Proposed Revisions to Regulation Z Mortgage Loan Disclosures & Final RESPA Rule

CUNA
January 5, 2009 | COMMENTS

Proposed Revisions to Regulation Z Mortgage Loan Disclosures

The Federal Reserve Board (Fed) has issued a proposal that will revise the Regulation Z disclosure requirements for mortgage loans. These are specific changes to implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted this past July and amends certain provisions of the Truth in Lending Act (TILA). As previously planned, the Fed is in the process of reviewing Regulation Z in its entirety and will issue more changes to the mortgage disclosure provisions sometime next year.

The MDIA requires creditors to mail or deliver good faith estimates of mortgage loan costs within three business days after receiving the application for the loan and before any fees are collected, other than a reasonable fee for obtaining a credit report. For these provisions, “business days” are defined as any day in which the lender's office is open for business. These early disclosure provisions are consistent with the Fed's recent final rule that amends the Home Ownership Equity Protection Act (HOEPA), which imposes this requirement for the consumer's primary home, although the MDIA now broadens this requirement to include all dwellings, such as second homes. These requirements will apply to refinancings and home equity loans, but they will not apply to home equity lines of credit (HELOC), which are considered “open-end” loans and not subject to these provisions of TILA and Regulation Z.

The proposed rule incorporates this extended coverage and also implements these additional requirements that were included in the MDIA:

• Creditors must wait at least seven business days after they provide the early disclosures before closing the loan. Again, “business days” are defined as any day in which the lender's office is open for business.
• Creditors must provide corrected disclosures with a revised annual percentage rate (APR) if there are any changes that result in the APR being inaccurate beyond certain tolerances, which will generally be 1/8 of 1 percent. These disclosures must be received at least three days before the loan closing, and the consumer will have been considered to have received these disclosures three business days after they are mailed by the lender. For these corrected disclosure provisions, “business days” are defined as all days except Sundays and specific Federal public holidays, which differs from the definition that applies to the provisions described above for providing early disclosures.

With regard to the seven-day and three-day timing requirements, as described above, the proposed rule will allow a consumer to modify or waive the timing requirements for the loan closing if due to a bona fide personal financial emergency that must be satisfied before the end of the waiting period. An example may include an impending foreclosure. However, accurate disclosures must be provided at or before the time these requirements are modified or waived. In these situations, the consumer must give the lender a dated, written statement describing the emergency. All consumers entitled to receive the disclosures must sign this statement and printed forms will not be permitted. Whether the emergency exists will be determined based on the facts surrounding the individual circumstances.

Both the initial disclosures and corrected disclosures must include the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

The seven-day and three-day timing requirements for disclosures do not apply to mortgage transactions secured by timeshares.

The requirements under the proposed rule, as well as the other requirements under the MDIA, will become effective as of July 30, 2009. This differs from the effective date of the recent final rules that amend HOEPA, which is October 1, 2009. Comments in response to the proposal are due by February 9, 2009.

Please submit your comments to CUNA by January 29, 2009. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. If commenting directly to the Fed, you must refer to Docket No. R-1340. You may also contact us if you would like a copy of the proposal or you may access it here.

> View CUNA's full Regulatory Comment Call, which provides additional information and questions.

> Regulatory & Legislative Resources for Council Members

 

Final RESPA Rule

The Department of Housing and Urban Development (HUD) has issued a final rule to amend the requirements under the Real Estate Settlement Procedures Act (RESPA) in order to improve the mortgage process and to lower settlement costs for borrowers.

The final rule will make significant changes to the Good Faith Estimate (GFE) form. The changes will result in a new format for the GFE that is intended to ensure that the estimates are more accurate and to facilitate comparisons between lenders. These changes will also facilitate comparisons between the GFE and the HUD-1 or HUD-1A settlement statements.

The final rule will clarify when it is appropriate to provide borrowers with discounts and average price costing of settlement services. The final rule also includes changes to the disclosures in connection with the lender payments to brokers that are commonly referred to as yield spread premiums.

The rule is effective January 16, 2009. However, use of the new GFE and HUD-1 settlement statements will not be mandatory until January 1, 2010. HUD will issue guidance on compliance during this implementation period.

If you have questions or need more information about the final rule, please contact Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop or by telephone at (800) 356-9655, extension 6736, or contact Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop or by telephone at (800) 356-9655, extension 6732. You may also access a copy of the final rule here.

> View CUNA's full final rule analysis

> Regulatory & Legislative Resources for Council Members