The Consumer Financial Protection Bureau recently finalized updates to the agency’s “know before you owe” mortgage disclosure rule, hoping not only to formalize guidance of the rule, but also to provide greater clarity to an initiative that took effect in October 2015.
Created to provide more information to help consumers with their mortgage decisions, the rule simplified and consolidated required loan disclosures and altered the timing of some activities in the mortgage process.
The finalized amendments made by the CFPB address several issues within the rule including tolerances for the total amount of payment, housing assistance lending, cooperatives and privacy and sharing of information, as well as making clarifications and technical corrections.
“A mortgage is one of the largest financial decisions a consumer will ever make, and CFPB’s rules help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives,” CFPB Director Richard Cordray said in a statement. “Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers.”
Calls to update the law date back to late 2015, shortly after the rule went into effect. The specific issues addressed are:
Tolerances for the total of payments: 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, which is how the calculation was determined prior to the rule’s implementation. The bureau is now finalizing updates to include tolerance provisions for the total of payments that parallel the tolerances for the finance charge and disclosures affected by the finance charge.
Housing assistance lending: The rule gave a partial exemption from disclosure requirements to certain housing assistance loans, which are originated primarily by housing finance agencies. The update, as finalized, promotes 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 update also excludes recording fees and transfer taxes from the exemption’s limits on costs. Through the update, more housing assistance loans will qualify for the partial exemption, which the CFPB said should encourage further use of these loans.
Cooperatives: The rule’s coverage now include all cooperative units in an effort to simplify compliance and ensure that more consumers benefit from the rule. 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.
Privacy and sharing of information: The rule as written requires creditors to provide certain mortgage disclosures to the consumer. The bureau 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’s statement indicates it understands that it is “usual, accepted and appropriate” for creditors and settlement agents to provide a closing disclosure to buyers, sellers and their real estate brokers or other agents. The bureau is finalizing additional commentary to clarify how a creditor may provide separate disclosure forms to the buyer and the seller.
The CFPB is also releasing a limited follow-up proposal to address an additional implementation issue in regards to when a creditor may use a closing disclosure, instead of a loan estimate, to determine if an estimated closing cost was disclosed in good faith and within tolerance. Comments are due 60 days after the proposal’s publication in the Federal Register and will be considered before a final regulation is issued.
