buyer) as this disclosure is required by Fannie Mae/Freddie Mac investor guidelines to be on the Closing Disclosure. TRID is not clear on this. A few solutions posed have included (1) listing this as “Item Paid Outside of Closing” under section 1026.38(j)(4)(i); (2) listing this as a “Seller Credit” under section 1026.38(j)(2)(vi), but not as a dollar amount, and (3) adding an addendum under section 1026.38(t)(5)(ix) and listing “gift of equity.”

How can a lender do this in a way that is TRID-compliant?

Here is the CFPB’s unofficial, informal and nonbinding response:

 “For the Loan Estimate, you may want to review Regulation Z § 1026.37(h)(1)(vii) and the associated commentary, specifically comment 37(h)(1)(vii)-1.  As to the Closing Disclosure, you may want to review the disclosure of a gift of equity as an “Other Credit[ ]” in section L of the Summaries of Transaction table on page 3, pursuant to § 1026.38(j)(2)(vi), along with reviewing the requirements for disclosing an offsetting amount “Due From the Seller at Closing” in section N of the Summaries of Transaction table on page 3, pursuant to § 1026.38(k)(2)(viii)…

However, please note that your inquiry and the applicable sections of the rule identified in response are impacted by the proposed rule, which was issued to clarify a number of issues identified in the 2013 TILA-RESPA Integrated Disclosure rule.  We encourage you to review this proposed rule and consider providing comments for the public record.”

So it seems the CFPB has an idea of how gifts of equity should be disclosed, but is also open to considering this issue as part of the pending rulemaking aimed at clarifying TRID. NAFCU is working on its comment letter for this rulemaking so if you have thoughts, please let us know!

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MLA Update. The first MLA compliance deadline is less than 2 months away and NAFCU continues to receive questions on some of the rule's ambiguities like the treatment of share secured products, providing oral disclosures and similar issues. The DoD promised guidance several weeks ago and while guidance is apparently pending, it is caught up in the pre-publication bureaucratic process for an unknown amount of time. For now, we have MLA specific blogs here, and NAFCU members can find resources here or of course contact our compliance team and we'll do our best to help!

CFPB Proposes Changes to TRID – Part II: Modifying Disclosures for Sharing and Disclosing the Ability to Shop; It’s Not Too Late to Attend NAFCU’s Risk Management Seminar

Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel

On Monday, this blog post highlighted some of the proposed revisions to the TRID rules, including:

• clarification that creditors can reset tolerances using a revised Closing Disclosure when a Closing Disclosure had already been issued; and
  
• clarification regarding post-consummation inspection fees and completing the Loan Estimate for multiple-advance construction loans.

Your NAFCU Regulatory Compliance Team is continuing to pick apart the proposal, but here are a couple other changes to highlight…

Modifying Disclosures for Sharing with Sellers and Third Parties

Whereas Regulation X required providing sellers and the parties’ agents with the HUD-1, it has not been clear how the Closing Disclosure can be shared. Section 1026.38(t)(5)(v) and (vi) state that the Closing Disclosure can be modified to create separate disclosures for buyers, sellers and third parties by removing certain information. The CFPB has provided additional guidance in the commentary on how to achieve this:

Paragraph 38(t)(5)(v).

1. Permissible form modifications to separate consumer and seller information. The modifications to the form permitted by § 1026.38(t)(5)(v) may be made by the creditor in any one of the following ways:

i. Leave the applicable disclosure blank concerning the seller or consumer on the form provided to the other party;

ii. Omit the table or label, as applicable, for the disclosure concerning the seller or consumer on the form provided to the other party; or

iii. Provide to the seller, or assist the settlement agent in providing to the seller, a modified version of the form under § 1026.38(t)(5)(vi), as illustrated by form H-25(I) of appendix H to this part. (Emphasis added). See, pg. 284.

Another roadblock to sharing this information has been privacy concerns under the Gramm-Leach-Bliley Act (GLBA) and Regulation P. The CFPB also addressed privacy concerns surrounding sharing the disclosures in the preamble:

Regulation P generally provides 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.

There are several exceptions to these notice and opt-out requirements, however. 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. GLBA sections 502(e)(1) and 509(7)(A) provide another exception that applies if a financial institution’s sharing of its customers’ nonpublic 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.

See, pg. 147.

Requirements for Disclosing the Ability to Shop and the Written List of Providers

The amendments also add some language to comments 2 and 4 to section 1026.19(e)(1)(vi) that require the creditor to specifically identify services that are payable by the consumer and can be shopped for by the consumer. Comment 4 is being amended to specifically require that a creditor specifically identify those services payable by the consumer and for which the consumer is permitted to shop on the written list of providers. There is clarification in the commentary regarding packaged services. Below is the new language added to comment 1026.19(e)(1)(vi)-4:

If the charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify that service and an available provider of that service on the written list of providers unless, based on the best information reasonably available to the creditor at the time the disclosure is provided, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Specific identification of each service in such a package is not required provided they all are services for which the consumer is permitted to shop. (Emphasis added.) See, pg. 223.

Comment 3 to section 1026.19(e)(1)(vi) is being amended to clarify that use of model form H-27 is deemed compliant, but is not required. Use of the model form was discussed in detail in the preamble to the proposed amendments:

Unlike the model forms for the Loan Estimate and the Closing Disclosure, which, under §§ 1026.37(o)(3) and 1026.38(t)(3), respectively, are mandatory forms for a transaction that is a federally related mortgage loan (as defined in Regulation X), form H-27(A) is not a mandatory form. Moreover, 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. Accordingly, the proposed revision to comment 19(e)(1)(vi)-3 would clarify that, although use of the model form H-27(A) of appendix H to this part is not required, creditors using it properly will be deemed to be in compliance with § 1026.19(e)(1)(vi)(C). (Emphasis added.) See, pg. 48.

If these provisions will affect your operations, positively or negatively, please reach out to NAFCU and let us know so that we can incorporate your feedback in NAFCU’s advocacy efforts regarding these amendments.

It’s Not Too Late to Attend NAFCU’s Risk Management Seminar…

Join us for critical compliance training in Denver during our Risk Management Seminar.  Affordable summer flights are still available from many major U.S. cities. You’ll learn firsthand how to prepare for NCUA risk-focused exams, what NCUA's Revised IRR and Adding the 'S' to CAMEL will mean for your credit union and much more. You’ll also have the unique opportunity to earn the NAFCU Certified Risk Manager (NCRM) designation, which can only be earned in-person during this event, plus 16.5 credits toward current NCRM and NCCO renewal.

CFPB Proposes Changes to TRID

Written by Brandy Bruyere, Director of Regulatory Compliance

On Friday, as promised, the CFPB released proposed revisions to the TRID rules that aim to provide improved clarity and incorporate informal guidance provided in unwieldy forms like webcasts into the rule text or official staff commentary. The proposal is nearly 300 pages long, so we will not bog everyone down too much on a Monday morning, but here are a few highlights.

Change in Circumstances After the Closing Disclosure is Issued

One common question that has caused problems since the implementation of TRID relates to changes that would permit credit unions to issue a revised Loan Estimate (LE), except a Closing Disclosure (CD) was already provided so a revised LE is not an option. This posed barriers to resetting tolerances. Here’s a description of the problem from the preamble to the proposed rule:

Section 1026.19(e)(4)(ii) imposes certain timing restrictions on the issuance of revised Loan Estimates relative to consummation and the issuance of a Closing Disclosure to ensure that the consumer does not receive disclosures containing estimates and disclosures containing actual costs at the same time. Existing comment 19(e)(4)(ii)-1 explains that, where the rule prohibits issuance of a revised Loan Disclosure, the creditor can instead use the Closing Disclosure to reflect changes in costs that would otherwise justify issuing a revised [LE] and that that Closing Disclosure may be used for the purpose of determining good faith under § 1026.19(e)(3). The Bureau proposes to add comment 19(e)(4)(ii)-2 to clarify that creditors may use corrected Closing Disclosures provided under § 1026.19(f)(2)(i) or (ii) to reflect further changes in costs that will be used for purposes of determining good faith under § 1026.19(e)(3).

[…]

.. a creditor may use a corrected Closing Disclosure to reset applicable good faith tolerances when there are fewer than four business days remaining before consummation or when the Closing Disclosure has already been issued, provided that the creditor also complies with the other requirements of § 1026.19(e)(4). The Bureau is proposing comment 19(e)(4)(ii)-2 to clarify this point. (Emphasis added.)

Here is the comment language itself:

2. Corrected disclosures provided under § 1026.19(f)(2)(i) or (2)(ii). If there are fewer than four business days between the time the revised version of the [LE] and consummation or the Closing Disclosure…has already been provided to the consumer, creditors comply with the requirements of § 1026.19(e)(4) (to provide a revised [LE] for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii)) if the revised disclosures are reflected in the corrected [CD], subject to the other requirements of § 1026.19(e)(4)(i) [addresses revised LE].

Clarification for Construction Loans

Construction loans have been a challenge under TRID. The CFPB proposal, on page 286, includes significant additions to current Appendix D, giving some TRID-specific guidance for multiple advance construction loans. There is also proposed commentary to section 1026.19(e)(1)(iii) that would provide examples for providing the LE for multiple-advance construction loans. Here’s one of these examples:

1. Assume a creditor receives a consumer’s application for construction financing only on Monday, June 1. Assume further that the creditor generally makes both construction and permanent financing available to qualifying consumers and that the consumer does not expressly state that the consumer will not obtain permanent financing from the creditor. In these circumstances, the construction loan that the consumer applied for is a loan to finance construction of a dwelling that may be permanently financed by the same creditor under comment 17(c)(6)-6. The creditor therefore must deliver or place in the mail the [LE] for both the construction financing and the permanent financing, either disclosed as one or more than one transaction, not 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, even though the application is for construction financing only.

There are other sections that may add some clarity for construction loans. For example, comment 38(g)(4)-1 would “clarify that (disclosed) inspection fees…are for pre-consummation inspection fees, not post-consummation inspection fees..” Instead, post-consummation inspection fees would be disclosed on an addendum attached as an additional page of the CD. This revised comment would also clarify that if some funds for construction are disbursed after closing, these amounts are still placed in the “At Closing” column on the CD.

There are a few big issues that the CFPB intentionally did not address, like the formula for simultaneously issued title insurance and issues with cure provisions. I’m also sure we’ll find other problematic items as we continue working through the proposal. In the meantime, if you spot any disconcerting items in this proposal, let us know (well, let my colleague Alex know) – our members’ input drives our advocacy efforts as we work on comments.

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Don’t Miss Wednesday’s NAFCU Webcast!

Key Facts for RBC2 Implementation

Wednesday, Aug. 3  |  2:00 – 3:30 p.m. EST NCUA’s risk-based capital (RBC2) rule will now apply to all credit unions over $100 million in assets. Attend our webcast to understand the regulation and the related risk-based capital calculations prior to launch, to ensure a smooth implementation process.

 

ICYMI – NCUA MLA and Other Webinars; NCUA Regulatory Alert; CFPB Spring Rulemaking Agenda and TILA Annotated Model TRID Disclosures

Written by Brandy Bruyere, Director of Regulatory Compliance

Much of NAFCU’s staff was in Nashville last week for our Annual Conference, for those who were able to join us, thanks! It was a great week. Once in a while, we like to wrap up a few things just in case you missed it.

NCUA MLA Webinar. NCUA’s Office of Consumer Protection is holding a webinar on the Military Lending Act on Wednesday, June 29 at 2 PM Eastern. You can register for the webinar here. If you have questions (I know many of you have asked great questions, such as the MLA’s impact on statutory liens), you may submit them in advance to [email protected], using the subject line “MLA Regulatory Amendments.”

Other NCUA Webinars. It’s a busy month for NCUA in terms of webinars, here are a few others that may be of interest. This includes webinars on accounting for small CUs, webinar on growing your CU, and a CDFI webinar:

• Wednesday, June 22, at 2PM Eastern –NCUA Office of Small Credit Union Initiatives Webinar on Internal Controls and Accounting – you can register for this webinar here
• Thursday, June 22, at 2PM Eastern – NCUA Webinar on Community Development Financial Institutions Certification – you can register here
• Archive Available Soon (held on June 8) – NCUA Webinar on Growing Your Credit Union

NCUA Regulatory Alert on Small Creditors and Rural/underserved Areas. The CFPB recently implemented statutory changes relating to certain exemptions in Regulation Z for small creditors. On May 24, NCUA issued Regulatory Alert 16-RA-05 that includes a chart and summary of these changes.

CFPB Spring Rulemaking Agenda. On May 19, the CFPB issued its spring rulemaking agenda. While the rulemaking agendas often underestimate the timeline for proposals and rules, highlights include:

• Final Rule Estimates – Mortgage servicing (July 2016), prepaid products (July 2016), Regulation P (possible incorporation of statutory changes to annual privacy notices, August 2016), and Regulation CC (December 2016 although this is may be more of a placeholder than actual estimated action date)
• Proposed Rule Estimates – TRID amendments (July 2016), payday lending (proposed June 2)
• Prerule Stage – Debt collection, overdraft, Regulation B and business lending

TRID Model Disclosures with Statutory Annotations. Many found the model Loan Estimate and Closing Disclosure with regulatory annotations helpful, so the CFPB released versions with citations to Chapter 2 of the Truth in Lending Act. The Loan Estimate is here, and the Closing Disclosure is here.

Buddies. It’s been a while since I posted a Lemmy/Nolan update. Now that Nolan is a full-fledged toddler (21 months already!), we’re working with him on learning Lemmy’s boundaries – and learning that some food is really just for Lemmy. They get a long pretty well though. 

 

We Listened So You Don’t Have to – Part Two from the CFPB’s April 16 TRID Webcast

Written by Brandy Bruyere, Director of Regulatory Compliance

A couple of weeks ago, I blogged on a couple of questions from last month’s TRID webcast and promised we’d do a little more. I know you’ve all been waiting anxiously for me to do this because who does not love starting their day with TRID? Just in case, for those of you wondering:

It sure was, I know TRID is not fun, but if it will help some folks out, then believe it or not, I’m happy to blog about it. So back to this webcast...

The rules permit the use of an alternative Loan Estimate in transactions without a seller but this has caused some confusion for how to handle some items in a refinance loan. One question the CFPB answered during the April webcast dealt with disclosing the amounts from an escrow account that the member has as part of their existing loan that will be used to fund the escrow account for the new (refinanced) loan. According to the Bureau, there are two possible ways to disclose this on a Loan Estimate:

“When a consumer pays a mortgage loan in full, several things can happen to the amount remaining in an escrow account. This question asks about one specific scenario. The creditor in a refinance transaction uses a balance in the escrow account associated with the prior loan to fund the escrow account associated with the new loan. In other words, the balance is transferred. Generally, this scenario might arise when the creditor on the prior loan and the creditor on the new loan are the same entity and when the loan is being held within the creditor's portfolio. The rule does not explicitly address how to disclose the transferred escrow balance using the alternative forms. So a creditor using those forms has some flexibility in determining how to disclose the transferred escrow balance.

Today we will discuss two possible ways to disclose the transferred escrow balance on the alternative Loan Estimate. The creditor should keep in mind that, depending on the circumstances and particulars of the transaction, there may potentially be additional ways of accurately reflecting this transaction. While we will discuss two acceptable methods today, we can't address every potentially acceptable disclosure method in every scenario. Creditors will have to determine whether a particular method of disclosure is appropriate under the facts and circumstances of a specific transaction in accordance with applicable provisions of the rule. Turning back to the question.

First, a creditor using the alternative Loan Estimate may disclose a transferred escrow balance as a separate item in [the rule] for the initial escrow payment at closing, which appears on page 2. Under section 1026.37(g)(3), a creditor must disclose an itemization of the amounts that the consumer will be expected to place into a reserve or escrow account at consummation to be applied to recurring periodic charges. In the scenario we're discussing, the creditor places the transferred escrow balance into a reserve or escrow account at consummation, and that amount is to be applied to recurring periodic charges. Accordingly, the transferred escrow balance may be disclosed as a separate item in [the rule]. Note, however, that the dollar figure should be disclosed as a negative number because the transferred funds are essentially a credit to the consumer. That is, they reduce the amount the consumer must pay at consummation.

The second way that a creditor may disclose a transferred escrow balance on the alternative Loan Estimate is by factoring the balance into the "Estimated Payoffs and Payments" row of the "Alternative Calculating Cash to Close" table, which appears on page 3. Under section 1026.37(h)(2)(iii), the "Estimated Payoffs and Payments" row includes the total amount of payoffs and payments to be made to third parties not otherwise disclosed under section 1026.37(f) and (g) disclosed as a negative number. In the scenario we're discussing, the transferred escrow balance offsets the total amount of payoffs and payments and therefore reduces the amount the consumer must bring to closing. So assuming the creditor has not already disclosed the transferred escrow balance as an initial escrow payment at closing in section 37(g), it may treat the transferred escrow balance as a credit to the consumer for purposes of calculating the estimated payoffs and payments. Under this option, the transferred escrow balance will not appear as a separate line item on the alternative Loan Estimate. Please note that the scenario we've been discussing differs from the common scenario in which the existing loan payoff amount is reduced by the amount of funds currently held in escrow. It also differs from the scenario in which the consumer simply receives a check for the balance in the escrow account associated with the prior loan. In both of these scenarios, there is nothing for the creditor in a refinance transaction to disclose on the Loan Estimate or the Closing Disclosure regarding the escrow balance associated with the prior loan. This is true whether the refinance creditor is using the standard forms or the alternative forms.”

The CFPB went on to tease out a few more details on this that are specific to the Closing Disclosure, noting that like with the Loan Estimate, there is some flexibility for credit unions and two ways to make this disclosure, depending on the terms of the underlying legal obligation:

“The first way is in section 1026.38(g) for the initial escrow payment at closing on page 2 of the alternative Closing Disclosure. This approach is similar to the first alternative Loan Estimate option we discussed in question 10. Note again, however, that the dollar figure associated with the balance should be disclosed as a negative number because the funds actually reduce the amount the consumer must pay at consummation.

The second way a creditor may disclose a transferred escrow balance on the alternative Closing Disclosure is to include a separate entry in the "Payoffs and Payments" table on page 3 of the alternative Closing Disclosure. Under section 1026.38(t)(5)(vii)(B), the Payoffs and Payments table itemizes the amounts of payments made at closing for other parties from the credit extended to the consumer or funds provided by the consumer in connection with the transaction. In our scenario, as we discussed in question 10, the transferred escrow balance offsets the amount of payoffs and payments made at closing to other parties. The transferred escrow balance operates, in effect, as a credit and reduces the cash the consumer needs to close. Accordingly, the balance may be disclosed as a negative number in the "Payoffs and Payments" table. Note that the entry must include the payees and the description of the purpose of the disbursement, as required by section 1026.38(t)(5)(vii)(B).”

