CFPB Monitor News Guidance Perspectives of CFPB | Ballard Spahr Law Firm Blog

CFPB gives guidance and answers FAQ on the new Closing Disclosure

Posted in CFPB General, CFPB Rulemaking, TILA / RESPA

On November 18, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar that addressed questions about the Final TILA-RESPA Integrated Disclosure Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015.  The webinar focused on the Closing Disclosure and addressed specific questions regarding the content of the Closing Disclosure.

The webinar is the fourth in a series to address implementation of the new rule.  Topics covered in the past include an overview of the final rule, frequently asked questions, and the loan estimate form.  Many of the issues covered were in response to questions received by the CFPB from mortgage industry stakeholders and technology vendors who need additional information in order to facilitate the development of compliance and quality control procedures and software.

During the webinar the CFPB staff provided a high-level walk through of the Closing Disclosure Form and addressed several issues, including the following:

•     For transactions with a seller, the staff advised that the sales price should be disclosed at the top of page 1, and that for transactions without a seller, such as a refinance, a creditor should disclose the appraised value and label it “appraised prop value” (assuming there is an appraisal).  In addition, the CFPB staff referred to comment § 1026.38(a)(3)(vii)-1 and said that in cases where the creditor has not yet obtained an appraisal, the rule provides some degree of flexibility and allows creditors to disclose an estimated value as long as it is labeled “estimated prop value.”

•    The staff also said that although the categories identified on page two of the Closing Disclosure are the same as those on the Loan Estimate, the Closing Disclosure allows greater flexibility for revisions to the spacing.  For example, the number of rows can be reduced or added by the creditor for each category based on need.  According to the CFPB staff, if the rows provided are not sufficient to disclose all the items, page two may be broken into two pages – page 2(a) and page 2(b), with loan costs listed on 2(a) and other costs on 2(b).  The CFPB staff noted that Form H-25(h) in Appendix H is an example of how to divide page two into separate pages.  The staff referred to the CFPB’s TILA/RESPA Integrated Disclosure—Guide to the Loan Estimate and Closing Disclosure form  that is available on its regulatory implementation website, along with sample forms, for additional guidance.

•     The staff advised that charges disclosed in one category of the Loan Costs section in the Loan Estimate may need to be disclosed in a different category of the section in the Closing Disclosure.  For example, if title charges were disclosed in the Services You Can Shop For category of the Loan Costs section in the Loan Estimate and the borrower selected the title company identified by the creditor on the written list of providers, the title charges would have to be disclosed in the Services Borrower Did Not Shop For category of the Loan Costs section the Closing Disclosure (because the borrower would not have actually shopped for a provider under the rule).

•     The staff said that under “Other Costs” on page two of the Closing Disclosure, general lender credits not associated with any particular item must be listed at the bottom of the page as a negative number.  The lender credit must be listed along with a narrative description if any refund is being provided by the creditor pursuant to the good faith analysis of charges.  Notably, the CFPB staff said that lender credits associated with specific closing costs must be disclosed as paid by others and have an “L” for lender designation.

•     The CFPB staff pointed out that the Loan Estimate contains less detail with regard to transfer taxes than the Closing Disclosure.  The main difference between the two forms in this respect is that transfer taxes are itemized on the Closing Disclosure as opposed to aggregated into a single sum on the Loan Estimate.  The itemization is for each tax and for each government entity because multiple taxes may be assessed by each government entity.

In addition to giving a detailed walkthrough of the Closing Disclosure Form, the CFPB staff used the webinar as an opportunity answer a variety of questions posed by the industry.  We have prepared below an unofficial summary of the questions addressed by the CFPB staff.

Q: How does the disclosure of recording fees differ between the Loan Estimate and the Closing Disclosure (compare § 1026.37(g)(1)(i) with § 1026.38(g)(1)(i))

Similar to the Loan Estimate, the Closing Disclosure requires the sum of all recording fees to be disclosed as one item.  See § 1026.37(g)(1)(i).  However, the Closing Disclosure also requires the amount paid to record the deed and mortgage be itemized separately.  Accordingly, the itemized recording fees for the deed and the mortgage should only include the amounts needed to record each of those documents.  Note that recording fees associated with any other documents, except for the deed and the mortgage, are only included as part of the total recording fees and are not separately itemized.  See § 1026.38(g)(1)(i).

