Pub. 4 2014 Issue 3

21 SUMMER 2014 R E MEMBER BACK IN 2012 WHEN THE CFPB PROPOSED THE “INTE- GRATED MORTGAGE DISCLOSURES?” THIS RULE requiring the know-before-you-owe disclosures was touted by many as the perfect marriage of TILA and RESPA. Before we buy into that description, let’s take a deeper dive into exactly what changes are found buried within the 1,888 pages of explanations, re- quirements and model disclosures. The CFPB received over 3,000 com- ments when the rule was first proposed. The CFPB expected this type of reaction because of the significant changes. The new requirements not only affect two major regulations, they also affect the entire residential real estate industry. The CFPB responded to the comments by adding over 750 pages to the regula- tion, bringing the total to 1,888 pages for this amendment alone. Of course the agency is justifying these changes by stating that the actual regulatory chang- es only account for 70 pages, bringing the total to 279 pages in length. By any standard, that is a lot of information to digest and implement. Ah, I digress. Let’s put these facts out of our mind and move on to what this actually means to us as bankers. The purpose of the rule is to improve the way consumers get loan informa- tion when they apply for and close on a mortgage loan. The majority of the requirements are about the two required disclosure documents, which are the Loan Estimate (replaces the current GFE, Appraisal Notice, Servic- ing Disclosure, ECOA Notice and the Early Truth-in-Lending) and the Closing Disclosure (replaces the current HUD and the Final Truth-in-Lending). The rule also contains some key provisions about the timing of these disclosures. The purpose of reducing the number of the disclosures to only two is not only to reduce the burden on the lenders and other loan personnel who prepare these RESPA/TILA Reform - Through Mortgage Disclosure Integration forms, but to also simplify the forms to be easily understood by the consumer. Before we go into the requirements of the new forms we would be remiss if we did not also note that the proposed in- tegrated mortgage disclosure rule added some language to the official interpreta- tion of Regulation Z which is seemingly unrelated to integrated disclosures. The CFPB slipped in a fairly big change that may broaden the scope of Regulation Z to expressly include loans to trusts. Section 1026.3(a)(2) of Reg Z specifi- cally exempts extensions of credit “to other than a natural person.” Many compliance specialists often argued that because trusts are not defined as “natural persons,” a loan to such an entity would be exempt from the regula- tion. While there has been debate to the contrary, and even some case law suggesting that revocable trusts are still subject to the rule, there was no defini- tive guidance — until now. The integrated disclosure rule now amends the commentary to section 1026.3(a)(2) and provides, in part that, “Credit extended for consumer pur- poses to certain trusts is considered to be credit extended to a natural person rather than credit extended to an or- ganization.” (Commentary to 12 CFR 1026.3(a)). The commentary further explains: “Regardless of the capacity or capacities in which the loan documents are executed, assuming the transac- tion is primarily for personal, family or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended.” If a loan to a trust is for a consumer purpose, then Regula- tion Z, and all its glory, will apply. Now for the agencies’ stated purpose of the rule, let’s break the requirements of the final rule into five sections: First, either the lender or the broker may deliver the Loan Estimate to the n RESPA/TILA — continued on page 22 By DARLIA FOGARTY, Director of Compliance and Dimitris Rousseas Association General Counsel