In July of last year, the recently formed Consumer Financial Protection Bureau (CFPB) issued its much anticipated new mortgage disclosure proposed rule. The proposed rule, Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) [Docket No. CFPB-2012-0028], would amend the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) to create new disclosure requirements and forms when a borrower applies for a mortgage and then closes on a loan during the settlement on residential real estate. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which created the CFPB, also directed the bureau to establish the new mortgage disclosure regulations.
Proposed Changes to Disclosure Requirements and Forms
The primary changes under the proposed rule to mortgage disclosure requirements are to the forms required when applying for a consumer mortgage and then when closing on the loan. Presently, when applying for a mortgage, generally the lender or mortgage broker provides the borrower with Good Faith Estimate as well as “early” Truth in Lending forms. Under the proposed rule, these two forms would be replaced by a new Loan Estimate form to be provided to the borrower within three days after submitting a loan application.
When closing on a mortgage loan, currently the borrower is provided with the well-known HUD-1 as well as Truth in Lending forms. These forms would be replaced by a Closing Disclosure form, which the borrower would need to receive three days prior to closing on the property. If a change needs to be made to the Closing Disclosure form within three days of closing, the borrower must receive a new form and be given three additional days to review it before closing. There are, however, exceptions to this requirement in cases where the changes result from increased costs of less than $100 or are agreed upon by the buyer and seller stemming from the final walk-through of the property.
In addition to the changes to the disclosure forms, the proposed rule would change how the annual percentage rate (APR) is calculated and defined so that it reflects the upfront costs. The rule would also place further restrictions on closing-cost increases. The final main provision would require lenders to maintain completed Loan Estimate and Closing Disclosure forms in electronic format. To access a copy of the proposed rule, please go to www.gpo.gov/fdsys/pkg/FR-2012-08-23/pdf/2012-17663.pdf.
Comments on the proposed rule were due on November 6, 2012, for the new mortgage disclosure forms provisions and September 7, 2012, for the new APR and other disclosure requirements. The provisions addressing APR were originally scheduled to take effect in January, but in November of last year the CFPB announced that those provisions would be implemented at the same time as the new mortgage disclosure forms. The final rule on the new disclosure forms is expected to be published in mid- to late 2013.
Worldwide ERC® Comments
Worldwide ERC® submitted comments on November 2 on the proposed rule. At the Worldwide ERC® Global Workforce Symposium in Washington, D.C., the association formed a work group to draft the comment letter. Volunteers from the Public Policy Committee and the Title and Closing Committee made up the work group, which developed the comments through conference calls and e-mail in only a few short weeks.
The work group focused its comments on the specific areas of the proposed rule that would have a particular impact on mortgages being secured involving transferees. The work group argued that the mortgage disclosure rules and real estate settlement process can pose challenges unique to the workforce mobility industry. With that in mind, the Worldwide ERC® comment letter was limited to the five points listed below.
- Request for a Narrower Focus Worldwide ERC® joined with other organizations (e.g., NAR, MBA) in requesting that the CFPB focus just on those areas required under the Dodd-Frank Act and issue a more limited rule, as the scope of the current proposed rule would be overwhelming for the industry and borrowers.
- Exemption for Borrowers Who Are Transferees Due to the unique circumstances of homesales involving transferees, Worldwide ERC® requested that the CFPB not apply the proposed changes to borrowers who are transferees. The letter cited the proposed requirement that the new Closing Disclosure form be provided to the borrower at least three days prior to closing and the capturing of additional costs in the APR as two specific areas for the need of an exemption.
- Preparation of Closing Disclosure The bureau outlined two options as to who should provide the Closing Disclosure form, either the lender or the settlement agent. Worldwide ERC® disagreed with the change that only the lender or settlement agent can complete the new Closing Disclosure form and recommended that the settlement agent also have responsibility.
- APR Disclosure Requirements The letter included the recommendation that the CFPB use its exemption authority to remove the Total Interest Percentage and Approximate Cost of Funds from the loan estimate and closing disclosure.
- Definition of Seller Worldwide ERC® provided a specific definition of a seller to remove any confusion as to who the seller is when the sale involves a transferee. Worldwide ERC® suggested that the definition of a seller be revised to include the contractual seller’s name and mailing address. This would keep with the intent of the Closing Disclosure and would resolve significant disagreement between the relocation industry and other interested parties as to who should be listed as seller on the final disclosures.
To read the entire Worldwide ERC® comment letter on the proposed rule, please go to www.WorldwideERC.org/gov-relations/Documents/11-2-12CFPBMortgageDisclosureComments.pdf
There is no statutory deadline for the CFPB to issue the final rule on the new mortgage disclosure requirements and forms or by when the new rules would need to take effect. If the bureau does not make meaningful changes to the proposed rule, the final regulations could pose unnecessary confusion, higher costs, and additional obstacles for all the parties involved in a mortgage and closing on residential real estate—even for the borrower, whom the new disclosure rules are intended to protect.
Tristan North is Worldwide ERC® government relations adviser. He may be reached at +1 703 610 0216 or by e-mail at tnorth@WorldwideERC.org.