Speaking of TRID, in case you missed it, on April 28 CFPB Director Richard Cordray sent a letter announcing that the Bureau is working on a proposed rule to consider "adjustments" that "would be useful for greater certainty and clarity." Director Cordray hopes to issue this proposal in late July. The full letter can be found here:  TRID Letter NPRM

We Listened So You Don’t Have To – CFPB’s Grab Bag of TRID Questions

Written by Brandy Bruyere, Director of Regulatory Compliance

If you’re keeping count at home, the CFPB provided its eighth webcast on TRID this past Tuesday (second post-implementation of the rules). After listening to these sessions and getting the Bureau’s "this informational only and not binding" disclosure so many times, it starts to feel a bit like this:

Or maybe this:

Or even this:

In all seriousness though, there is some helpful information here. The webcast addressed 21 different questions, so today I want to highlight two that NAFCU's regulatory compliance team received from members multiple times.

The second question in the webcast aimed to clear up confusion created by the “closing handout” that the CFPB distributed several months ago (we blogged about this issue here). The question – “Is an additional 3-business day waiting period required if the APR decreases by more than 1/4 or 1/8 of a percentage point, but the finance charge remains accurate?” Here is an unofficial transcript of the CFPB’s answer, with hyperlinks to citations added:

“An APR would be considered accurate and a new 3 business day waiting period would not be required if the APR directly corresponds to a disclosed finance charge that is considered accurate. The APR tolerance rules are covered in section 1026.22 and it’s important to note that the rule did not change these requirements. Section 1026.22(a)(4) contains special APR accuracy rules for mortgage loans and explains that in addition to the quarter or an eighth of a percentage point tolerance for accuracy, the disclosed APR is also considered accurate if the rate results from the disclosed finance charge and the disclosed finance charge would be considered accurate. Next slide please.

The tests for determining whether a finance charge is considered accurate are in sections 1026.18(d)(1) and 1026.38(o)(2) and explain that the disclosed finance charge shall be treated as accurate if it is understated by no more than $100 or is greater than the amount required to be disclosed. Thus as a general matter an overstated finance charge is treated as accurate. The finance charge is defined under section 1026.4 as the cost of consumer credit disclosed as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or condition of the extension of credit. Some examples of finance charges include interest, points and loan fees. The rule did not change the definition of finance charge under TILA.

Because an overstated finance charge is considered accurate, an overstated APR that corresponds directly to an overstated finance charge would be considered accurate and an additional 3 business day waiting period would not be required. So in that case, consummation could proceed as scheduled. But, remember that not every overstatement of an APR is caused by an overstated finance charge. There may be situations where a decrease in APR would trigger a new 3 business day waiting period and consummation would be delayed. For example, if the finance charge was not overstated on the Closing Disclosure but the APR was overstated or decreased after issuance of the Closing Disclosure for reasons unrelated to the finance charge then the creditor would have to evaluate the accuracy of the APR with reference to the APR tolerances and not the finance charge tolerances. Similarly, if the disclosed APR exceeds the APR that directly corresponds to the overstated finance charge the creditor could not rely on the finance charge tolerances.

In both of these examples, if the disclosed APR exceeded the actual APR by more than 1/4 or 1/8 of a percentage point, it would be inaccurate under section 1026.22 and redisclosure with a new 3 business day waiting period is required by TILA. Don’t forget that there’s an additional APR tolerance for mortgage loans at section 1026.22(a)(5) which provides that an overstated or understated APR may also be accurate if the disclosed APR is closer to the actual APR than an APR calculated based on the disclosed finance charge would be. I would also note that in the August 2014 webinar we discussed APR accuracy under section 1026.22 and changes before consummation requiring an additional 3 business day waiting period under section 1026.19(f)(2)(ii). I encourage our listeners to review those materials…”

Another question addressed in the webcast discussed having a negative amount for the owner’s title insurance policy, particularly where there is a discount for simultaneous issuance of the owner’s and lender’s title policies. In these cases, TRID’s formula for disclosing the owner’s title insurance premium can yield a negative number. This is a question that has caused problems for many credit unions and while the CFPB informally and verbally clarified that disclosing a negative number is acceptable, there was no formal guidance on this point – until Tuesday. Here’s the question with an unofficial transcript of the answer:

“Q7: The calculation of the owner’s title policy premium in accordance with the rule might result in a negative number. Does the creditor disclose this negative number for the owner’s title policy on the Loan Estimate and Closing Disclosure?

Yes. In this case, the creditor discloses the premium for the owner’s title insurance policy as a negative number.  When the simultaneous issuance rate or discount is used, mostly in purchase transactions, the cost of an owner’s title insurance policy is disclosed as the incremental cost of that owner’s title insurance beyond the standard non-discounted cost of the lender’s title insurance policy. Comment 37(g)(4)-2 states that the owner’s title insurance premium is calculated by taking the full owner’s title insurance premium, adding the simultaneous issuance premium for the lender’s coverage and then deducting the full premium for lender’s coverage. We’ve previously discussed in detail how a creditor calculates these premiums in the May 2015 webinar which I encourage our listeners to revisit.

The calculation of the premium for the owner’s title policy as required under the rule may result in a negative number. When this occurs, the creditor discloses a negative number as the incremental cost of the owner’s title insurance policy. When disclosed in this fashion, the disclosure conveys to the consumer that it is less expensive to purchase both owner’s title insurance and lender’s title insurance together than it is to purchase just lender’s title insurance by itself.  There are no provisions in Regulation Z that would prohibit the cost of owner’s title insurance from being disclosed as a negative number. “

Other questions address topics like calculating the Total Interest Percentage, making certain flood insurance premium disclosures, disclosing transferred escrow funds in a refinance transaction, providing the seller’s Closing Disclosure, disclosing seller-paid costs including real estate fees, and handling principal curtailments. We’ll highlight a couple of these other questions in a future blog post.

***

FLSA: Information You Need to Know

Live Webcast, Wednesday, April 20 | 2:00 p.m. – 3:30 p.m. EST

 Part of the Human Resources Webcast Series

The Fair Labor Standard Act (FLSA) is a tricky field than many suspect, with many rules and regulations involved. Join this informative webcast to ensure that you’re correctly classifying your staff and understanding all aspects of the law fully. You’ll cover upcoming regulations and how they impact your credit union. You’ll also explore claims and lawsuits, exemption categories and learn best practices. Gain a better understanding of FLSA and explore ideas to implement at your credit union.

Deconstructing TRID’s Application to Construction Loans: Disclosing AP Table in Single Combined Disclosures; BSA Webcast Series

Written by Shereefat Balogun, Regulatory Compliance Counsel

It has been over five months since the implementation of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rules, yet many credit unions are still worried about disclosure requirements, particularly as they apply to construction-to-permanent loans. One issue that credit unions have had questions about is the Adjustable Payment Table under §1026.37(i) and how it should be completed if a construction-to-permanent loan is disclosed as a single transaction with one set of disclosures. Some have had some confusion as to whether the table is even required in every circumstance.

Generally, the “Adjustable Payment Table” (the “AP Table”) described in 1026.37(i) is only required if the periodic principal and interest payment may change after consummation based on a loan term other than a change to the interest rate, or the transaction contains a seasonal payment product feature. If the transaction does not include either of these loan terms, then the table should not be disclosed on the Loan Estimate.

If the creditor is required to disclose the AP Table because the periodic principal and interest payment will change after consummation, for reasons other than a change to the interest rate, or if the transaction contains a seasonal payment feature, then Section 1026.37(i)(1) through (4) requires a creditor to disclose on the Loan Estimate the periods during which the following features will be in effect: (i) interest only; (ii) optional payment; (iii) step payment; and (iv) seasonal payment product features. The periods required to be disclosed should be disclosed by describing the number of payments counting from the first periodic payment due after consummation.

In the context of a construction-to-permanent loan, if the creditor chooses to disclose this loan as a single transaction with one set of disclosures, the AP Table must be disclosed. Note that, in the construction phase of this loan, the borrower will typically make interest-only payments. Once the construction phase is complete and the permanent phase starts, the borrower will transition into making regular periodic principal and interest payments. Accordingly, with construction-to-permanent loans transactions, there will always be a payment change after consummation that will not be based on a change to the interest rate.

When a creditor elects to disclose a construction-to-permanent loan as a single transaction, the AP table is disclosed pursuant to §1026.37(i), with particular adherence to §§1026.37(i)(1) and (5). The rule provides in relevant part:

(i) Adjustable payment table. If the periodic principal and interest payment may change after consummation but not based on an adjustment to the interest rate, or if the transaction is a seasonal payment product as described in paragraph (a)(10)(ii)(E) of this section, a separate table under the master heading “Closing Cost Details” required by paragraph (f) of this section and under the heading “Adjustable Payment (AP) Table” that contains the following information and satisfies the following requirements:

(1) Interest only payments. Whether the transaction is an interest only product pursuant to paragraph (a)(10)(ii)(B) of this section as an affirmative or negative answer to the question “Interest Only Payments?” and, if an affirmative answer is disclosed, the period during which interest only periodic payments are scheduled.

…

(5) Principal and interest payments. Under the subheading “Principal and Interest Payments,” which subheading is immediately preceded by the applicable unit-period, the following information:

(i) The number of the payment of the first periodic principal and interest payment that may change under the terms of the legal obligation disclosed under this paragraph (i), counting from the first periodic payment due after consummation, and the amount or range of the periodic principal and interest payment for such payment, labeled “First Change/Amount”;

(ii) The frequency of subsequent changes to the periodic principal and interest payment, labeled “Subsequent Changes”; and

(iii) The maximum periodic principal and interest payment that may occur during the term of the transaction, and the first periodic principal and interest payment that can reach such maximum, counting from the first periodic payment due after consummation, labeled “Maximum Payment.”

12 CFR 1026.37(i)(1) and (5)(emphasis added).

As way of illustration, if the interest-only period during the 12-month construction phase has a rate that adjusts monthly, in disclosing whether there are interest-only payments as required under §1026.37(i)(1), the creditor should state “yes for your first 12 months”. Moreover, under §1026.37(i)(5)(i), the monthly principal and interest payments disclosure labeled “First Change” or “Amount” must disclose the range of minimum and maximum payments that will be made at the second payment.

Note that this general rule applies whether the construction and permanent phases have fixed rates or adjustable rates, or one phase is fixed and the other is adjustable. The key is to remember that the loan is considered a single transaction; and within that single transaction there is a change in payment after consummation as a result of the transition from construction to permanent, which therefore requires the AP Table and the corresponding disclosures under Section 1026.37(i).

On a final note, many creditors have criticized the CFPB for its lack of clear guidance on TRID’s application to construction loans and specifically cite the absence of sample forms and minimal reference to construction loans in the commentary. While some credit unions have considered whether to continue offering construction loans, TRID and Regulation Z's disclosure requirements and guidance generally apply to covered construction loans, except where otherwise mentioned. This is the case even if the guidance or rule provision is not directly on construction loans. And of course, for NAFCU members, if you have any questions on any specific disclosure requirements, please feel free to contact NAFCU’s Regulatory Compliance team, and we would be happy to address any of your specific concerns.

###

BSA: Reports & Training for CU Boards

Live Webcast: Tuesday April 19 | 2:00 p.m. – 3:30 p.m. EST

Part of the BSA Webcast Series

It’s vital to understand the roles and responsibilities of credit union board members regarding the Bank Secrecy Act (BSA). Attend this webcast to understand your board’s BSA duties such as risk assessments, policy reviews, and updates, as well as recommended additional training needs. You’ll also get tips for in-house training and learn how to properly report SARs to your board.

Takeaways from Regulatory Compliance School; CFPB’s Cordray Testifies and the Bureau Announces New TRID Webcast

Written by Brandy Bruyere, Director of Regulatory Compliance

Last week, NAFCU’s regulatory compliance team spent the week on site at our 2016 Regulatory Compliance School, an intense week of education and training on a variety of topics. For those who attended this year, I want to thank you again for coming and applaud all of our attendees for the hard work they put into this challenging, long, but rewarding week. I also extend my congratulations to all those who earned their NAFCU Certified Compliance Officer (NCCO) designation at the conference, or who will earn their NCCO in the near future by completing testing back at their credit union.

Here are a few takeaways from School this year:

• Compliance continues to be a challenging role as credit unions face regulatory burden as new rules continue to be proposed and implemented. Networking with colleagues can be helpful for building additional tools and resources for tackling new issues as they arise.
• Upcoming compliance implementation deadlines promise to pose some difficulties, including the Military Lending Act’s impending October 3, 2016 deadline (October 3, 2017 for credit cards), the overhaul of HMDA rules, and upcoming regulations on prepaid cards and mortgage servicing.
• Lending rules in general continue to present complex regulatory issues for credit unions with some choosing to have staff specialize in this area of compliance.
• Cybersecurity continues to be a dynamic area of risk that will likely remain a high priority for regulators for the foreseeable future.

Director Cordray Testifies, CFPB Announces TRID Webcast. While we were attending School, on Wednesday, March 16 the CFPB’s Director Richard Cordray testified before the House Financial Services Committee. Director Cordray discussed many topics and addressed numerous questions from members of Congress. For example, the director confirmed that a final rule on prepaid cards should still be expected sometime this spring. Director Cordray also addressed TRID and indicated that for the time being, the hold harmless period for these rules is indefinite. Also on March 16, and probably not coincidentally, the CFPB announced yet another upcoming TRID webcast that will cover “Frequently Asked Questions.” The webcast is scheduled for Tuesday, April 12 from 2:00 until 3:00 EST. So far, the exact topics or questions that will be addressed are unknown.

For now, webcasts are the Bureau’s preferred method of providing guidance on TRID, although it would be great if the CFPB would offer clarification in writing instead. Past webcasts have offered a few insights into the rule’s ambiguities so continuing to add to the webcasts this is a start. Stay tuned to this blog for another edition of “We Watched So You Don’t Have To” where we’ll sum up some of the highlights of the April 12 webcast.

Class Photo - Finally, here is our group photo from this year's Regulatory Compliance School!

We Listened So You Don’t Have To: Know Before You Owe Mortgage Disclosure Rule – Construction Lending Webcast, Part 2 of 2

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

On March 2, we blogged about the CFPB’s TRID Construction Lending webcast and the clarification it provided regarding disclosure of construction holdbacks. We also promised to tell you  about additional lessons we learned.

Guidance Regarding Estimating Unknown Fees and Costs During the Draw Period

NAFCU has received member questions about how credit unions are supposed to estimate draw fees and inspection costs which may arise during the draw period. Often these are unpredictable and rely on the pacing of construction. While the CFPB did not offer a concrete response, they did give guidance on estimating these fees that is a little more based in fact that what we have had previously. The webcast posed this question:

“Q25: How does a creditor disclose inspection and draw fees when the creditor does not know how many draws there will be?”

The CFPB’s analysis is still a good faith analysis; no surprise there. Under section 1026.19(e)(1)(i), costs estimated on a loan estimate must be made in good faith:

Ҥ1026.19 Certain mortgage and variable-rate transactions.

(e) Mortgage loans secured by real property—early disclosures—

[…]

(1) Provision of disclosures—

[…]

(i) Creditor. In a closed-end consumer credit transaction secured by real property, other than a reverse mortgage subject to §1026.33, the creditor shall provide the consumer with good faith estimates of the disclosures in §1026.37.”

The commentary to section 1026.19(e)(1)(i) defines good faith with regard to Loan Estimates by referencing section 1026.17(c)(2)(i) and its commentary. According to comment 19(e)(1)(i)-1, good faith requires that where information necessary for an accurate disclosure is unknown, the credit union makes disclosures based on the best information reasonably available to it at the time. The information “reasonably available” at the time is the information obtained after an exercise of due diligence by the credit union to determine the fee. Comment 19(e)(1)(i)-1 also specifically references comment 17(c)(2)(i)-1 for further explanation of the standard. The text of comment 17(c)(2)(i)-1 is below:

“Paragraph 17(c)(2)(i)

1. Basis for estimates. Except as otherwise provided in §§1026.19, 1026.37, and 1026.38, disclosures may be estimated when the exact information is unknown at the time disclosures are made. Information is unknown if it is not reasonably available to the creditor at the time the disclosures are made. The “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. For example, the creditor must at a minimum utilize generally accepted calculation tools, but need not invest in the most sophisticated computer program to make a particular type of calculation. The creditor normally may rely on the representations of other parties in obtaining information. For example, the creditor might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, or to realtors for taxes and escrow fees. The creditor may utilize estimates in making disclosures even though the creditor knows that more precise information will be available by the point of consummation. However, new disclosures may be required under §1026.17(f) or §1026.19. For purposes of §1026.17(c)(2)(i), creditors must provide the actual amounts of the information required to be disclosed under §§1026.37 and 1026.38, pursuant to §1026.19(e) and (f), subject to the estimation and redisclosure rules in those provisions.” (Emphasis added.)

The comment provides some good factual examples of due diligence, none of which are on point for a construction scenario…which brings us to the central question: What is due diligence for estimating these unpredictable construction-related fees?

In the webcast, the CFPB suggested credit unions base their estimates of these construction-related fees on previous transactions that were similar in terms of structure and scope. Hopefully, by using previous transactions as a benchmark, credit unions can feel a little more comfortable that their estimates in the LE are reasonable, good faith estimates. Of course, these estimates have further significance for a credit union; they matter in the context of the good faith determination of the Closing Disclosure. But, unfortunately, the webcast did not cover the Closing Disclosure. We will have to wait for further guidance from the CFPB regarding the other half of TRID.

The webcast will be posted here once it is available. If you wish to check out the webcast yourself, I strongly recommend reviewing the presentation slides for questions of particular interest, and then fast-forwarding to that slide for further explanation.

We Listened So You Don’t Have To: Know Before You Owe Mortgage Disclosure Rule – Construction Lending Webcast, Part 1 of 2

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

The CFPB’s TRID Construction Lending webcast ran long, did not cover Closing Disclosures at all and was, frankly, a bit of a slog.

So, let me start by saying: You’re welcome.

But even docking points for reading directly from the regulation, the webcast was very helpful in that it answered a couple burning questions about the construction loans and the Loan Estimate. So what did we learn?

Construction Holdbacks Can Be Disclosed As “Other” Costs In Box H!

NAFCU has received multiple member questions about construction holdbacks (i.e., a portion of the loan which will not be disbursed until a later time) and how they should appear on the Loan Estimate. There is no direct guidance in the rules or the commentary on this issue, but the CFPB offered their analysis of the question. In the webcast, they posed the below question:

“Q26: How may a creditor disclose a construction holdback on the Loan Estimate?”

To begin with, the CFPB stated that the Loan Estimate should reflect the terms of the legal obligations created by the loan agreements involved. The CFPB stated that, as an amount contracted to be paid to a person other than the creditor, this can be listed as a line item under “other” costs pursuant to 12 C.F.R. § 1026.37(g)(4):

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

For each transaction subject to §1026.19(e), the creditor shall disclose the information in this section:

[...]

