Compliance Blog

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 costs, 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.

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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!