Compliance Blog

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  â€œ[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 ¹Ã¢ÂÂ„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 ¹Ã¢ÂÂ„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 bbruyere@nafcu.org