(g) Closing cost details; other costs. Under the master heading “Closing Cost Details,” in a table under the heading “Other Costs,” all costs associated with the transaction that are in addition to the costs disclosed under paragraph (f) of this section. The table shall contain the items and amounts listed under six subheadings, described in paragraphs (g)(1) through (6) of this section.

[...]

(4) Other. Under the subheading “Other,” an itemization of any other amounts 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 closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.” (Emphasis added.)

The amount can be listed in Box H of the Loan Estimate and labeled “Construction Holdback,” or by some other term which clearly and conspicuously reflects the purpose of the proceeds.

Surprise Twist: Alternatively, Construction Holdbacks Can Also Be Disclosed In Cash To Close!

The CFPB offered an alternative method of disclosing holdbacks in question 27: allowing the amount to be factored into the Calculating Cash to Close table. You have to walk through the rule a bit to see how this can be done; it isn’t intuitive. We begin with what is included as “closing costs to be financed” in section 1026.37(h)(1)(ii):

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

[...]

(h) Calculating cash to close—

(1) For all transactions. 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) Closing costs to be financed. The amount of any closing costs to be paid out of loan proceeds, disclosed as a negative number, labeled “Closing Costs Financed (Paid from your Loan Amount)”;” (Emphasis added.)

Straightforward enough…but not quite on point. But let’s look at the commentary to 37(h)(1)(ii) which advises how to calculate “closing costs financed:”

“37(h)(1)(ii) Closing costs financed.

1. Calculating amount. The amount of closing costs financed disclosed under §1026.37(h)(1)(ii) is determined by subtracting the estimated total amount of payments to third parties not otherwise disclosed pursuant to §1026.37(f) and (g) from the total loan amount disclosed pursuant to §1026.37(b)(1). If the result of the calculation is a positive number, that amount is disclosed as a negative number under §1026.37(h)(1)(ii), but only to the extent that it does not exceed the total amount of closing costs disclosed under §1026.37(g)(6). If the result of the calculation is zero or negative, the amount of $0 is disclosed under §1026.37(h)(1)(ii).” (Emphasis added.)

The CFPB suggests by including the construction holdback as one of these “payments to third parties not otherwise disclosed,” there is a cascading effect on the remainder of the cash to close table, which will result in an accurate disclosure. The calculation of the closing costs to be financed in section 1026.37(h)(1)(ii) affects the calculation of the “funds to the borrower” in section 1026.37(h)(1)(v). The end result, according to the CFPB, is that the cash to close box will accurately reflect the amounts the parties are actually responsible for at closing as a result of the loan agreement and the parties’ legal obligations.

We will blog again about other lessons learned in the near future. The webcast will be posted here once it is available. If you wish to check out the webcast yourself, I strongly recommend reviewing the presentation slides for questions of particular interest, and then fast-forwarding to that slide for further explanation.

CFPB Makes Minor Fix to TRID Guidance: Prepaid Taxes Tolerance Controversy Laid to Rest

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

Many NAFCU members have emailed the Regulatory Compliance Team about which TRID tolerance applies to pre-paid property taxes, HOA dues and condominium fees. The answer has been “There’s a controversy about that.”

In order to clarify the question, on February 10, 2016, the CFPB issued an amendment the 2013 Preamble to the TRID rules. It added the word “not” where it should have been. They did not amend the rule itself or its commentary.

Between the Preamble to the amendment, which clarifies the CFPB’s position, and the correction itself, the CFPB has now provided enough winks and nudges that credit unions can feel secure that taxes, HOA dues and condominium fees are probably not subject to any tolerances. Of course, that’s not a substitute for a clearly written rule.

The Problem

The good faith determination in TRID sets a general rule of zero tolerance for any increase in closing costs between the Loan Estimate and the Closing Disclosures. See 12 C.F.R. § 1026.19(e)(3)(i). Any increase beyond the tolerance must be cured, i.e. paid out of the lender’s pocket, to avoid a bad faith violation. The regulation identifies several specific types of charges are either subject to a tolerance of 10% increase or are subject to no tolerance at all, meaning any increase is acceptable. See section 1026.19(e)(3)(ii)-(iii).

According to 19(e)(3)(iii), the charges not subject to any tolerance at all include:

1. Prepaid interest;
2. Property insurance premiums;
3. Amounts placed into an escrow impound, reserve, or similar account;
4. Charges paid to third-party service providers selected by the consumer…that are not on the list provided…; and
5. Charges paid for third-party services not required by the creditor. These charges may be paid to affiliates of the creditor.

Conspicuously absent from this list is property taxes that must be paid at closing but are not being paid into an escrow account, HOA fees and condominium fees. Because these amounts are not included in either the list of charges subject to 10% tolerance charges or the list of charges not subject to a tolerance at all, they were technically subject to a 0% tolerance under the rules as written.

There was no clarifying information in the commentary, but the 2013 Preamble stated:

“The final rule also mirrors current Regulation X in that property insurance premiums, property taxes, homeowner's association dues, condominium fees, and cooperative fees are subject to tolerances whether or not they are placed into an escrow, impound, reserve, or similar account.”

As written, the statement inaccurately describes Regulation X, as it does not subject these amounts to tolerances, and the CFPB's own rule. Further, as written, the Preamble appears to confirm that prepaid property taxes, HOA fees and condominium fees should be subject to tolerances.

Reportedly, the CFPB informally told institutions that the Preamble should have said “are not subject to tolerances,” but a typographical error was made. It also stated informally that it viewed these amounts as “charges paid for third-party services not required by the creditor.” Not surprisingly, many institutions questioned what lender would not require full payment of property taxes, HOA fees or condominium fees on collateral before making a loan secured by that collateral.

Nonetheless, most credit unions were put into a position of either following unofficial, informal guidance reported through third-parties or following the letter of the regulation and paying to “cure” violations where taxes, HOA fees and condominium fees were underreported at the time of the Loan Estimate.

The Fix

To fix this problem, the CFPB declined to add an additional category of fees not subject to tolerance under section 1026.19(e)(3)(iii) or to add commentary clarifying that property taxes, HOA fees and condominium fees are examples of “third-party services not required by the creditor.” Instead, it chose to amend the 2013 Preamble to add the word “not” where it should have been. The result is that the 2013 Preamble correctly states the CFPB’s intention that these amounts should not be subject to any tolerance, as is the case with Regulation X.

More importantly, the Preamble to the correction clearly identifies these amounts as “charges paid for third-party services not required by the creditor,” and therefore not subject to any tolerance:

Section 1026.19(e)(3)(iii) is titled “Variations permitted for certain charges” and lists certain charges—including property insurance premiums, “[a]mounts placed into an escrow, impound, reserve, or similar account,” and “[c]harges paid for third-party services not required by the creditor”—in the category of charges not subject to tolerance. ^[3] Property taxes, homeowner's association dues, condominium fees, and cooperative fees are all “[c]harges paid for third-party services not required by the creditor.”

It may not be the ideal solution and the logic may not be perfect, but it is nice to have one TRID controversy put to rest with real guidance credit unions and examiners can point to. NAFCU members still struggling with TRID can always email the NAFCU Regulatory Compliance Team at [email protected].

Consumer Compliance Outlook – New Flood Insurance Requirements; CFPB Assists with Application of TRID to Construction Loans; Regulatory Affairs Webcast: Update from Washington; Programming Note

Written by Shereefat Balogun, Regulatory Compliance Counsel

Consumer Compliance Outlook. The Third/Fourth Quarter 2015 issue of the Federal Reserve’s Consumer Compliance Outlook is now available. Articles in this issue, which focuses on flood insurance compliance, include:

• Agencies Issue Final Rule for New Flood Insurance Requirements
• Flood Insurance Compliance Requirements

The Editors noted that the issue is devoted to flood insurance compliance because flood insurance requirements regularly appear among the top-cited violations by examiners.

As a reminder, on July 21, 2015 NCUA, along with several other regulators, jointly published a final rule to implement new flood insurance requirements enacted by the Biggert-Waters Flood Insurance Reform Act of 2012 (BWA) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). We previously blogged about the topic earlier here.

Generally, the rule requires that credit unions escrow premiums and fees for flood insurance for loans secured by residential improved real estate or mobile homes that are made, increased, extended or renewed on or after January 1, 2016, unless the credit union or a loan qualifies for a statutory exception.

We receive a lot of compliance questions relating to the statutory exceptions. Generally, our members want to know which loans and which lenders are exempted from the new flood insurance requirements. The rule provides the following exceptions to the escrow requirements:

• The loan is primarily for business, commercial or agricultural purposes;
• The loan is in a subordinate position to a senior lien secured by the same residential improved real estate or mobile home for which the borrower has obtained flood insurance coverage.
• The flood insurance coverage is provided by a policy that meets the requirements of 760.3(a) and is provided by a condominium association, cooperative, homeowners association, or other applicable group as a common expense;
• The loan is a home equity line of credit;
• The loan is a nonperforming loan that is 90 or more days past due; or
• The loan is a term of less than 12 months.

Moreover, the rule includes a “small lender” exception. The rule exempts any credit union with total assets of less than $1 billion (as of December 31^st of either of the two previous calendar years) that, as of July 6, 2012,:

• was not required under federal or state law to deposit taxes, insurance premiums, fees, or any other charges in an escrow account for the entire term of any loan secured by residential improved real estate or a mobile home; and

• did not have a policy of consistently and uniformly requiring the deposit of taxes, insurance premiums, fees, or any other charges in an escrow account for loans secured by residential improved real estate or a mobile home.

The article on Agencies Issue Final Rule for New Flood Insurance Requirements provides an excellent summary of the flood insurance escrow requirements. The issue also contains a resource page with helpful flood insurance links.

***

CFPB Assists with Application of TRID to Construction Loans. Earlier this week, the CFPB published a fact sheet on how construction loans are affected by TILA/RESPA Integrated Disclosure (TRID) rules. The fact sheet notes that construction loans are:

• covered by the “know before your owe” mortgage disclosures unless the loans are open-end transactions or are for a commercial purpose, and
• covered by existing provisions under Regulation Z, including the Loan Estimate and Closing Disclosure rule.

The fact sheet also covers how to disclose a construction loan with permanent financing as either one transaction or more than one transaction.

***

NAFCU Regulatory Affairs Department: Update from Washington

Live Webcast: Thursday, January 28 | 2:00 p.m. – 3:30 p.m. EST

Part of the CFPB/NCUA Webcast Series

The industry’s best Regulatory Affairs team is your direct connection to credit union regulatory updates and rulemakings brought by the CFPB, NCUA and other regulators. Through this webcast you’ll receive an update on what’s new coming out of Washington, and how it could affect your most vulnerable departments. Learn about overdraft, field of membership, the future of payments and other essential topics.

***

Programming Note. NAFCU's office will close at noon today and will also be closed on Monday for the long holiday weekend. We will be back to blogging on Wednesday. Have a great long weekend!

 

TRID AND SCRA

Written by: Eliott C. Ponte, Regulatory Compliance Counsel

TRID Technical Corrections

 Twas the night before Christmas, when all through the regs, only one thing was changing, and that was TRID! 

The CFPB issued a final rule containing technical corrections to the final TILA-RESPA Integrated Disclosure Rule (TRID).  The technical corrections became effective on December 24, 2015, which was the date of its publication in the Federal Register. 

According to the final rule, the “publication of the TILA–RESPA Final Rule in the Federal Register resulted in several unintended deletions of existing regulatory text from Regulation Z and the Official Interpretations (commentary) in the Code of Federal Regulations (CFR) and, in one case, the omission of regulatory language in the TILA–RESPA Final Rule from the CFR.”  The CFPB maintains that the technical corrections are non-substantive changes to TRID, and these changes merely correct accidently deleted or omitted text.  Specifically, the final rule makes the following technical corrections to Regulation Z:

• Amends section 1026.22(a)(5) to restore subparagraphs (i) and (ii).
• Amends the commentary to § 1026.17 at paragraph 17(c)(1)-2 to restore subparagraphs i, ii, and iii.
• Amends commentary paragraph 17(c)(1)-4 to restore subparagraphs i.A, and i.B.
• Amends commentary paragraph 17(c)(1)-10 to restore introductory text and subparagraphs iii, iv, and vi.
• Amends commentary paragraph 17(c)(1)-11 to restore subparagraphs i, ii, iii, and iv.
• Amends commentary paragraph 17(c)(1)-12 to restore subparagraphs i, ii, and iii.
• Amends commentary paragraph 17(c)(4)-1 to restore subparagraphs i and ii.
• Amends commentary paragraph 17(g)-1 to restore subparagraphs i and ii.
• Amends the commentary to § 1026.18 at paragraph 18(g)-4 to restore text to subparagraph i.
• Adds commentary paragraph 7 to Appendix D of Regulation Z, as this was included in the TRID Final Rule but was accidently omitted when codified in the CFR. 

***

Extension of the SCRA’s Post-Service Mortgage Protections Likely

The Servicemembers Civil Relief Act’s (SCRA’s) post-service mortgage protection ensures servicemembers who are serving in the armed forces are protected against losing their home for one year upon his or her return from active duty, if the mortgage was obtained before the servicemember was an active member of the military. Originally, the extension was for 90-days; however, in 2008 Congress voted to extend this protection to nine months.  In 2012, the protection was extended to one year.  As of December 31, 2015, the one-year extension protection expired, and the period of mortgage protection has now reverted to the original 90-days. 

Currently, the Senate introduced and passed bill S. 2393, which would restore the one-year protection through December 31, 2017.  The House is similar bill (H.R. 189) that would restore the one-year protection through December 31, 2016.  While it is not clear which or when any bill will pass, it is likely that some version of the bill will eventually pass. 

***

How to Develop an Enterprise-Wide Risk Management Function

Live Webcast: Wednesday, January 13 | 2:00 p.m. – 3:30 p.m. EST

Learn step-by-step guidelines for creating and executing a best-practice, enterprise-wide risk assessment. This informative webcast will cover essential topics such as: how to develop a risk model, key factors to include in your risk assessment, identifying the potential risks of financial, operational, and IT processes and more. Help ensure you are performing a proper risk assessment for your credit union so you can adequately contain the highest potential risks.

FinCEN Regulatory Impact Assessment on CDD Proposal; CFPB Issues Letter on TRID Enforcement and Liability

Written by Brandy Bruyere, Director of Regulatory Compliance

I hope everyone had a wonderful New Year! After a couple of long holiday weekends, I thought we would start off 2016 with FinCEN/the BSA and a recent development relating to TRID. Remember that time FinCEN proposed explicit customer due diligence requirements for beneficial owners of legal entities? These rules were originally slated to become final this past summer, but so far, FinCEN has not finalized the proposal. According to the Department of Treasury's fall rulemaking agenda, the proposal could be finalized as early as this month but when NAFCU reached out to FinCEN to confirm, an agency spokesperson indicated that they are “still in the comment analysis stage.”

On December 23, FinCEN released its Regulatory Impact Assessment (RIA) for this proposed rule which highlighted costs of the rule compared to benefits “using an upper bound for costs based on estimated and hypothetical values.” Overall, FinCEN concluded that so long as the CDD proposal would reduce illicit by a minimum of 0.57 percent annually between 2016 and 2025, the rule would “achieve [a] positive net benefit.” Here are some noteworthy items from FinCEN’s costs analysis.

Staff time for completing CDD requirements (page 5) - FinCEN estimates that it would require, on average, 20 minutes to fulfill the beneficial ownership identification, verification and recordkeeping requirements in the proposal.

Annual costs to small institutions (page 6) – FinCEN estimates that the proposal “would result in a cost to a small bank of between approximately $2000 and $4000 per year at account opening”

Training (Page 7) – FinCEN said the following about the costs associated with training staff to implement the proposal: “Assuming that a small financial institution has 125 employees and that the training would take one hour, and applying the wage assumptions used in the RIA, this would result in an estimated cost of between $1250 and $2500, depending on the percentage of employees trained, for the first year that the rule would be in effect…The amount of necessary training would decrease thereafter.” (Emphasis added.)

Here is a table provide on page 10 summarizing FinCEN’s estimates for total costs for training across all institutions, in the millions:

Note, the “client” column represents estimated costs to the member due to increased time to open accounts and similar impacts.

Information Technology costs (page 25, footnote)  – FinCEN included some specifics on reported information technology costs associated with the proposal. One large bank estimated IT costs to be about $20 million, a mid-sized bank estimated these costs to range from $3 million to $5 million, and a small credit union estimated its costs would be between $50,000 and $70,000. 

The RIA goes on to explain how the “benefits” of the CDD proposal were evaluated, noting the difficulty in placing a qualitative dollar amount of benefit to compare to costs.

***

CFPB Issues Letter on TRID Enforcement and Liability. In response to a letter from the Mortgage Bankers Association, last week CFPB Director Richard Cordray sent this letter discussing TRID liability. Here are some excerpts with hyperlinks included:

“…As with any change of this scale, despite the best of efforts, there inevitably will be inadvertent errors in the early days. That is why the Bureau and other regulators have made clear that our initial examinations for compliance with the rule will be sensitive to the progress industry has made…All of the regulators have indicated that their examinations for compliance in the first few months of implementing [TRID] will be corrective and diagnostic, rather than punitive…

[…]

In addition to the cure provisions contained in the rule the Truth in Lending Act itself contains provisions for the correction of errors. These provisions continue to apply to the integrated disclosures. For example, TILA has long permitted creditors to cure violations, provided the creditor notifies the borrower of the error and makes appropriate adjustments to the account before the creditor receives notice of the violation from the borrower. 15 U.S.C. 1640(b). Similarly, TILA contains an exception from liability for unintentional errors, subject to certain conditions. 15 U.S.C. 1640(c).

Furthermore, while [TRID] does integrate the TILA disclosures with the disclosures required under [RESPA], it did not change the prior, fundamental principles of liability under either TILA or RESPA. Therefore, for non-high-cost mortgages:

There is no general TILA assignee liability unless the violation is apparent on the face of the disclosure documents and the assignment is voluntary. 15 U.S.C. 1641(e).

By statute, TILA limits statutory damages for mortgage disclosures, in both individual and class actions to failure to provide a closed-set of disclosures. 15 U.S.C. 1640(a).

Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class action damages in 15 U.S.C. 1640(a).

The listed disclosures in 15 U.S.C. 1640(a) that give rise to statutory and class action damages to not include either the RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.

[…]

Accordingly, the Bureau believes that if investors were to reject loans on the basis of formatting and other minor errors, as you indicate has been occurring, they would be rejecting loans for reasons unrelated to potential liability associated with [TRID]…”

The full letter is available here:  CFPB response to MBA TRID letter

NAFCU continues to call on the CFPB to provide greater clarity on TRID. While this clarification on the scope of TRID liability is a step in the right direction, NAFCU hopes that the CFPB will follow this course into 2016 by more proactively resolving ambiguities raised by the industry in official guidance.