Q: How should creditors disclose the name of the government entity to whom a transfer tax amount is distributed (§ 1026.38(g)(1)(ii))

Creditors must disclose the name of the entity assessing the transfer tax.  This is the case even if the entity that is assessing the transfer tax is different than the payee of the check cut by the settlement agent.

Q: Is a lender required to choose only one of the three options for the Partial Payments disclosure required by § 1026.38(l)(5), or is it possible to check multiple boxes?

It depends.  A creditor may check multiple boxes in certain circumstances.  A creditor should check the first and second box if the creditor accepts partial payment and applies it to the loan balance in some circumstances.  However, a creditor should not check the third box if it accepts partial payment in any circumstance that is applicable to the borrower’s loan.  In this case, the creditor should only check the third box and not check the first or second boxes.

Q: What constitutes an anti-deficiency law for the purposes of the Anti-Deficiency disclosure?

State law that protects the consumer against liability for the unpaid balance of the loan after a foreclosure is considered an anti-deficiency law for the purposes of the Anti-Deficiency disclosure.  For example, this includes state laws that forbid creditors from seeking deficiency judgments and state laws that limit the amount a creditor may collect or limit the availability of deficiency judgments to certain circumstances.

Q: Do statutes of limitations on obtaining or collecting a deficiency judgment count as anti-deficiency protections for the purposes of this disclosure?

No.  According to comment § 1026.38(p)(3)-1, a statute of limitations that only limits the time frame a creditor may seek redress does not constitute an anti-deficiency protection for the purposes of the disclosure.  Therefore, state laws that allow for deficiency judgments, but require creditors to file a motion or seek a judgment within a prescribed time period would not be considered anti-deficiency protections based solely on the time limitation for obtaining or collecting a deficiency judgment.  Note that if these statutes provide consumers protection for the availability of an unpaid balance, such provisions must be separately analyzed to determine whether they are considered anti-deficiency protection.

Q: How should a creditor make the anti-deficiency disclosure if a state anti-deficiency law could apply to the loan, but whether it ultimately would apply depends on facts and circumstances at the time of foreclosure?

Generally, if a state anti-deficiency law could apply at the time of foreclosure, but whether it will actually apply is unknown, it should be disclosed by a creditor as an anti-deficiency law that may apply.  The rule does not require a creditor to predict future facts or circumstances and whether an anti-deficiency rule may ultimately apply to a loan may depend on facts and circumstances that will not be known until there is a foreclosure.  This may include factors such as the fair market value or appraised value at the time of the foreclosure or whether the property is owner occupied at the time of a foreclosure.  Section 1026.38(p)(3)requires a disclosure to the consumer that a state anti-deficiency law may apply to the loan, that is whether the law could apply at a future date.  If it could, then the first box on the form should be checked, which includes a statement that the borrower should consult an attorney.

Q: What should creditors do if the information required to be disclosed does not fit in the space allotted on the form?

In the event that all the information required to be disclosed does not fit in the space allotted on the form, the additional information may be disclosed on a separate page with the Closing Disclosure.  Note that this is not a general rule.  Creditors must look to each section in § 1026.38 to see when the rule requires the information to be provided on an additional page.  In addition, there is a provision for customary recitals and information used locally in real estate settlements.  The commentary to § 1026.38(t)(5)(ix) lists several examples pertaining to this information.

Q: Is there a model or sample of an addendum for the additional information?

No.  There are no required forms for an addendum.  No sample or model is provided in the rule or in any other documents.

Q: Is there anything creditors are required to include on the addendum?  (§ 1026.17(a)(1))

The information that must be included on the addendum depends on the requirements for the original disclosure of the information.  For example, if a creditor is using an additional page to list several other sellers that could not fit onto the first page of the Closing Disclosure, the name and address of the sellers that would not fit would be included on the additional page with the label “sellers.”  See comment § 1026.38(a)(4)-1.  In addition, the creditor may want to include information or statements that would indicate that the additional pages relate to the Closing Disclosure to ensure that the additional pages are clear and conspicuous to the consumer pursuant to § 1026.17(a)(1).

Q:  What are the formatting requirements for the addendum?  (Comment § 1026.38(t)(5)-5)

Generally, information that is required or permitted to be disclosed on a separate page with the Closing Disclosure should be formatted similarly to the Closing Disclosure.  The additional information should be consolidated on as few pages as necessary to minimize the total number of pages.  The additional pages should not affect the substance, clarity, or meaningful sequence of the Closing Disclosure.

A full recording of the webinar can be accessed here.