How new regulations could affect mortgage disclosure requirements

The Consumer Financial Protection Bureau has released a lengthy list of proposed amendments to mortgage disclosure requirements related to the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The mortgage disclosure regulations are better known as the “Know Before You Owe” rules. The proposal is 293 pages long. There are no substantial policy changes proposed. Instead, the CFPB said it seeks to clarify some of the rules and correct technical language.

Proposed Changes for Mortgage Disclosure Requirements

The Know Before You Owe mortgage disclosure rule took effect Oct. 3, 2015. The rule created new, streamlined forms that consumers receive when applying for and closing on a mortgage. The rule put in place requirements about when the new forms are given to the consumer and limits to changes on the original loan estimate. In addition to clarifications and technical corrections, the proposed amendments address a handful of other issues within the rule. Proposed changes include:

  • Tolerances for the total of payments: Before the Know Before You Owe mortgage disclosure rule, the total of payments disclosure was determined using the finance charge as part of the calculation. The Know Before You Owe mortgage disclosure rule changed the total of payments calculation so that it did not make specific use of the finance charge. The Bureau is now proposing to include tolerance provisions for the total of payments that parallel existing tolerances for the finance charge and disclosures affected by the finance charge. This change would make the treatment of the total of payments disclosure consistent with what it was prior to the Know Before You Owe mortgage disclosure rule.
  • Housing assistance lending: The rule gave a partial exemption from disclosure requirements to certain housing assistance loans originated primarily by housing finance agencies. The Bureau’s proposed update would promote housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption. The rule would also exclude recording fees and transfer taxes from the exemption’s limits on costs. Through the proposed update, more housing assistance loans would qualify for the partial exemption, which should encourage lenders to partner with housing finance agencies to make these loans.
  • Cooperatives: The Bureau is proposing to extend the rule’s coverage to include all cooperative units. With a cooperative, a buyer becomes a shareholder in a corporation that owns the property. The buyer is then entitled to exclusive use of a housing unit in the property. Currently, the rule only covers transactions secured by real property, as defined under state law. Cooperatives are sometimes treated as personal property under state law and sometimes as real property. By including all cooperatives in the rule, the Bureau would simplify compliance.
  • Privacy and sharing of information: The rule requires creditors to provide certain mortgage disclosures to the consumer. The Bureau has received many questions about sharing the disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. The Bureau understands that it is usual, accepted, and appropriate for creditors and settlement agents to provide a closing disclosure to consumers, sellers, and their real estate brokers or other agents. The Bureau is proposing additional commentary to clarify how a creditor may provide separate disclosure forms to the consumer and the seller.

Public Input

The public is invited to submit comments on the proposed changes. Stakeholders and anyone else who wishes to comment must do so by Oct. 18, 2016. The American Land Title Association says it is reviewing the proposed regulations to see how it affects the organization’s members.

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