Palate Cleanser. We took Nolan to Ohio for the holidays, he had a great time. He also got to see first hand how in mommy's hometown, tractors are much more versatile than here in the DC suburbs - they can take you to the local convenience store! In a somewhat related note, my high school alma mater's annual tradition made the local news last spring, when I shared it with some folks here in DC they thought it was an article from The Onion but nope, this is a real news story about "drive your tractor to school" day. Enjoy!

TILA/RESPA Implementation: “Piggyback” Loans or “Simultaneous Second” Liens

Written by Victoria Daka, Regulatory Compliance Counsel

Now that we are a couple of weeks strong in TRID implementation, some of the complexities of the rule appear to manifest themselves in application. Well, NAFCU’s compliance team is here to help.

In the past few weeks, we have been receiving quite a few questions from members about “piggyback” loans or “simultaneous second” liens under the TRID rule.

While the CFPB has not come out and clarified how to handle fees associated with a “simultaneous second” mortgage that is open-end, it may be helpful to keep in mind that these are separate transactions. In one of its webcasts clarifying some sections of TRID, the CFPB staff discussed “simultaneous seconds,” noting that the “alternative Loan Estimate” could be used for simultaneous closed end second loans.

 It seems that the Bureau does recognize that these “piggyback” transactions are separate transactions. While this guidance is rather clear in regards to the closed-end loan scenario, unfortunately we are not aware of any clear guidance from the Bureau on open-end piggyback loans. Credit unions are concerned about the “other costs” disclosure described in section 1026.37(g), which I’ll include here for reference:

 “(g) Closing cost details; other costs. Under the master heading “Closing Cost Details,” in a table under the heading “Other Costs,” all costs associated with the transaction that are in addition to the costs disclosed under paragraph (f) of this section. The table shall contain the items and amounts listed under six subheadings, described in paragraphs (g)(1) through (6) of this section.

 […]

 (4) Other. Under the subheading “Other,” an itemization of any other amounts 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 closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.

(i) For any item that is a component of title insurance, the introductory description “Title —” shall appear at the beginning of the label for that item.

(ii) The parenthetical description “(optional)” shall appear at the end of the label for items disclosing any premiums paid for separate insurance, warranty, guarantee, or event-coverage products.

(iii) The number of items disclosed under this paragraph (g)(4) shall not exceed five.”

(emphasis added)

 If these are viewed as separate transactions, then arguably the fees that are associated with the second transaction are not “in connection with the transaction,” but understandably, credit unions have also noted that these fees are known at the time of application. In other words, the two transactions are linked in terms of allowing the member to consummate the loan, and the TRID rule’s overarching goal is for consumers to have as much information as possible from the Loan Estimate to, theoretically, promote knowledgeable loan shopping.

 Meanwhile, section 1026.40 requires that fees are disclosed in connection with a HELOC transaction. So these same fees should be disclosed in accordance with other requirements in Regulation Z, including the open-end credit disclosures and section 1026.40. This could mean that the fees could be disclosed twice if disclosed as part of both the closed-end loan and the open-end piggyback loan.

Credit unions can look to the available guidance and commentary and make a risk-based decision as to how to comply for the purposes of these loans. Credit unions should consider in part whether their chosen method would constitute a “good faith effort” towards “substantial compliance” as NCUA has indicated that this is what it will look for in the first round of exams post-TRID.

CFPB Letter on TRID Compliance

Written by Brandy Bruyere, Director of Regulatory Compliance

By now, October 3^rd has come and gone and we officially are operating in a post-TRID world. In the early days of implementation, keep in mind that NAFCU’s compliance team is here to help our members.

Despite reports of a possible “hold harmless” period based on questions asked of CFPB Director Richard Cordray during his testimony before the House Financial Services Committee, on Friday the Bureau issued a press release referencing a letter sent to industry on TRID compliance. This letter and press release reiterate past statements from the Bureau and mirror information provided by NCUA back in March.

Here’s an excerpt from the TRID Letter:

“The member agencies of the FFIEC recognize that the mortgage industry has needed to make significant systems and operational changes to adjust to the requirements of the Rule, and that implementation requires extensive coordination with third parties. We recognize that the mortgage industry has dedicated substantial resources to understand the requirements, adapt systems and train affected personnel, and that additional technical and other questions are likely to be identified once the new forms are used in practice after the effective date.

During initial examination for compliance with the Rule, the agencies’ examiners will evaluate an institution’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance…Specifically, examiners will consider: the institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and, its handling of early technical problems or other implementation challenges.”

(Emphasis added)

This indicates that in these early days, how your credit union responds to the issues that arise will be part of this consideration of whether the credit union made “good faith” efforts to comply in a substantial manner.

The letter goes on to indicate that the process will be “similar” to the approach taken when the Dodd-Frank mortgage servicing rules became effective in January, 2014.

Credit unions have been working diligently to comply with TRID and tackle its challenges and ambiguities. Still, this seemed to capture the sentiment of receiving this 11th hour press release:

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Hang Up that Auto Dialer! Understanding the Risks of the TCPA

Live Webcast: Thursday, October 8 | 2:00 p.m. – 3:30 p.m. EST

The Telephone Consumer Protection Act (TCPA) can affect your methods of reaching members via their mobile device, especially with an automated calling program. Attend this webcast to help avoid enforcement action and consumer litigation. You’ll learn the key elements of the TCPA, the impact of the recent FCC ruling on autodialing, and how your credit union can properly manage an automated member contact. 

Last Call Before the TRID Overhaul: Disclosing Lender Credits

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

It is almost upon us. On Saturday, the CFPB’s long-looming TRID rules actually go into effect. As credit unions prepare to use the new forms in actual transactions, the practical complexities and ambiguities of the rules are crystalizing before us. Your NAFCU Regulatory Compliance Team is fielding all your last-minute TRID clarifications, and one that keeps popping up again and again is lender credits. Below is a summary of the language in the comments and Preamble to clarify how to disclose lender credits.

Lender Credits and the Loan Estimate

Section 1026.37(g)(6)(ii) requires that the amount of lender credits be disclosed as a negative number, but the details of disclosing lender credits are largely described in the Preamble and the Official Interpretations. In order to determine what might be considered a “lender credit” the commentary to 1026.37 points you to the commentary to 1026.19. Specifically, comment 1026.19(e)(3)(i)-5 describes that lender credits come in two forms: general and specific:

 “Lender credits,” as identified in § 1026.37(g)(6)(ii), represents the sum of non-specific lender credits and specific lender credits. Non-specific lender credits are generalized payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided pursuant to § 1026.19(e)(1). 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.

With that clarifying detour out of the way, we can return to section 1026.37(g)(6)(ii) on how to complete the form. Comment 1026.37(g)(6)(ii)-1 confusingly describes all lender credits disclosed in the form as general credits, but then Comment 1026.37(g)(6)(ii)-2 clarifies that specific credits should be disclosed in the same box as well:

For loans where a portion or all of the closing costs are offset by a credit or rebate provided by the creditor (sometimes referred to as “no-cost” loans), whether all or a defined portion of the closing costs disclosed under § 1026.37(f) or (g) will be paid by a credit or rebate from the creditor, the creditor discloses such credit or rebate as a lender credit under § 1026.37(g)(6)(ii).

The lender credits disclosed under section 1026.37(g)(6)(ii) are disclosed in Box J of the Loan Estimate.

Lender Credits and the Closing Disclosure

 So, after some circumnavigation through the commentary, we have determined the general credits and the specific credits are combined in your Loan Estimate. But what to do in the Closing Disclosure? Lender credits must be included in the Closing Disclosure under section 1026.38(h)(3). Comment 1026.38(h)(3)-1 clarifies what to do with specific credits:

When the consumer receives a generalized credit from the creditor for closing costs, the amount of the credit must be disclosed under § 1026.38(h)(3). However, if such credit is attributable to a specific loan cost or other cost listed in the Closing Cost Details tables, pursuant to § 1026.38(f) or (g), that amount should be reflected in the Paid by Others column in the Closing Cost Details tables under § 1026.38(f) or (g). For a description of lender credits from the creditor, see comment 17(c)(1)-19. For a discussion of general lender credits and lender credits for specific charges, see comment 19(e)(3)(i)-5.

So while both specific and general lender credits are entered into Box J on the Loan Estimate, only general lender credits are entered into Box J on the Closing Disclosure. Specific lender credits are itemized in the Closing Disclosure in the “Paid by Others” column. Of course removing specific credits from the lender credits will reduce the total in Box J as compared to the Loan Estimate. Regarding a good faith analysis, Comment 1026.19(e)(3)(i)-6 gives the following guidance:

For purposes of conducting the good faith analysis required under § 1026.19(e)(3)(i) for lender credits, the total amount of lender credits, whether specific or non-specific, actually provided to the consumer is compared to the amount of the “lender credits” identified in § 1026.37(g)(6)(ii). The total amount of lender credits actually provided to the consumer is determined by aggregating the amount of the “lender credits” identified in § 1026.38(h)(3) with the amounts paid by the creditor that are attributable to a specific loan cost or other cost, disclosed pursuant to § 1026.38(f) and (g).

Lender Credits and Revisions

Lender credits get zero tolerance for decreases under section 1026.19(e)(3) because both general and specific lender credits are negative charges to the consumer. Comment 1026.19(e)(3)(i)-5 states that decreasing the lender credit is the equivalent of increasing a charge to the consumer. Comment 5 also makes it clear that a lender can increase lender credits to compensate for higher fees as much as they desire, but they cannot lower it.

If a specific lender credit is given in a Loan Estimate, and the cost it is intended to compensate comes in lower than expected, the Commentary and Preamble, page 349 makes it clear that the borrower still must receive that credit somehow:

Under current Regulation X, the loan originator may only apply the amount of the excess lender credits to additional closing costs previously not anticipated to be included in the loan, apply the excess to a principal reduction to the outstanding balance of the loan, pay the consumer the excess in cash, or reduce the interest rate and the credit accordingly. Creditors will be able to take the same actions with respect to lender credits in streamlined refinancing programs under this final rule.

The inability to decrease a lender credit isn’t absolute though. Section 1026.19(e)(iv)(D) clearly contemplates revising a loan estimate with decreased lender credits which result from a rate lock. Further, the Preamble on page 348 states: “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 §1026.19(e)(3)(iv), discussed below, are satisfied.” As long as the decrease in lender credits is related to a valid reason for a revised Loan Estimate under section 1026.19(e)(3)(iv), nothing indicates that loan credits cannot be decreased.

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Do not forget NAFCU members, your NAFCU Regulatory Compliance team is here to help you hash out the last minute details as you implement these rules. Don't hesitate to email us at [email protected].

CFPB Updates Index of TILA/RESPA Webcasts

Written by Brandy Bruyere, Senior Regulatory Compliance Counsel

Happy Friday everyone! A couple of weeks ago, I mentioned that the CFPB recently updated its index of questions addressed in its various TILA/RESPA webcasts to include its fifth and final edition. This week the bureau updated the Questions Index again by sorting the index by subject instead of date and adding links that take you directly to a topically bookmarked version of the webcast.  Here’s an example from the June 17, 2014 webcast (click to enlarge):

 

These are clickable links that will take you to the section of the webcast so you may listen to just that topic, rather than having to pull the entire webcast and scroll through to the approximate time stamp where a question was addressed—or even worse, having to listen to the entire webcast.

In the right hand column, the Questions Index itself lists which of the linked subheadings within a particular webcast contains the discussion of the indexed question. Here is an example of some of the questions addressed in these webcasts:

• What definition of “application” will apply to HELOCs? (May 26, 2015, click “Application” in the left hand column)
• Whether successors-in-interest are considered a “subsequent purchaser” for the purpose of the assumption disclosure? (August 26, 2014, click “scope of the rule” then choose the second question)
• Discussion of the treatment of secondary market Loan-Level Price Adjustments (LLPAs) (October 1, 2014, under the Loan Estimate, P. 2 heading in the right column, click “Loan Costs” then select either of the LLPA questions as applicable)
• Questions relating to anti-deficiency laws (November 18, 2014, click “Closing Disclosure p. 5 then choose from any of the related questions)
• Is an additional 3-business-day waiting period required if the APR decreases by more than 1/4 or 1/8 percentage points? (August 26, 2014, click “Disclosure/Redisclosure Timing—General Rule Requirements” then click this question)

If you do not choose the specific question you would like to listen to within several sections, the link will just start playing that entire section of the webcast for you. While some questions and answers addressed in these webcasts simply restate the commentary, others provide a bit of insight for some more complicated sections of the rules. The index can be a helpful way of determining if the bureau has provided any guidance on an issue that may not seem clear from the rule text, the staff commentary or Preamble to the rule.

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Four Years Young. Our mastiff, Lemmy, is a rescue from the wonderful Washington Animal Rescue League in Washington, DC so we do not know his precise birthday. Their best guess though is that he was born in August, so he is about 4 years old this month. He used to be “little”—in the puppy pictures on the left, he was about 6 months old and 55 pounds. These days, he’s 115-120 lbs. and still has no idea he’s big!

CFPB Issues PMI Guidance and Updates TRID Materials

Written by Eliott C. Ponte, Regulatory Compliance Counsel

CFPB Issues Guidance on Private Mortgage Insurance

The CFPB recently issued a bulletin that provides guidance to mortgage servicers regarding the cancellation and termination of private mortgage insurance (PMI).  The CFPB stated it issued the bulletin because it has “identified substantial industry confusion over implementation of the PMI cancellation and termination requirements in the Homeowners Protection Act.”  This statement is consistent with previously released supervisory highlights, which state CFPB examiners have found excessive delays in processing borrower requests for PMI cancellation and improperly handling unearned PMI premiums in violation of the Homeowners Protection Act.  The bulletin attempts to clarify industry “confusion” as it explains PMI requirements and findings the CFPB has made in the course of exercise of its supervisory and enforcement authority under the Homeowners Protection Act. 

 Specifically, the bulletin addresses: (1) borrower-requested cancellation of PMI, which can occur when once an 80% loan-to-value (LTV) threshold is reached (and other conditions are met); (2) automatic termination of PMI, which can occur once an 78% LTV threshold is reached; (3) final termination of PMI (also known as midpoint of the amortization period); (4) PMI refunds, (5) annual PMI disclosures, and (6) investor guidelines.  Credit unions should note that the CFPB bulletin neither imposes new PMI requirements, nor creates any new mortgage servicer responsibilities.  Moreover, the bulletin does not discuss situations where mortgage insurance will never terminate (for instance, a mortgage that is insured by the Federal Housing Administration will remain for the entire life of the loan).  Nevertheless, credit unions reviewing their PMI policies and procedures for compliance may want to refer to this bulletin.  The CFPB PMI Bulletin can be found on the CFPB’s website.

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Updates to the TILA-RESPA Integrated Disclosure Rule Material

Last week the CFPB announced that it updated several TILA-RESPA Integrated Disclosure Rule materials to bring them into alignment with the new effective date of October 3, 2015.  The materials updated include the TILA-RESPA Integrated Disclosure rule small entity compliance guide, the TILA-RESPA Integrated Disclosures Guide to the Loan Estimate and Closing Disclosure forms (also known as the Guide to Forms), and the TILA-RESPA Integrated Disclosures timeline.  Credit unions can access the updated materials on the CFPB’s TILA-RESPA Integrated Disclosure rule implementation website.

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Planning and Implementing Large-Scale Credit Union Collaborations

Live Webcast: Thursday, August 13 | 2:00 p.m. – 3:30 p.m. ET

Two of our industry’s largest service collaborations saved credit unions millions of dollars by improving service, enhancing speed-to-market, and cutting costs.  Kirk Kordeleski helped design both of them.  In this webcast, Kirk will help you add value and lower costs by discussing his collaborative models.  By watching this webcast, you will uncover lessons learned, challenges and opportunities, governance structure discussions and more, all towards making your organization more scalable.  

TRID: Issuing Revised Loan Estimates While Within the Tolerances; July NCUA Report Available

Written by Brandy Bruyere, Senior Regulatory Compliance Counsel

Several weeks ago, I volunteered as tribute and watched the CFPB’s “fifth and final” TILA/RESPA webinar. While the implementation date for the rule is delayed until October 3^rd, compliance efforts continue and several of our members have asked if the rule permits credit unions to provide a revised Loan Estimates solely for “informational purposes” when settlement costs increase, but are still within the applicable tolerance limits. Here is an informal transcript of the CFPB’s webcast guidance on this issue:

“Question: In a scenario where the creditor’s estimate of closing costs changes, but the prior estimate remains “in good faith” for purposes of Section 1026.19(e)(3), is the creditor prohibited from providing the consumer with a revised disclosure?

Answer: No. As stated in comment 19(e)(3)(iv)(A)-1.ii, the rule does not prohibit the creditor from  issuing revised disclosures for informational purposes. When estimates change, section 1026.19(e)(3)(i-iii) determines whether the charges the changes are in good faith. TO be clear throughout this answer the phrase in good faith will refer to this section [of the rule]. Bear in mind that the Loan Estimate is a disclosure to the consumer. The Loan Estimate alone will not indicate whether estimates are in good faith. To determine estimates are in good faith, the creditor must perform the analysis under section 1026.19(e)(3)(i-iii). If the creditor performs that analysis and determines that changed estimates are not in good faith, the in certain circumstances [the rule] may allow the creditor to reset the estimates in order to be in good faith. When resetting the estimates under those circumstances the rule requires the creditor to provide the consumer with a revised Loan Estimate or in certain instances explained in comment 1 to section 1026.19(e)(4)(ii), a Closing Disclosure. But even if the creditor determines that changed estimates remain in good faith the rule does not prohibit the creditor from issuing an updated disclosure reflecting the changed estimates and the creditor has the option of doing so. However keep in mind that in that case, the updated disclosure would not impact the good faith analysis under section 1026.19(e)(3)(i-iii), and that the creditor must have a mechanism for tracking which disclosure controls for the purposes of determining good faith.

Let’s consider an example.  The scenario in comment 19(e)(3)(iv)(A)-1.ii assumes that a creditor previously provided a $400 estimate of title fees. For the purposes of determining good faith, title fees are generally included in the category of fees that in aggregate may not increase by more than 10%. This scenario further assumes that a changed circumstance increases title fees from $400 to $500 and that the sum of all costs subject to the 10% tolerance category has not increased by more than 10%. Under section 1026.19(e)(3)(ii) the prior estimate remains in good faith therefore the rule does not permit the creditor to reset the estimate since the total charges in the 10% tolerance category are still in good faith. However the creditor has the option of providing the consumer with an updated disclosure reflecting the increase in title fees, and when the creditor performs the good faith analysis the actual title fees of $500 may not be compared to the revised estimate of $500. Instead they must be compared to the originally estimated title fees of $400 because the changed circumstances did not cause the sum of all costs in the 10% tolerance category to increase by more than 10%.”

(emphasis added)

For those who also want to know if a webcast will be helpful without having to watch the entire session, there’s good news! The bureau does keep an index of these webcasts, updated in July to reflect the fifth webcast. The index lists the questions were covered by date of webcast along with the approximate timestamp on the webcast that the question was discussed.

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July NCUA Report Available. The July issue of The NCUA Report is available here, covered topics include the proposed changes to the Member Business Loan rule, extension of the interest rate ceiling through March 2017, and NCUA’s approval of voluntary diversity assessment standards.

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Palate Cleanser.

Nolan is not quite crawling, but he certainly rolls quite a bit to get where he wants to go. I suppose child proofing needs to be a priority—and poor Lemmy, he has to share a lot more space lately!

CFPB Finalizes TRID Delay; CFPB and Justice Department Action Against Honda for Alleged Discriminatory Auto Lending Practices; Farewell; Programming Note

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

CFPB Finalizes TRID Delay. Yesterday, the CFPB finalized the delay of the TRID rule until October 3, 2015 and clarified that the delay will also apply to the post-consummation escrow cancellation and mortgage servicing transfer notices. NAFCU noted this ambiguity in the proposal and stressed in our comment letter that this needed to be clarified. Here is the excerpt relating to the post-consummation notices (escrow cancellation, changes to mortgage servicing transfer notice):

“The technical amendments also take effect on October 3, 2015, the same effective date as the TILA-RESPA Final Rule and Amendments. Some commenters specifically asked whether the change in effective date to October 3, 2015, applies to the postconsummation notice requirements including §§ 1026.20(e) and 1026.39(d)(5). As discussed in the TILA-RESPA Final Rule, implementation of the Dodd-Frank Act disclosures in §§ 1026.20(e) and 1026.39(d)(5) becomes mandatory on the effective date, now October 3, 2015. As discussed further in part VII below, the portions of this final rule related to the delay in the effective date to October 3, 2015, are effective immediately upon publication in order to move the effective date for the TILA-RESPA Final Rule and Amendments and the amendatory instruction discussed in note 4 from August 1, 2015 to October 3, 2015. As a result of this final rule, the provisions of the TILA-RESPA Final Rule and Amendments, as well as the technical amendments and corrections made in this final rule, are not effective immediately upon publication, but on October 3, 2015.” (Emphasis added)

The Bureau also rejected requests for a “formal grace period or dual compliance period” meaning early compliance with the rule is still not permitted.

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CFPB and Justice Department Action Against Honda for Alleged Discriminatory Auto Lending Practices. Last week, the CFPB and Department of Justice (DOJ) announced a settlement to resolve alleged discriminatory auto lending practices by American Honda Finance Corporation (Honda) against African-American, Hispanic and Asian/Pacific borrowers. The CFPB’s press release and the consent order between the CFPB and Honda are available here and here, respectively. Honda’s settlement with the DOJ is subject to court approval, and the DOJ has filed a complaint and proposed order in the U.S. District Court for the Central District of California.

The action focuses on indirect auto lending practices, specifically dealer markups. According to the consent order, Honda permitted dealers to mark-up consumers’ interest rates by as much as 2.25 percent for contracts with terms of 60 monthly payments or less, and 2 percent for contracts with greater than 60 monthly payments. However, the allegations are that as a result of its dealer discretion pricing policies, Honda charged borrowers higher interest rates because of their race or natural origin, and not because of the borrowers’ creditworthiness or other objective credit risk criteria.

From the DOJ’s press release:

“The United States’ complaint alleges that the average African-American victim was obligated to pay over $250 more during the term of the loan because of discrimination, the average Hispanic victim was obligated to pay over $200 more during the term of the loan because of discrimination and the average Asian/Pacific Islander victim was obligated to pay over $150 more during the term of the loan because of discrimination. The Equal Credit Opportunity Act (ECOA) prohibits such discrimination in all forms of lending, including auto lending.”

Under the CFPB order, Honda must substantially reduce or eliminate entirely dealer discretion; pay $24 million in damages for consumer harm; and administer and distribute funds to victims. I thought this excerpt from the CFPB’s press release, regarding dealer discretion, was of interest:

“Honda will reduce dealer discretion to mark-up the interest rate to only 1.25 percent above the buy rate for auto loans with terms of 5 years or less, and 1 percent for auto loans with longer terms. Honda also has the option under the order to move to non-discretionary dealer compensation. The Bureau did not assess penalties against Honda because of Honda’s responsible conduct, namely the proactive steps the company is taking that directly address the fair lending risk of discretionary pricing and compensation systems by substantially reducing or eliminating that discretion altogether.”

The CFPB has been looking at fair lending issues in the indirect auto market for some time now. As we have previously blogged, the CFPB released Bulletin 2013-02 in March 2013 to indirect auto lenders about compliance with the Equal Credit Opportunity Act (ECOA), and released a supervisory highlights report in September 2014 detailing supervisory activities in the indirect auto lending market.

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Farewell.  Today is my last day at NAFCU, so I just want to take a moment to thank everyone. I’ve had the opportunity to work with great colleagues here at NAFCU and I am thankful for all of the opportunities over the past few years. A big thank you to NAFCU members and blog readers – I’ve enjoyed working with many of you on compliance questions, meeting folks at conferences, chatting over the phone, and emailing.  I’m also staying within the credit union industry, and will be moving in-house at a credit union. So, I’m not going far and I look forward to staying in touch. Thanks again for everything!

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Programming Note. NAFCU’s office will close at noon today for an all-staff team-building event.

Hodgepodge Monday and a Special Goody from NAFCU

Written by JiJi Bahhur, Director of Regulatory Compliance

NAFCU Goody.  Members asked, and today they will receive.  NAFCU’s compliance team has updated its consolidated regulatory text on the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Disclosure (TRID) rule.  Available with a NAFCU member log-in, the updated consolidated text can be located on NAFCU’s mortgage resources webpage here and serves as a great research tool. 

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Free NAFCU-NCUA Webcast, Fine-Tuning Your Compliance Program: Common Compliance Violations.  On July 21, Bernadette and I will be joining NCUA’s Judy Graham, program director in the Office of Examination and Insurance, Patrick Truett, information system officer for E&I, and Matt Nixon, program officer in the Office of Consumer Protection, in presenting “Fine-Tuning Your Compliance Program: Common Compliance Violations.”  We will discuss how credit unions can navigate common compliance issues and examine various compliance areas of interest.

Online registration is available here and participation is free. You can find more information here.

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CFPB’s Fifth TRID Webinar Available.  Part 5 of the CFPB’s TILA/RESPA webinar series is now available for viewing here.  This fifth and final webinar addresses specific questions related to rule interpretation and implementation challenges that have been raised to the CFPB by creditors, mortgage brokers, settlement agents, software developers, and other stakeholders. In particular, this session covers industry questions relating to operations and technology challenges.

Recordings of the previous webinars in the TILA/RESPA series are available at the links below:

TILA-RESPA Integrated Disclosure, Part 1 — Overview of the Rule

TILA-RESPA Integrated Disclosure, Part 2 - Various Topics

TILA-RESPA Integrated Disclosure, Part 3 — Completing the Loan Estimate

TILA-RESPA Integrated Disclosure, Part 4 — Completing the Closing Disclosure

Just a reminder – if you are looking for additional help with TILA/RESPA, NAFCU’s Credit Union Compliance GPS contains an appendix that is solely dedicated to TILA/RESPA.  Also, check out our TILA/RESPA Boot Camp and blog series.

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CFPB Issues Guiding Principles for Faster Payment Networks.  Last week, the CFPB outlined guiding principles for faster payment networks.  In the CFPB’s guidelines, it states:

“Improvement in payment systems can aid many users — and consumers, in particular — if accompanied by more robust and timely information about payments and receipt of funds. When integrated with systems such as mobile banking and other channels by which consumers may obtain real time information about their account balances, consumers could know more definitively when they do and do not have funds with which to conduct transactions. At best, faster payments could enable faster, safer, and more accessible commerce.”

The guidelines focus on privacy, transparency, costs, security, access and more.  To view the guidelines, click here.  To view the press release, click here.

It should be noted that other federal agencies, including the Federal Reserve, have been engaged in initiatives to improve payment systems as well.  NAFCU has been very involved in these efforts and will continue to gather input on how to improve the U.S. payments system. 

NAFCU Opens Membership to State Chartered Credit Unions; CFPB Proposes To Delay TRID Effective Date; NAFCU/CBANC Alliance

Written by JiJi Bahhur, Director of Regulatory Compliance

Bonjour!

The compliance blog has gone international and I am writing to you from NAFCU’s 48^th Annual Conference in Montréal! As many of you may have heard, this has been an exciting week for the entire credit union industry. On Tuesday, NAFCU’s Board of Directors officially announced that NAFCU will be expanding its membership to include federally insured, state-chartered credit unions. This change, effective immediately, is a historic step but rest assured that NAFCU’s staff will continue to provide you the best in federal advocacy, education and compliance assistance. 

Evidently, Washington has been equally exciting as the CFPB has filed a proposal to delay the effective date of the TILA-RESPA Integrated Disclosure (TRID) Rule. The TRID Rule was initially scheduled to become effective on August 1, 2015, but the CFPB is proposing to move the implementation date to Saturday, October 3, 2015. The CFPB faults a failure to comply with the Congressional Review Act, which required the Bureau to submit the rule report to Congress in a timely manner. The proposal, which is scheduled to be published in the Federal Register today, includes a request for public comment on the October 3 extension as well as alternative dates.  Comments are due to the Bureau on July 7.

While the CFPB’s proposed extension of the TRID effective date is a positive development, the Bureau is merely moving the date that credit unions are expected to “flip a switch” as early compliance is not permitted under this proposal.  It is disappointing that the CFPB is not taking this opportunity to display flexibility and ease the transition by allowing for an early compliance period. In addition, credit unions have already begun to inquire whether or not the revised servicing transfer notice and new escrow cancellation notice are included within the scope of the proposed extension. See, revised section 1026.39(d)(5) and section 1026.20(e). Both of these notices are scheduled to become effective on August 1, 2015. While NAFCU has reached out to the CFPB for clarification, the proposal makes no reference to these post-consummation notice requirements so a formal statement from the CFPB is necessary to provide clarity. This issue will be raised in NAFCU’s official comment letter.

Yesterday, in response to the CFPB’s proposal, NCUA Chairman Debbie Matz confirmed that NCUA is still committed to looking at reasonable and good faith efforts of compliance with the TRID rule. Specifically, Matz stated “When the rule becomes effective, NCUA examiners will look for reasonable and good-faith efforts by credit unions towards substantial compliance with the final rule.” Earlier this month, CFPB Director Richard Cordray announced in a letter to congress that the Bureau also intends to consider “good faith efforts” to comply with this complex rule.

NAFCU will continue to urge the CFPB to reconsider its position on early compliance, which will provide valuable time for credit unions to test their systems prior to the implementation date and seek explicit confirmation as to the scope of the delay.

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NAFCU, CBANC Network Form Strategic Alliance. NAFCU and CBANC Network have partnered to help credit unions share policies, procedures, agreements, and best practices in real time. CBANC’s content is community-driven, with thousands of policy and procedure documents, vendor and product reviews, and Q&A forums. Click here to join and access this helpful compliance resource! CBANC content is peer-to-peer and not reviewed for accuracy by NAFCU; it does not constitute legal advice.

CFPB TILA/RESPA Implementation Delay; NCUA Board Meetings Results

Written by JiJi Bahhur, Director of Regulatory Compliance

The Consumer Financial Protection Bureau (CFPB) and National Credit Union Administration (NCUA) have been busy bees this week with announcements and issuances that credit union professionals will definitely want to know and hear more about.

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Delayed Implementation of TILA/RESPA.  On Wednesday, Director Richard Cordray of the CFPB announced that the bureau will be issuing a proposed amendment to delay the implementation deadline for the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Mortgage Disclosure requirements until October 1.  This delay would provide credit unions two more months to comply with the rules, which are currently scheduled to go into effect on August 1, 2015.

“The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015,” CFPB Director Richard Cordray said in a prepared statement. “We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks.”

While this delay is a step in the right direction, and one that NAFCU welcomes, a two-month delay may still not be enough to meet credit unions’ needs. Credit unions have been gearing up and working diligently with vendors to ensure timely compliance with the TILA/RESPA Integrated Mortgage Disclosure rule, but there are still a number of ambiguities in the rule that need to be addressed by the CFPB. 

At this point, it’s hard to tell what this will mean or how this will affect credit unions, but once the CFPB releases its proposal on delayed implementation of TILA/RESPA, NAFCU will provide greater detail on what it entails on our compliance blog. 

As an aside, what I would love to see the CFPB do between now and the new October 1 effective date is issue an FAQ detailing answers to questions and ambiguities the bureau has been made aware of. 

***

NCUA Board Meeting Results. On Thursday, the NCUA Board held an open meeting to discuss the following items, all of which were unanimously approved:

1. Final Interagency Rule, Part 760 of NCUA’s Rules and Regulations, Loans in Areas Having Special Flood Hazards.
2. Board Briefing, Final Interagency Policy Statement Establishing Joint Diversity Assessment Standards.
3. Final IRPS 13-1, Minority Depository Institution Preservation Program.
4. Notice and Request for Comment, Regulatory Review in Accordance with the Economic Growth and Regulatory Paperwork Reduction Act.
5. Federal Credit Union Loan Interest Rate Ceiling.
6. Proposed Rule, Part 723 of NCUA’s Rules and Regulations, Member Business Lending.

While it would bring me great pleasure to go into all the details surrounding each of these agenda items, I’ll save you from having to read a 5-page blog on a Friday morning.  That being said, we plan to cover some of these items in detail on the blog next week.  If you would like to get a head start on your reading, take a look at NCUA’s Board Action Bulletin, available here. 

CFPB Mortgage Closing Fact Sheet; Revised Written List of Service Providers

Written by Brandy Bruyere, Regulatory Compliance Counsel

Closing Disclosure Fact Sheet. On Friday, JiJi blogged about the CFPB’s Letter to Congress stating that the Bureau will consider “good-faith efforts” when examining for TILA/RESPA compliance.  The Bureau also released a fact sheet and blog assuring consumers that the new disclosures will not delay mortgage closings. Here is an excerpt:

“Only THREE changes require a new 3–day review:

1. The APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans. A decrease in APR will not require a new 3-day review if it is based on changes to interest rate or other fees.

2. A prepayment penalty is added, making it expensive to refinance or sell.

3. The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.”

Section 1026.19(f)(2)(ii) describes changes before consummation requiring a new waiting period, including  “[t]he annual percentage rate disclosed under §1026.38(o)(4) becomes inaccurate, as defined in §1026.22.” (Emphasis added). Those familiar with section 1026.22 of Regulation Z will notice that in an attempt to simplify a technical provision, the first item is not accurate. In fact, section 1026.22 states that a rate is inaccurate if it either increases or decreases, here is an excerpt from the CFPB staff commentary to this rule:

“Paragraph 22(a)(2)

1. Regular transactions. The annual percentage rate for a regular transaction is considered accurate if it varies in either direction by not more than ¹⁄₈ of 1 percentage point from the actual annual percentage rate…

Paragraph 22(a)(3)

1. Irregular transactions. The annual percentage rate for an irregular transaction is considered accurate if it varies in either direction by not more than ¹⁄₄ of 1 percentage point from the actual annual percentage rate. This tolerance is intended for more complex transactions that do not call for a single advance and a regular series of equal payments at equal intervals…”

(Emphasis added)

The fact sheet also conflates “regular transaction” with “fixed rate,” and “irregular transaction” with “adjustable rate” another oversimplification of section 1026.22. Keep in mind that this fact sheet was issued with consumers in mind rather than as guidance for financial institutions. Still, for consumers who do discover this fact sheet, it seems likely to cause some confusion regarding when a new three-day waiting period is actually required.

Revised Written List of Service Providers. On May 26, the CFPB held its fifth and final webcast on TILA/RESPA. The Bureau addressed many miscellaneous questions such as calculating cash to close, issuing disclosures for both single and two-phase construction loans, and owner’s title insurance. The webcast also addressed a question that has come up a few times, but had no clear answer. Sometimes, a “changed circumstances” permits the credit union to issue a revised Loan Estimate, but what happens if that changed circumstance also triggers a new required service? I wanted to share an unofficial transcription of this question and the CFPB’s answer:

“Question:  If there is a valid changed circumstance or borrower requested change that triggers another third-party service that the creditor permits the consumer to shop for, should the list of service providers be updated and redisclosed, or is the written list of service providers required to be provided only once upon providing the initial Loan Estimate?
 
Answer: A creditor may update and redisclose the written list of service providers to reflect a new service that is added as the result of a changed circumstance or borrower requested change. This question deals with the requirement under section 1026.19(e)1(vi)(C) which requires the creditor to provide a written list of providers to accompany the Loan Estimate for any settlement services that the consumer is permitted to shop for. When an event that would permit resetting of tolerances or variations under section 1026.19(e)(3)(iv) occurs and an additional settlement service is required, the creditor may disclose service providers of that additional service on the written list at the same time as issuing the revised Loan Estimate. Although the regulation does not expressly address this scenario, we recognize that a creditor may want to permit the consumer to shop for this new service. There are two ways that a creditor may approach adding this new service to the written list. First, the creditor may include the additional service and provide an updated written list. Or second, because the rule does not require the written list to be updated and accompany a revised Loan Estimate, the creditor may provide a written list showing only the service providers of the additional service. Either method would comply with the rule. Note however that if the creditor intends to allow the consumer to shop for the additional service but fails to provide an updated or revised written list of service providers, that service would be subject to zero tolerance.”

(Emphasis added)

For more information on revised Loan Estimates and making the good faith determination, check out some of our past blog entries here.

TRID Implementation. If your credit union is a member of NAFCU and experiencing difficulties with its vendors in terms of implementing TILA/RESPA including issues resulting from ambiguity in the rules, we would love to hear from you. I can be reached by email [email protected] 

TILA/RESPA: CFPB to Consider Good-Faith Efforts; New Fact Sheet Available

Written by JiJi Bahhur, Director of Regulatory Compliance

TILA/RESPA Good-Faith Efforts.  On Wednesday, the Consumer Financial Protection Bureau (CFPB) announced, in a letter to Members of Congress, that it will consider an institution’s “good-faith efforts” when examining for compliance with the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) Integrated Mortgage Disclosure rule.   From the letter:

“ [T]he Bureau’s work to support the implementation of the Rule does not end on the effective date of August 1, as we continue to work with industry, consumers, and other stakeholders to answer questions, provide guidance, and support a smooth transition for the mortgage market.  As we do so, and in response to considerable input we have received from you and your constituents, I have spoken with our fellow regulators to clarify that our oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time.  My statement here of this approach is intended to ease some of the concerns we have heard about this transition to new processes in the coming months …”. 

This type of oversight is consistent with the approach used by the CFPB in the implementation of Title XIV mortgage rules.

You may recall from an earlier blog post that the CFPB’s announcement is in line with NCUA Chairman Debbie Matz’s acknowledgement that NCUA examiners will recognize “good faith efforts” by credit unions for the TILA/RESPA rules.  From Chairman Debbie Matz’s letter to NAFCU:

“NCUA examiners will be looking for reasonable and good faith efforts by credit unions toward substantial compliance with the new rule as of the effective date.”

The TILA/RESPA Integrated Mortgage Disclosure rule takes effect on August 1. 

For more information on the TILA/RESPA Integrated Mortgage Disclosure rule, follow our blog series here. 

New TILA/RESPA Fact Sheet.  Also on Wednesday, the CFPB released a fact sheet to “clarify” some questions about delivery of the Closing Disclosure and the limited circumstances when changes to the loan require a new three-day review period.  While it was a kind gesture to provide some much-needed additional guidance on TILA/RESPA, it would have been nicer if the information provided was legally accurate.  More specifically, the fact sheet lays out the three changes that require a new 3-day waiting period.  The first change, quoted below, does not take section 1026.22 of Regulation Z, in its entirety, into account.

“Only THREE changes require a new 3–day review:

1. The APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans.  A decrease in APR will not require a new 3-day review if it is based on changes to interest rate or other fees.” (Footnote omitted.)

The full fact sheet can be accessed here.  NAFCU will address these inaccuracies in more detail in a near future blog post. 

***

NAFCU WEBCAST ALERT – Critical Call Report Training

Live Webcast: Wednesday, June 10 | 2:00 p.m. – 3:30 p.m. ET

It’s critical to stay up to date on the most recent Call Report requirement changes, and thoroughly understand how third parties can use your data.  Attend this important webcast to discover how to prepare the quarterly NCUA 5300 in a manner that is timely, effective and appropriate. You’ll gain a greater understanding of the history of the Call Report, learn how to prepare it correctly, cover common mistakes and critical areas, and gain an inside look at how Call Reports are used by examiners and auditors.

Usage of Integrated Disclosures for Transactions Not Covered by TILA/RESPA Rule; Cookie Break

Written by JiJi Bahhur, Director of Regulatory Compliance

NAFCU continues to receive TILA/RESPA Integrated Mortgage Disclosures questions from its members.  As someone who has been digging through this rule for over a year, I must say these questions are not easy, especially since the questions become even more nitty gritty as the effective date, August 1, becomes nearer.  Recently, a TILA/RESPA question was posed at a compliance roundtable that NAFCU attended.  When the question was posed, I said to myself that it sounded awfully familiar . . . maybe something I recently read . . . and I was right. 

The question was as follows: Is it permissible to use the TILA/RESPA disclosures instead of the currently-required Good Faith Estimate (GFE) and HUD-1 disclosures for those loans that are not under the scope of the TILA/RESPA rule?  If so, this would prevent some credit unions from having to utilize two parallel systems.

The Short:  No.  Creditors originating transactions that are not covered under the TILA/RESPA rule must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures required under current law.

The Long: While the TILA/RESPA rule applies to most mortgage loan transactions, there are certain categories of loans that are excluded from the rule. The TILA/RESPA rule does not apply to:

• Home-equity lines of credit (HELOCs);
• Reverse mortgages;
• Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property; and
• Mortgage loans made by a person or entity that is not a “creditor” under Regulation Z. 

For transactions not covered under the TILA/RESPA rule, as listed above, creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures required under current law.  In other words, creditors cannot use the new integrated disclosure forms instead of the GFE, HUD-1, and TIL forms for non-covered transactions, thus requiring the use of two systems/platforms to generate applicable forms. 

Now, the bigger question (at least for me): Why did the original question sound familiar?  That’s right, the CFPB’s Small Entity Compliance Guide briefly makes mention of it.  From the Compliance Guide:

“4.2 What are the disclosure obligations for transactions not covered by the TILA-RESPA rule, like HELOCs and reverse mortgages?

The new Integrated Disclosures will not be used to disclose information about reverse mortgages, HELOCs, chattel-dwelling loans, or other transactions not covered by the TILA-RESPA rule. Creditors originating these types of mortgages must continue to use, as applicable, the GFE, HUD-1, and Truth-in-Lending disclosures required under current law.”

***

Cookie Break.  Imagine this – a family with over a dozen sets of twins, three sets of which are 8 to 10 months apart in age and live within a 2-block radius of each other.  Yep, no imagination needed here – that’s my family.  And this is what a cookie break looks like on a warm Saturday afternoon after tons of running around the yard! 

If you don’t normally follow my blogs, my twins – Ava and Kyse – are, from left to right, third and fifth on the bench.

 

CFPB Bulletin on Non-Discriminatory Access to Credit for Mortgage Applicants Who Receive Public Housing Assistance; Updated Mortgage Origination Examination Procedures; Public Inquiry into Student Loan Servicing Practices

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

CFPB Bulletin on Non-Discriminatory Access to Credit for Mortgage Applicants Who Receive Public Housing Assistance. The CFPB recently released Bulletin 2015-02, Section 8 Housing Choice Voucher Homeownership Program. The bulletin is intended to remind creditors “of their obligations under the Equal Credit Opportunity Act (ECOA)¹ and its implementing regulation, Regulation B,² to provide non-discriminatory access to credit for mortgage applicants using income from the Section 8 Housing Choice Voucher (HCV) Homeownership Program.³” (Footnotes omitted). The Section 8 Housing Choice Voucher Homeownership Program (Program), created to assist low-income, first-time homebuyers in purchasing homes, is funded by the Department of Housing and Urban Development and administered by participating local public housing authorities.

The Bulletin was issued in response to certain lending practices that have come to the attention of the CFPB – namely that some financial institutions have been excluding or refusing to consider income from the Program during the loan application and underwriting process, or only permitting Program vouchers to be used for certain mortgage loan products or delivery channels. The Bulletin reminds institutions of their fair lending obligations under ECOA and Regulation B regarding the treatment of income derived from any public assistance program. From the Bulletin:

“ECOA and Regulation B prohibit creditors from discriminating in any aspect of a credit transaction against an applicant “because all or part of the applicant’s income derives from any public assistance program.”⁶ “Any Federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or need, is ‘public assistance’ for purposes of the regulation. The term includes (but is not limited to) . . . mortgage supplement or assistance programs . . . .”⁷ As such, mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program under ECOA and Regulation B.

Regulation B further provides that “[i]n a judgmental system of evaluating creditworthiness, a creditor may consider . . . whether an applicant’s income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.”⁸ However, “[i]n considering the separate components of an applicant's income, the creditor may not automatically discount or exclude from consideration any protected income. Any discounting or exclusion must be based on the applicant's actual circumstances.”⁹” (Footnotes omitted).

The Bulletin goes on to provide guidance on managing fair lending risk in this area, such as making sure underwriting policies are clearly articulated; training underwriters, mortgage loan originators and others involved in mortgage loan origination; and monitoring for compliance with underwriting policies. For complete details, the CFPB’s press release is available here and the Bulletin is available here.

***

Updated Mortgage Origination Examination Procedures. Earlier this month, the CFPB also released updated mortgage origination examination procedures, which include guidance on how the agency will conduct examinations for compliance with the TILA-RESPA Integrated Disclosure Rule (TILA-RESPA). This document can be a handy tool for those working to implement TILA-RESPA requirements in advance of the August 1, 2015, effective date. For a complete run-down of NAFCU resources to assist those working to implement the rule, check out this blog by my colleague JiJi.

***

Public Inquiry into Student Loan Servicing Practices. The CFPB has issued a request for information seeking comments from the public about industry student loan servicing practices; practices related to loan repayment, including practices related to student loan repayment for borrowers in distress; the applicability of consumer protections from other consumer financial product markets (such as consumer mortgages and credit cards) to student loan servicing; and input about the availability of data on student loan performance and on borrower characteristics during repayment. Comments are due to the CFPB on or before July 13, 2015.

***

NAFCU Webcast: UCC Provisions Affecting Your Credit Union. The Uniform Commercial Code (UCC) impacts many of your credit union’s lending and payment processing activities—but the connection usually isn’t obvious until there’s a problem. Avoid this issue by being well-informed. Attend this detailed webcast to learn how various sections of the UCC affects the different operations of your credit union, from lending to dishonored checks. The webcast will be held on Thursday, May 21, from 2:00 p.m. – 3:30 p.m. ET. Register here.

Mortgage Broker Delivery of the TILA/RESPA Loan Estimate

Written by Brandy Bruyere, Regulatory Compliance Counsel

August 1^st is eighty days away—that’s just two months and 19 days. Somehow, that TILA/RESPA deadline that seemed so far off is now right around the corner. As credit unions continue the implementation process, some are reviewing procedures for having outside mortgage brokers provide the Loan Estimate on the credit union’s behalf. How does this work?

Under section 1026.19(e)(1)(ii), if a mortgage broker receives a consumer’s application, either the mortgage broker or the credit union must provide the consumer with the Loan Estimate. However, where the mortgage broker provides the Loan Estimate, “[t]he creditor shall ensure that such disclosures are provided in accordance with [1026.19(e)].” Here is the rule and its relevant CFPB staff commentary:

“(e) Mortgage loans secured by real property—early disclosures. 

[…]

(ii) Mortgage broker. 

(A) If a mortgage broker receives a consumer's application, either the creditor or the mortgage broker shall provide a consumer with the disclosures required under paragraph (e)(1)(i) of this section in accordance with paragraph (e)(1)(iii) of this section. If the mortgage broker provides the required disclosures, the mortgage broker shall comply with all relevant requirements of this paragraph (e). The creditor shall ensure that such disclosures are provided in accordance with all requirements of this paragraph (e). Disclosures provided by a mortgage broker in accordance with the requirements of this paragraph (e) satisfy the creditor's obligation under this paragraph (e).

 […]

19(e)(1)(ii) Mortgage broker.

[…]

2. Creditor responsibilities. If a mortgage broker issues any disclosure required under §1026.19(e) in the creditor's place, the creditor remains responsible under §1026.19(e) for ensuring that the requirements of §1026.19(e) have been satisfied. For example, if a mortgage broker receives a consumer's application and provides the consumer with the disclosures required under §1026.19(e)(1)(i), the creditor does not satisfy the requirements of §1026.19(e)(1)(i) if it provides duplicative disclosures to the consumer. In the same example, even if the broker provides an erroneous disclosure, the creditor is responsible and may not issue a revised disclosure correcting the error. The creditor is expected to maintain communication with the broker to ensure that the broker is acting in place of the creditor.”

(Emphasis added)

In other words, the credit union is responsible for any errors in the Loan Estimate that is provided by the broker on the credit union’s behalf, which includes being bound by the tolerances for fees. The credit union would not be able to issue a revised Loan Estimate to correct any errors made by the mortgage broker. Rather, revised Loan Estimates are limited to the existence of a “changed circumstance” and the rule’s limitations of such changes in making any adjustments.

Also, because the special information booklet required by section 1026.19(g) must be delivered or placed in the mail “not later than three business days after the consumer’s application is received,” then “if the consumer uses a mortgage broker, the mortgage broker shall provide the special information booklet.” See, 12 C.F.R. 1026.19(g)(1)(i).

***

CFPB to Host Fifth and Final TILA/RESPA Webinar. On Tuesday, May 26, at 2 PM EDT, the Federal Reserve will host the CFPB’s fifth and final webinar clarifying questions relating to the interpretation and implementation of TILA/RESPA. You can register for the free webcast here. 

If you missed any of the previous CFPB webinars and would like to watch them, they are available here.

***

Sleepy Baby. Apparently Nolan did take after me in some respects—when he needs to sleep, he is down for the count!

Friday Treat: Unofficial Transcripts of CFPB’s TILA/RESPA Webinars; Bubbles

Written by JiJi Bahhur, Director of Regulatory Compliance

As credit unions dig further into the TILA/RESPA Integrated Mortgage Disclosures rule, it is becoming more apparent that the rule itself and other CFPB-issued guidance does not address, clearly, some of the more nitty gritty issues that are surfacing.  In fact, NAFCU has been receiving a number of these questions – and I tell you – they are not easy to research and the answers are not all clear. 

Today, I won’t bog you down with difficult-to-comprehend information – after all, it is Friday!  Instead, I’d like to make you aware of another great TILA/RESPA resource that I recently stumbled upon.  As some of you know, over the last year, the CFPB and Federal Reserve Board have been co-hosting webinars that address questions about the TILA/RESPA Integrated Mortgage Disclosures rule.  Currently, four (4) of these co-hosted webinars exist and provide another avenue of guidance – oral guidance – from the CFPB on the TILA/RESPA rule.  Ideally, it would be nice if the CFPB transcribed these webinars, thus providing easily accessible, written guidance, but the CFPB has no plans of doing so (at least that I know of). 

But don’t fret!  During one of my recent TILA/RESPA searches online, I found a treasure!  BuckleySandler LLP, a leading consulting and law firm serving the financial services industry, has transcribed and made available publicly, the last three co-hosted webinars.  From BuckleySandler’s TRID Resource Page:

Webinars and Transcripts

• November 18, 2014: During this session, the Bureau addressed frequently asked questions relating to the Closing Disclosure. Our unofficial transcript is available here, and the recording is available here.

• October 1, 2014: During this session, the Bureau addressed frequently asked questions relating to the Loan Estimate. Our unofficial transcript is available here, and the recording is available here.

• August 26, 2014: During this session, the Bureau addressed frequently asked questions regarding the operational      requirements of the rule. Our unofficial transcript is available here, and the recording is available here.

• June 17, 2014: During this session, the CFPB provided a high-level overview of the rule. BuckleySandler did      not transcribe this webinar, but the recording is available here.

 ***

Bubbles.  Kyse and Ava love bubbles.  I’m pretty sure I love bubbles even more because it keeps my kids entertained on the weekend.  Last weekend, we spent Saturday and Sunday blowing bubbles, riding bikes/cars, and playing with the neighbor kids. 

I look forward to this weekend’s adventures!  Have a great weekend, all! 

TILA/RESPA Integrated Disclosures—Refunds

Written by Brandy Bruyere, Regulatory Compliance Counsel

JiJi recently blogged about the inclusion of “no-cost loans” under the TILA/RESPA Integrated Disclosures rule. A somewhat related question came up recently--when does the credit union have to issue a refund to the member? Refunds are a way to “cure” situations where the Loan Estimate was not made in good faith, meaning the amounts charged exceeded the tolerance limits (for more information, check out this blog). New section 1026.19(f)(2)(v) addresses refunds related to the “good faith analysis” requirement:

"(v) Refunds related to the good faith analysis. If amounts paid by the consumer exceed the amounts specified under paragraph (e)(3)(i) or (ii) [Loan Estimate’s good faith estimate of closing costs]…the creditor complies with paragraph (e)(1)(i) of this section if the creditor refunds the excess to the consumer no later than 60 days after consummation, and the creditor complies with paragraph (f)(1)(i) of this section if the creditor delivers or places in the mail corrected disclosures that reflect such refund no later than 60 days after consummation."

In other words, when the member pays for settlement costs in excess of the tolerances, the credit union can cure this violation by refunding the difference. Here is clarification from the CFPB staff commentary:

“19(f)(2)(v) Refunds related to the good faith analysis.

…For example, assume that at consummation the consumer must pay four itemized charges that are subject to the good faith determination under §1026.19(e)(3)(i). If the actual amounts paid by the consumer for the four itemized charges…exceeded their respective estimates on the [Loan Estimate] by $30, $25, $25, and $10, then there would be a $90 excess amount above the limitations prescribed by §1026.19(e)(3)(i). If, further, the amounts paid by the consumer for services that are subject to the good faith determination under §1026.19(e)(3)(ii) totaled $1,190, but the respective estimates on the disclosures required under §1026.19(e)(1)(i) totaled only $1,000, then there would be a $90 excess amount above the [applicable tolerance limitations]...”

So what happens if the credit union discloses more in fees on the Loan Estimate than the member actually ends up paying, meaning the member actually pays less than the costs provided in the Loan Estimate? New section 1026.19(e)(3)(iii) generally requires that, outside exceptions such as permitted tolerances, the credit union estimate closing costs “in good faith” meaning “the charge paid by…the [member] does not exceed the amount originally disclosed.” The rule does not specifically discuss situations where the amount paid by the member is actually less than the amount disclosed, but the CFPB Small Entity Compliance Guide says the following on p. 35:

“Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate it is not in good faith, regardless of whether the creditor later discovers a technical error, miscalculation, or underestimation of a charge."

However, a Loan Estimate is considered to be in good faith if the creditor charges the consumer less than the amount disclosed on the Loan Estimate, without regard to any tolerance limitations.”

(Emphasis added.)

Keep in mind though that the Loan Estimate is still subject to general accuracy requirements as set forth in section 1026.17 which requires that when “information necessary for an accurate disclosure is unknown to the [credit union], the [credit union] shall make the disclosure based on the best information reasonably available at the time the disclosure is provided…”

***

San Francisco. Last week, NAFCU sent me to the American Bar Association Business Law Section’s spring meeting in San Francisco. I spent most of my time meeting with other attorneys, including some great credit union attorneys. However, I did manage to leave the hotel in the financial district for a walk, and saw a few tourist attractions:

TILA-RESPA: Disclosing “No Cost” Loan Transaction on Loan Estimate and Closing Disclosure; Sibling Love?

Written by JiJi Bahhur, Director of Regulatory Compliance

With the effective date soon approaching, NAFCU continues to receive a number of questions from its members on the Truth in Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule.  Today, I’d like to tackle the treatment of “no cost” loan disclosures under the TILA-RESPA rule.  Let’s take a look at it from the Loan Estimate standpoint and then the Closing Disclosure.

[Note: hyperlinked references to “final rule” will direct you to Federal Register /Vol. 78, No. 251 /Tuesday, December 31, 2013 /Rules and Regulations 79825].

Question: Are credit unions required to disclose “no cost” loan transactions on the Loan Estimate form?

Answer: Yes. Credit unions are required to disclose “no cost” loan transactions on the Loan Estimate form.

According to the Preamble of the TILA-RESPA final rule, the CFPB “does not believe that it would be appropriate to exempt “no cost” loans from § 1026.19(e)(3)(i); therefore, “no cost” loans must still comply with the current limitations on settlement charge increases in Regulation X.  See, Final Rule, Page 350.  Section 1026.19(e)(3)(i) applies to all costs “imposed on the consumer,” even ones that may not be paid by the consumer.  The closing costs in “no cost” loan transactions qualify as costs imposed on the consumer – under § 1026.19(e)(3)(i) – even though the costs are not paid by the member or financed by the creditor. See, Final Rule, Page 350. The costs paid by creditors on a member’s behalf in “no cost” loan transactions must, therefore, be disclosed under the “Closing Cost Details,” “Loan Costs,” or “Other Costs” sections of the Loan Estimate form as applicable.

This standard applies to all loans for which closing costs are offset by credit or rebate provided by the creditor, regardless of whether all or just a portion of the closing costs are being offset. See, Final Rule, Page 1803. Under such circumstances, the creditor must disclose the credit or rebate as lender credit, using a negative number, with the label “Lender Credits” under the subheading “Total Closing Costs.” See, 12 CFR § 1026.37(g)(6)(i)-(ii). However, “any credit disclosed should be sufficient to cover the total amount of closing costs” that the credit union represented to the member is covered by the Lender Credit under the loan terms. See, Final Rule, Page 864.

 

Question: Are credit unions required to disclose “no cost” loan transactions on the Closing Disclosure form?

Answer: Yes. Credit unions are required to disclose “no cost” loan transactions on the Closing Disclosure form.

Both generalized and specific credits that a credit union provides for closing costs must be disclosed. Generalized credit provided for closing costs must be disclosed as a negative number under “Lender Credits” and designated as borrower-paid at closing. See, 12 CFR § 1026.38(h)(3). Specific credits attributable to a particular loan cost or other cost, such as the fees that the credit union currently pays, must be listed in the “Paid by Others” column in the “Closing Cost Details” table under § 1026.38(f) or (g). See, Final Rule, Page 1843.

For a description of lender credits from the creditor, see comment 17(c)(1)-19. For a discussion of general lender credits and lender credits for specific charges, see comment 19(e)(3)(i)-5.

Like much of the TILA-RESPA Integrated Mortgage Disclosure rule, how to address “no cost” loans is highly technical, but there is helpful clarification in the commentary. Where even the commentary is difficult to apply, sometimes the explanations in the Preamble to the rule, while not binding, can provide further explanation—but the Preamble is long, so searching key terms helps.

***

Sibling Love? It's Wednesday - that time of the week when some people can use a funny story or a bit of fresh air to get them to Friday.  So today, I share this with you. 

These twins appear to be loving and easy-going but I assure you that Kyse and Ava are like any other brother and sister - they love to annoy each other!  Don't let the photo fool you!  Ava is actually crying her eyes out because Kyse invited himself as a passenger and the last thing she wanted to do was share! 

Happy Wednesday! 

TILA/RESPA Loan Estimate: Projected Payments

Written by Victoria Daka, Regulatory Compliance Specialist

As the CFPB’s Truth-in-Lending/Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule’s effective date of August 1, 2015 quickly approaches, we continue to receive questions relating to the Loan Estimate Disclosure – particularly, the “Projected Payments” table. This table includes an Estimated Total Monthly Payment line item and an Estimated Taxes, Insurance, and Assessments line item. The Total Monthly Payment – not to be misconstrued with the colloquial definition – includes only the Principal & Interest, Mortgage Insurance, and Estimated Escrow amounts. The Taxes, Insurance, and Assessments line, which is the more complicated item in this table, is what this blog will focus on.

 

 

                       

 

The Taxes, Insurance, and Assessments line item in this chart has led to some confusion because the rule contains multiple cross-references. The rule contains cross-references to the Ability-to-Repay/Qualified Mortgage rule and the definition of “finance charge:”

 

“(4) Taxes, insurance, and assessments. Under the information required by paragraphs (c)(1) through (3) of this section:

(i) The label “Taxes, Insurance & Assessments”;

(ii) The sum of the charges identified in §1026.43(b)(8) [defining “mortgage related obligations”], other than amounts identified in §1026.4(b)(5) [credit loss insurance protecting the creditor], expressed as a monthly amount, even if no escrow account for the payment of some or any of such charges will be established...”

This definition does not tell us much, other than that you need to check two other rules to determine what needs to be included in the "Estimated Taxes, Insurance, & Assessments" line. Section 1026.43(b)(8) says the following, and in and of itself cross-references the definition of “finance charge:”

 

“(8) Mortgage-related obligations mean property taxes; premiums and similar charges identified in §1026.4(b)(5), (7), (8), and (10) that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments.”

 

Thus, anything listed in sections 1026.4(b)(7), (8), and (10) must be included in the “Taxes, Insurance, & Assessments” section, as well as property taxes, fees and assessments imposed by condo or homeowners associations and things like ground rent and leasehold payments. Also note that while section 1026.4(b)(5) is included in the above mortgage-related obligation definition, it is specifically excluded from the definition of “Taxes, Insurance, & Assessments” under section 1026.37(c)(4). It’s no wonder that this item is a struggle! Here are the relevant sections of 1026.4(b) cross-referenced in section 1026.43(b)(8):

 

“(b) Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:

 

[…]

 

(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.

(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

[…]

(10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.”

Thus, any of these three items are included in the “estimated taxes, insurance, and assessments” if it is “written in connection with a credit transaction,” and if it is “required by the creditor” as set forth in 1026.43(b)(8).

Keep in mind, for those that are still working through this rule the CFPB created the sample forms, the Guide to Forms, and a Small Entity Compliance Guide for the TILA/RESPA integrated disclosures rule that may be a helpful resource for your staff. In addition, for our members, NAFCU has a mortgage page that would also be of assistance to your staff. 

The CFPB Incorporates TRID into its Supervision and Examination Manual, and the NCUA Changes Supervision Policy Manual on Secondary Capital for Low-Income-Designated Credit Unions

Written by Eliott C. Ponte, Regulatory Compliance Counsel

CFPB updates its Supervision and Examination Manual by adding TILA-RESPA Intergraded Mortgage Disclosures

 Last week the CFPB updated the RESPA and TILA chapters of its Supervision and Examination Manual by incorporating the TILA/RESPA Integrated Disclosure (TRID) rule.  By updating the manual, the CFPB added over 100 pages of TRID supervisory information.  While the updated TILA and RESPA chapters provide a good high-level summary of the rule, much of the manual restates previously available information.  Thus, credit union officers tasked with helping their credit union transition to the new TRID rules will not find this guidance too helpful.  However, after comparing the updated RESPA and TILA chapters to the other CFPB TRID resources, I find the Supervision and Examination Manual better organized and easier to read.  Thus, credit union employees might find reading the updated chapters helpful (the updated RESPA chapter begins on page 5, and the updated TILA chapter begins on page 35).

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NCUA Changes its Supervision Policy Manual Section on Secondary Capital for Low-Income-Designated Credit Unions

Yesterday, the NCUA issued a press release stating it had issued National Supervision Policy Manual changes that affect procedures for low-income-designated credit unions seeking or receiving secondary capital authority from the agency.  According to the NCUA, “the supervisory changes related to supplemental capital make it easier for low-income credit unions to obtain, and give investors greater clarity and confidence.”  Moreover, the NCUA states these changes “allow more flexibility and transparency.”  The revised procedures can be found in the updated section of the agency’s National Supervision Policy Manual, which is available online.

NCUA to Consider Good Faith Efforts with TILA/RESPA; CFPB’s TILA/RESPA Implementation Materials Updated; Programming Note

Written by JiJi Bahhur, Director of Regulatory Compliance

NCUA to Consider Good Faith Efforts with TILA/RESPA. In response to NAFCU’s request, National Credit Union Administration (NCUA) Chairman Matz responded, recently, that it will take the same examination approach as it did with prior Consumer Financial Protection Bureau (CFPB) mortgage rules.  More specifically, NCUA will consider good faith efforts by credit unions to comply with the CFPB’s Truth in Lending Act and Real Estate Settlement Procedures Act (TILA/RESPA) integrated mortgage disclosure rule.  The TILA/RESPA rule is set to become effective on August 1. 

From Chairman Matz’s response to NAFCU:

“With this new rule, NCUA intends to take the same examination approach used with the implementation of the CFPB’s Qualified Mortgage and Ability-to-Repay rules in 2014.

NCUA examiners will be looking for reasonable and good faith efforts by credit unions toward substantial compliance with the new rule as of the effective date.  NCUA recognizes that some credit unions may need time to perform conclusive system testing and work with their technology vendors to resolve any remaining issues that may occur from extensive testing and use, once their new TILA/RESPA mortgage disclosure systems become fully operational on August 1.”

NAFCU, with 15 other trades, has made a similar request to the CFPB for a restrained examination period.

If you weren’t already having a fabulous Friday, I hope that helped a bit! 

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CFPB’s TILA/RESPA Implementation Materials Updated.  The CFPB has updated its TILA/RESPA regulatory implementation materials to bring them into alignment with the most recent amendments that finalized in February.  We blogged about the finalized amendments here. 

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Programming Note.  With NAFCU’s 2015 Regulatory Compliance School in session from March 30-April 3, please note that NAFCU’s Compliance Team will be heavily involved as faculty and therefore there may be a delay in responses to member questions.  Rest-assured, we’ll get back to you as soon as possible. 

Delivering Revised Loan Estimates under TILA/RESPA

Written by Brandy Bruyere, Regulatory Compliance Counsel

As credit unions work towards complying with the TILA/RESPA Integrated Disclosures Rule by the August 1, 2015 deadline, we frequently receive questions relating to changes in timing and delivery requirements. Generally, the current TILA provision contains a waiting period, requiring credit unions to deliver early disclosures at least seven days before the loan is consummated. If the credit union must correct an early Truth in Lending disclosure because the APR changes, a correction must be provided three days before consummation. See, 12 C.F.R. 1026.19(a)(2).

Meanwhile, RESPA requires the Good Faith Estimate (GFE) to be provided no later than three days after the credit union receives the member’s application. RESPA also allows credit unions to provide a revised GFE in certain “changed circumstances” or borrower-requested changes, and requires a revised GFE when the interest rate locks. Generally, revised GFEs must also be provided within three days of the event that triggered the revision. So how does TILA/RESPA address these kinds of situations?

Timing & Delivery of Revised Loan Estimates

Much like the current GFE, the Loan Estimate can only be redisclosed under particular circumstances. [We blogged about the particulars of using revised Loan Estimates in this post.] Under the TILA/RESPA rule, a revised Loan Estimate can serve the purpose of providing estimates in good faith. In other words, the revised Loan Estimate figures would apply when calculating the tolerance limits of particular costs. However, the credit union must provide the revised disclosure within three business days of “receiving information sufficient to establish” that a revised Loan Estimate is permitted. See, revised 12 C.F.R. § 1026.19(e)(4)(i). [Side note—under TILA/RESPA, a “business day” means all calendar days except Sundays and federal holidays]

Additionally, if the credit union issues a revised Loan Estimate, the member must receive the revised Loan Estimate four business days before the loan can be consummated. Further complicating this, if the credit union does not provide the revised Loan Estimate in person, the disclosure is not considered received until three business days after the date the credit union placed the revised Loan Estimate in the mail. Here is the excerpt from the rule:

“The consumer must receive a revised version of the [Loan Estimate] not later than four business days prior to consummation. If the revised version of the [Loan Estimate] is not provided to the consumer in person, the consumer is considered to have received such version three business days after the creditor delivers or places such version in the mail.”

See, revised 12 C.F.R. § 1026.19(e)(4)(ii). In other words, a revised Loan Estimate that is delivered by mail must be placed in the mail at least seven business days prior to consummation. The commentary clarifies how this same timing rule applies when the revised disclosure is sent electronically:

“2. Electronic delivery. The three-business-day period…applies to methods of electronic delivery, such as email. For example, if a creditor sends the [Loan Estimate] via email on Monday…the consumer is considered to have received the disclosures on Thursday, three business days later. The creditor may, alternatively, rely on evidence that the consumer received the emailed disclosures earlier. For example, if the creditor emails the disclosures at 1 p.m. on Tuesday, the consumer emails the creditor with an acknowledgement of receipt of the disclosures at 5 p.m. on the same day, the creditor could demonstrate that the disclosures were received on the same day…”

The commentary goes on to clarify that in order to provide the Loan Estimate electronically, the credit union must comply with the E-SIGN Act.

Using the Closing Disclosure in lieu of a Revised Loan Estimate

If this was not complex enough, a revised Loan Estimate cannot be provided after the credit union has provided the Closing Disclosure. If a “changed circumstance” occurs less than four business days before consummation, the credit union can utilize the Closing Disclosure instead to reflect the changes. If the “changed circumstance” occurs after the credit union already provided a Closing Disclosure, the credit union may use the Closing Disclosure provided at consummation to reflect the changes. For more details on how this  section of the rule works, check out revised section 1026.19(e)(4)(ii), comment 19(e)(4)(ii), and page 50 of the CFPB’s TILA/RESPA Integrated Disclosure Small Entity Compliance Guide. For information on the particular timing and delivery requirements for using revised Closing Disclosures, check out this blog.

 

2015 NAFCU Compliance GPS. The 2015 edition of our popular Credit Union Compliance GPS electronic manual is now available. It includes over 30 new pages dedicated to the TILA/RESPA Integrated Mortgage Disclosure rule as well as updates on major regulatory changes over the past year. Plus, one purchase allows you to share it with your entire credit union. Learn more.

 

Palate Cleanser—Goofy Lemmy. Lemmy's adjusted to not being the neediest living being in our house. He adores Nolan, and still likes to hang out on the couch though, and is more creative in his methods for demanding attention. 

 

NAFCU Continues to Provide Compliance Assistance on CFPB’s TILA-RESPA Integrated Disclosure Rule; Twin Sighting

Written by JiJi Bahhur, Director of Regulatory Compliance

With less than 5 months before the fast approaching deadline (August 1, 2015), it is imperative that credit unions are making appropriate strides to comply with the CFPB’s Truth-in-Lending/Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Mortgage Disclosure rule.

Of no surprise is that implementation of and compliance with the TILA-RESPA rule is one of NCUA's Top Supervisory Priorities for 2015.

“TILA-RESPA Integrated Disclosure Rule

On August 1, 2015, credit unions that originate residential mortgages will be required to comply with the Consumer Financial Protection Bureau’s (CFPB’s) TILA-RESPA Integrated Disclosure Rule. The rule requires loan originators to provide consumers with:

• A Loan Estimate form, which combines the initial Truth in Lending Act (TILA) disclosure and the Good Faith Estimate. The Loan Estimate form must be delivered or placed in the mail no later than the third business day after receiving a consumer’s mortgage application.
• A Closing Disclosure form, which combines the final TILA disclosure and the HUD-1 Settlement Statement. The Closing Disclosure form must be provided to the consumer at least three business days prior to consummation of the mortgage.

The new rule also imposes record retention requirements and restricts mortgage originators from imposing certain fees, providing estimates, or requiring consumers to verify information before providing consumers with a Loan Estimate form.

After the rule goes into effect, NCUA field staff will assess credit unions’ compliance with relevant provisions.”

If you or someone at your credit union has been charged with a role in compliance or implementation of TILA-RESPA, I would like to take a moment to say that you are not alone.  NAFCU’s Compliance Team has put an enormous amount of time and effort in to help prepare (NAFCU member and nonmember) credit unions for the compliance and implementation of the CFPB’s TILA-RESPA rule.  TILA-RESPA resources we have already made available include:

 

• TILA-RESPA Article Series, featured in NAFCU’s Compliance Monitor (NAFCU member log-in required):

TILA-RESPA Rule Overview

A Deep Dive into the Loan Estimate Disclosure: Requirements, Timing and Tolerances

Delving into the Closing Disclosure: Requirements, Timing, Delivery and More

Using Average Charges Over Actual Amount Received on the TILA-RESPA Closing Disclosure

Loan Estimates: Revisions and Corrections Under the TILA-RESPA Rule

Requirements for Providing Corrected Closing Disclosures under the TILA-RESPA Rule

Post-Consummation Notices under the TILA-RESPA Rule

 

• TILA-RESPA Blog Series, featured in NAFCU’s Compliance Blog (available to members and nonmembers)

 

• NAFCU-Hosted Webcasts on TILA-RESPA (available to members and nonmembers):          

TILA-RESPA Series: Part 1 – An Overview

TILA-RESPA: Difficult Issues and their Solutions

The 7^th Rule: Unintended Consequences of the New, “Simplified” Mortgage Disclosures

 

• New TILA-RESPA Appendix, featured in NAFCU’s 2015 Compliance GPS (available to members and nonmembers)

 

• NAFCU’s CFPB Mortgage Rules page, including a section dedicated solely to the TILA-RESPA Rule.  Resources include all resources mentioned above and (NAFCU member log-in required):                     

A summary of the final rule

A chart on the scope and applicability of the final rule

And more! 

 

And we’re not done!  NAFCU’s Compliance Team will continue to break down parts of the rule in its TILA-RESPA blog series and Compliance Monitor.  Also, coming soon, keep a look-out for a series of recorded modules dedicated solely to breaking down the TILA-RESPA rule (available to members and nonmembers).  And last, if you’d like to see a particular resource on TILA-RESPA, feel free to reach out with your ideas – we’re open to suggestions.

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Twin Sighting. This past weekend, my husband so kindly took the kids out on a lunch date so I could wrap some work up.  A couple hours after being out of the house, I received a call from my husband.  He said that a woman came up to him and said something along the lines of "Excuse me, are you JiJi's husband?" He responded that he was and asked the woman how she knew.  She stated, "I've never met your kids before, but I knew it was them because I see pictures of them on the compliance blog all the time!"  It turned out to be a local member who reads the blog and recognized the twins out in public.  Now only if my husband would have thought to snap a picture of the kids with her! 

TILA/RESPA: Restriction on Imposition of Fees before Receipt of Loan Estimate and Indicating Intent to Proceed

By Victoria Daka, Regulatory Compliance Specialist

Under the CFPB’s TILA/RESPA integrated mortgage disclosure final rule, there are certain restrictions that go into effect on August 1, 2015, regardless of when the application was received.  If you recall, TILA/RESPA applies to covered applications received on or after August 1, 2015. However, there are certain restrictions that apply starting August 1^st , even if the application was received prior to August 1^st.

Today, as part of NAFCU’s continued blog series on TILA/RESPA, I will focus on the restriction on imposing fees on a consumer before the consumer has received the Loan Estimate and indicated an intent to proceed with the transaction, with a limited exception. 

Section 1026.19(e)(2)(i)(A)  prohibits imposing any fee on a consumer – application, appraisal, underwriting, or otherwise –in connection with the consumer’s application for a mortgage transaction until the consumer has received the Loan Estimate and has indicated an intent to proceed with the transaction.  There is only one exception to this rule, found in section 1026.19(e)(2)(i)(B), which allows a creditor or other person to charge a bona fide and reasonable fee for obtaining the consumer’s credit report before the consumer has received the Loan Estimate. For example, the staff commentary indicates that a creditor may collect a fee for obtaining a credit report if it is in the creditor's ordinary course of business to obtain a credit report.

In general, a fee is considered “imposed” if the consumer is required to provide a method of payment, even if the payment will actually be made later.  For example, the staff commentary to section 1026.19(e)(2)(i)(A) indicates that if a creditor requires the consumer to provide a check to cover a $500 “processing fee” before the consumer has received the Loan Estimate, the creditor has not complied with the rule – even if the creditor said it would not cash the check until the consumer received the Loan Estimate, and the creditor did not cash the check until the disclosure was provided and the consumer indicated his or her intent to proceed with the transaction.

Similarly, a creditor does not comply with the rule if it requires the consumer to provide a credit card number for a processing fee before the consumer receives the Loan Estimate, even if the credit card will not be charged until after the Loan Estimate is received and the consumer has indicated his or her intent to proceed with the transaction.  A creditor could, however, obtain a consumer’s credit card number and charge the consumer’s credit card for a credit report fee, after the disclosures required by section 1026.19(e)(1)(i) are received, if separate authorizations are requested and received for the credit report fee and any other fees that may subsequently be imposed.

Under section 1026.19(e)(2)(i)(A), a consumer can express the intent to proceed with a mortgage transaction in any manner, unless the creditor has required a specific manner of communication.  For example, oral communication in person immediately upon delivery of the Loan Estimate would comply with the rule.  Similarly, oral communication over the phone, written communication via email, or signing a preprinted form after receipt of the Loan Estimate would also be permissible. However, silence is not indicative of the consumer’s intent to proceed with the transaction because it cannot be documented to satisfy the requirements of section 1026.25. To satisfy the recordkeeping requirements of section 1026.25, a creditor must document the consumer’s communication of intent to proceed with the transaction.

Be on the lookout – NAFCU’s Compliance team will continue to break down pieces of the rule as part of our TILA/RESPA blog series.

 

“Other” Situations that May Trigger the Need for a Corrected Closing Disclosure; Join Us for NAFCU’s Member Call-In

Written by JiJi Bahhur, Director of Regulatory Compliance

In a recent blog post, I discussed pre-consummation changes that would require the credit union to issue a corrected Closing Disclosure to the consumer.  Today, as part of our continued TILA/RESPA blog series, I’d like to now focus on the “other” situations that can trigger the need for a corrected Closing Disclosure. 

Post-Consummation Events

During the 30-day period following consummation, if an event in connection with the settlement of the transaction occurs that causes the disclosures to become inaccurate and results in a change to an amount paid by the consumer, the creditor will be required to provide a corrected Closing Disclosure. In this situation, the creditor must deliver or place in the mail a corrected Closing Disclosure not later than 30 days after receiving information sufficient to establish that such an event has occurred.

Clerical Errors

Clerical errors are also subject to re-disclosure under section 1026.19(f)(2)(iv). Comment 1 to section 1026.19(f)(2)(iv) clarifies that an error is considered clerical "if it does not affect a numeric disclosure and does not affect requirements imposed by § 1026.19(e) or (f)." The commentary also provides a couple of illustrative examples:

"For example, if the disclosure identifies the incorrect settlement service provider as the recipient of a payment, then §1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures reflecting the corrected non-numeric disclosure no later than 60 days after consummation. However, if, for example, the disclosure lists the wrong property address, which affects the delivery requirement imposed by §1026.19(e) or (f), the error would not be considered clerical."

To correct non-numeric clerical errors, a creditor must deliver or place in the mail a corrected Closing Disclosure no later than 60 days after consummation.

Refunds to Cure Tolerance Violations

Finally, if a creditor provides a consumer with a refund to cure a tolerance violation in connection with the good faith analysis of the estimated closing costs, the creditor must deliver or place in the mail a corrected Closing Disclosure that reflects the refund no later than 60 days after consummation.

Stay tuned!  NAFCU’s TILA/RESPA blog series will continue to break-down sections of the rule over the next several months.

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Join Us for NAFCU’s Member-Only Call.

Please join NAFCU’s CEO Dan Berger, Senior Vice President of Government Affairs and General Counsel Carrie Hunt, and other Senior Staff, on Wednesday, March 18, at 4:00 p.m. Eastern for our first legislative and regulatory briefing of 2015. We'll discuss what’s ahead in the credit union industry and provide an outlook for the economy and more.

Participation is free for all members, but you must register to attend. If you need assistance registering for the call, please contact NAFCU’s Member Service Center at 800-344-5580 or [email protected].

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Happy Friday!

TGIF.  I thought I'd close out the week with a picture of my smiling twins!  They turned two-and-a-half this week.  Wow, how time flies!

 

Monday Morning Tidbits

Written by Victoria Daka, Regulatory Compliance Specialist

NCUA Hosting Webinar on New TILA-RESPA Disclosure Rules (with the CFPB)

Do you have lingering questions about the new TILA-RESPA Integrated Disclosures requirements scheduled to take effect August 1^st? Do you want to get a head start on compliance? Well, you are in luck. The NCUA, with the CFPB, will host a free webinar, “Preparing for the New TILA-RESPA Integrated Disclosures,” on Wednesday, Feb. 11, 2015, starting at 2 p.m. This webinar will outline the significant changes to the disclosures and forms required and detail: 1) the new loan estimate and closing disclosure forms; 2) what types of mortgage transactions are covered by the new rules; and 3) the new timing requirements for the disclosures. You will find the registration for the webinar here. Credit unions may also submit questions in advance to [email protected].

NCUA February 10^th Town Hall Webinar Will Feature CFPB’s Cordray

For the upcoming NCUA Town Hall Webinar, set for Tuesday, February 10, 2015, starting at 3 p.m., NCUA’s Board Chairman Debbie Matz says that the webinar will feature CFPB’s Director Richard Cordray. This is a great opportunity for credit unions to discuss their issues and concerns directly with federal regulators. In this webinar, attendees can submit questions regarding the broad credit union industry and the work of the CFPB. You will find the registration for the webinar here. Credit unions may also submit questions in advance to [email protected].

CFPB Compliance Bulletin

The CFPB recently issued a Compliance Bulletin reminding CFPB supervised institutions that, among other things, non-disclosure agreements institutions may have, with third parties, do not alter or limit the CFPB’s access to information under their supervisory authority. Pursuant to Dodd-Frank, the CFPB has the authority to request reports to conduct supervisory duties, from its supervised institutions, and supervised institutions may not use non-disclosure disagreements to transact out of this request.  It should be noted that a failure to provide information required by the CFPB is a violation of federal law.

To view the Compliance Bulletin in its entirety, see here.

CFPB Issues Final Rule Amending the TILA/RESPA Final Rule

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

The CFPB recently issued a final rule making changes to the Truth in Lending Act (TILA)/Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures Rule (TILA/RESPA final rule). The TILA/RESPA final rule, inclusive of these latest changes, becomes effective on August 1, 2015.

Changes under the final rule include:

Timing Requirement for Providing a Revised Loan Estimate when the Consumer Locks a Rate Extended to Three Business Days. The final rule allows more time for providing a revised Loan Estimate disclosure when the consumer locks a rate or extends a rate lock after the initial Loan Estimate is provided. Previously, the TILA/RESPA final rule required a creditor to issue a revised Loan Estimate on the same business day the interest rate is locked. The proposal would have relaxed this redisclosure by an additional day; however, in response to industry feedback, the final rule extends the timing requirement to three business days after the rate is locked.

Specific Disclosure Permitted on Loan Estimate for New Construction Loans. The final rule permits language related to new construction loans to be included on the Loan Estimate disclosure. Under the TILA/RESPA final rule, a creditor can issue a revised Loan Estimate for a new construction loan where the creditor reasonably expects settlement will occur more than 60 days after providing the initial Loan Estimate if the creditor includes a clear and conspicuous statement on the initial disclosure reserving that right. The TILA/RESPA final rule did not provide for this statement on the Loan Estimate, so this amendment resolves that issue.

The official staff commentary, as amended by the final rule, clarifies what satisfies the clear and conspicuous requirement for this disclosure:  

 “37(m)(8) Construction loans.

1. Clear and conspicuous statement regarding redisclosure for construction loans. For construction loans in transactions involving new construction, where the creditor reasonably expects the settlement date to be 60 days or more after the provision of the disclosures required under § 1026.19(e)(1)(i), providing the statement, “You may receive a revised Loan Estimate at any time prior to 60 days before consummation” under the master heading “Additional Information About This Loan” and the heading “Other Considerations” pursuant to § 1026.37(m)(8) satisfies the requirements set forth in § 1026.19(e)(3)(iv)(F) that the statement be made clearly and conspicuously on the disclosure.” 12 C.F.R. § 1026, Supp. I, comment 1026.37(m)(8). (My Emphasis).

Mortgage Loan Originator Final Rule.  The final rule also amended the 2013 Mortgage Loan Originator Final Rule to provide for the placement of the NMLSR ID on the integrated disclosures.

Once published, the final rule will be available in the Federal Register here. It applies to transactions for which an application is received on or after August 1, 2015. For additional information on the TILA/RESPA final rule, NAFCU blogs on the topic may be found here.

Tolerances for Fees—Current RESPA GFE Versus TILA/RESPA Loan Estimate

Written by Brandy Bruyere, Regulatory Compliance Counsel

As credit unions work to implement the TILA/RESPA Integrated Disclosures rule, one question that arises is the difference between the tolerances for amounts disclosed under the current RESPA Good Faith Estimate (GFE) and the TILA/RESPA Loan Estimate disclosure. Tolerances restrict increases in closing costs when the disclosed cost of a service is lower than the actual cost. Upon a passing glance, the current and new rules seem very similar, but there are some important differences, most notably for fees subject to a zero tolerance.

Current RESPA GFE—Section 1024.7

First, it is worth taking a moment to review the current rule. The tolerances for fees that are included in the GFE are set forth in 12 C.F.R. 1024.7(e) and different fees are subject to zero tolerance, ten percent tolerance, or no tolerance limit. If the cost of a disclosed service changes at settlement from the GFE disclosure, the credit union cannot require the member to pay additional amounts above the applicable tolerance level. This could leave the credit union paying for the difference in some cases.

Currently, origination charges and transfer taxes are subject to zero tolerance, as are credits or charges for the interest rate and adjusted origination charges after the interest rate has locked. Lender required settlement services where the credit union selects the third-party service provider, services where the member can shop but uses a service provider identified by the credit union, and government recording charges are subject to ten percent tolerance. All other settlement services included on the GFE may change at settlement without a tolerance limitation.

TILA/RESPA Loan Estimate Disclosure—Section 1026.19(e)

The TILA/RESPA Loan Estimate disclosure retains some similarities to the existing GFE in terms of how disclosed fees are grouped together and that there are still three tolerance levels—zero, ten percent, and no tolerance limit. However, TILA/RESPA is stricter in some regards. First, those charges that do not have a tolerance limit must still be based on estimates using the “best information reasonably available.” Also, instead of “all other fees” being subject to no tolerance, the fees that are not specifically subject to the 10% tolerance or no tolerance are subject to zero tolerance. The result is that when the credit union requires a particular service, the member is not permitted to shop for the service, and the fee is paid to an unaffiliated third party, the tolerance is now zero instead of the current ten percent. Here is a chart that compares the current rules to the new rules:

	Current RESPA	TILA/RESPA Integrated Disclosures
Zero tolerance	Origination charges Credit or charge for interest rate chosen (once rate is locked) Adjusted origination charges (once rate is locked) Transfer taxes	All other fees which are not either 10% tolerance or subject to no tolerance. Examples include: Fees paid to the credit union, mortgage broker, or an affiliate of either Fees paid to an unaffiliated third party if the member was not permitted to shop for a provider Transfer taxes
10% tolerance	Lender-required settlement services when the member is not permitted to shop Lender-required services such as title services where the member uses a provider on the credit union’s written list of service providers Government recording charges	Fees paid a third-party  when The charge is not paid to the credit union or its affiliate AND the member is permitted to shop for the third-party service and uses a provider on the credit union’s written list of service providers Government recording charges
No tolerance limitation	All other charges	The following IF the estimate was “consistent with the best information reasonably available” to the credit union at the time of disclosure Prepaid interest Property insurance premiums Amounts placed into an escrow or similar account Charges paid to 3rd-party service providers selected by the member that are NOT on a list provided by the CU Charges paid for 3rd-party services NOT required by the CU, including charges to affiliates

This chart is a generalized overview and is not intended to be a nuanced representation of where all possible fees may fall in the new disclosure effective August 1, 2015. For more detailed information, the Loan Estimate tolerance requirements are explained in detail on pages 35-41 of the CFPB’s Small Entity Compliance Guide and are worth reviewing when working to understand which fees will be subject to what tolerance level. This section of the guide also explains what constitutes a “changed circumstance” that would permit the credit union to issue a new Loan Estimate with different costs.

Bear Bunting. With winter here, Nolan needs to be bundled up before we head out the door every morning. He seems apathetic at best about his bear suit.

 

 

 

 

 

Corrected Closing Disclosures for Changes Before Consummation

Written by JiJi Bahhur, Director of Regulatory Compliance

As part of our continued TILA/RESPA blog series, I’d like to take a look at when a credit union must provide a consumer with a corrected Closing Disclosure pre-consummation.  I stress the word pre-consummation because there are also instances post-consummation that require the credit union to reissue a Closing Disclosure; however, those instances will be discussed in a later blog.

Once the Closing Disclosure has been provided to the consumer, if the actual terms or cost of the transaction change and cause the disclosures to become inaccurate prior to consummation, re-disclosure is required. Depending on the type of change involved, a new three business day waiting period may also be required.  

Changes Before Consummation that Require a New Waiting Period

Under new section 1026.19(f)(2)(ii), which goes into effect on August 1, 2015, there are three types of changes that require a creditor to provide corrected disclosures and require a new three business day waiting period. These changes are:

1. The annual percentage rate (APR) previously disclosed becomes inaccurate. If the disclosed APR, which is determined in accordance with section 1026.22, becomes inaccurate, the creditor must provide the consumer with a corrected Closing Disclosure that reflects the corrected APR and all other terms that have changed.
2. The loan product changes.  If the loan product is changed, causing information previously disclosed about the loan product to become inaccurate, the creditor must provide a corrected Closing Disclosure that reflects the corrected loan product and all other terms that have changed.
3. A prepayment penalty is added.  If a prepayment penalty is added, causing the statement about the prepayment penalty to become inaccurate, a corrected Closing Disclosure must be provided disclosing the prepayment penalty and all other terms that have changed.

In any of the above instances, the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation. For some examples of changes that would require a new waiting period, take a look at the CFPB’s commentary to new section 1026.19(f)(2)(ii).

As with the Closing Disclosure generally, a consumer may modify or waive the three business day waiting period if the consumer has a “bona fide personal financial emergency” that necessitates consummating the transaction before the end of the waiting period.  Applicable commentary uses “imminent sale of the consumer’s home at foreclosure, when the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period,” as an example of a bona fide personal financial emergency.

Changes Before Consummation that Do Not Require a New Waiting Period

For changes unrelated to the APR, loan product or the addition of a prepayment penalty, new section 1026.19(f)(2)(i) requires a creditor to provide the consumer with a corrected Closing Disclosure reflecting any changed terms at or before consummation, but does not require a new waiting period.  For an example, take a look at the CFPB’s commentary to new section 1026.19(f)(2)(iii).

Even in instances where no new waiting period is required, it should be noted that a consumer has the right to inspect the Closing Disclosure during the business day before consummation.  If the consumer asks to inspect the Closing Disclosure on the business day before consummation, the disclosure provided for inspection must reflect any adjustment to the costs or terms that are known to the creditor at the time the consumer inspects the disclosure.

For more detail on corrected Closing Disclosures, take a look at the January 2015 issue of NAFCU’s Compliance Monitor (NAFCU log-in required).  Also, as I mentioned earlier, we will take a look at other situations, including changes that occur after consummation that can trigger the need to provide a corrected Closing Disclosure, in a future blog post.

 

TILA/RESPA – Revised Loan Estimates; NAFCU Compliance Monitor; Updated Small Entity Compliance Guides

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

TILA/RESPA – Revised Loan Estimates. Continuing our blog series on the TILA/RESPA Integrated Mortgage Disclosure Rule which goes into effect on August 1, 2015, today we’re going to take a closer look at the general rule on issuing revised Loan Estimates and highlight the situations under which a revised Loan Estimate may be used. A creditor's ability to use a revised Loan Estimate is limited, but could be critical to making sure the disclosure has been provided in accordance with the rule’s good faith standard set forth in section 1026.19(e)(3).

Section 1026.19(e)(3)(iv) governs when a revised Loan Estimate may be used for determining good faith. Under the rule, a creditor can only use a revised estimate of a charge in specific situations, such as when the revision is due to a changed circumstance or a borrower-requested change. Technical errors, miscalculations or underestimated charges alone are not permissible reasons for issuing revised disclosures. Redisclosure is not permitted if the amounts decrease or if the amounts increase but do not exceed the applicable tolerance - in these circumstances the original Loan Estimate is still deemed to be in good faith. Additionally, when a revised disclosure is permitted, a charge can only increase to the extent that the reason for the revision actually increased that particular charge.

Situations permitting the use of a revised Loan Estimate generally include the following:

• Changed circumstances affecting settlement charges or consumer eligibility.
• When consumer requested revisions to the credit terms or the settlement cause an estimated charge to increase.
• If a consumer indicates his or her intent to proceed with the transaction more than 10 business days after the Loan Estimate was provided.
• When a rate is locked after the initial Loan Estimate is provided, and points or lender credits change because the rate was not locked when the initial disclosure was made – in this case, the creditor must issue a revised Loan Estimate on the date the interest rate is locked. (Note that on October 10, 2014, the CFPB announced a proposal that would relax this particular redisclosure timeframe, giving creditors until the next business day to provide the revised disclosures. We blogged about that proposal here.)
• In connection with a new construction loan where the creditor reasonably expects settlement will occur more than 60 days after the initial Loan Estimate is required to be provided and the creditor reserved the right to issue revised disclosures.

Note that there are specific timing requirements for issuing revised Loan Estimates. In addition, each of the situations permitting the use of a revised Loan Estimate has its own applicable requirements, which may be found in section 1026.19(e)(3)(iv).

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NAFCU Compliance Monitor. NAFCU members can read more about the use of revised Loan Estimates in this month’s NAFCU Compliance Monitor article, Loan Estimates - Revisions and Corrections Under TILA/RESPA Integrated Mortgage Disclosure Rule, available for download here (login required). This month’s edition also includes links to NAFCU resources that are available for NAFCU member credit unions to assist in complying with the rule.

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Updated Small Entity Compliance Guides. The CFPB also recently revised its Small Entity Compliance Guides for the Ability-to-Repay and Qualified Mortgage Rule and the RESPA and TILA Mortgage Servicing Rules to incorporate adjustments to the rules that became effective on November 3, 2014 – including  the limited cure mechanism for the points and fees limit that applies to qualified mortgages that we blogged about here.