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Eleventh Circuit Holds Certain Improper Disclosures Do Not Trigger TILA Rescission
On January 14, the U.S. Court of Appeals for the Eleventh Circuit affirmed dismissal of a suit seeking rescission of a mortgage loan based on the lender’s alleged failure to disclose the “real lender” and improper disclosure of the interest rate, the yield spread premium, the payments schedule and the processing and administrative fees. Wane v. The Loan Corp., No. 13-11597, 2014 WL 114688 (11th Cir. Jan. 14, 2014). The court held that the allegation that the borrower was not informed of the real lender did not support a right to rescind because (i) it was not a material disclosure under the TILA; and (ii) the borrowers were, in fact, apprised of the party financing the mortgage. Similarly, the court held the allegations that other terms were improperly disclosed did not give rise to a right to rescind because they were either properly disclosed or, in the case of the yield spread premium and the processing and administrative fees, did not constitute material violations of TILA’s disclosure requirements. The court also affirmed the district court’s order denying the borrower’s motion for summary judgment to quiet title, and granting the lender’s motion for summary judgment for breach of contract and money lent.
VA Issues Statement On ATR/QM Rule
On January 9, the Department of Veterans Affairs (VA) issued Circular 26-14-1, which clarifies lender requirements for home loans guaranteed by the VA under the TILA and the CFPB’s Ability to Repay and Qualified Mortgage (ATR/QM) rule. Given that the CFPB’s ATR/QM rule took effect on January 10, 2014, and the VA has not yet finalized its own ATR/QM requirements for VA-guaranteed loans, the circular states that all lenders must comply with the requirements of TILA, as established by CFPB’s ATR/QM Rule. Further, all loans made in compliance with existing VA requirements will continue to be guaranteed by VA, regardless of their QM status. The VA expects to publish its ATR/QM rule in the “near future.”
Utah Federal Court Holds Model TILA Rescission Notice Not "Clear And Conspicuous"
On January 6, the U.S. District Court for the District of Utah held that the model TILA rescission disclosure, form H-8, does not clearly and conspicuously disclose the three business day rescission period. Simmons v. Citimortgage Inc., No. 11-171, 2014 WL 37623 (D. Utah Jan. 6, 2014). In this case, two borrowers sued their lender, claiming that the lender improperly refused to rescind the borrowers’ loan within the statutory three-day rescission period. The borrowers, who closed on a Wednesday and sought rescission the following Monday, claimed that their rescission attempt fell within the three business day window granted by TILA. The lender countered that Regulation Z defines Saturday as a business day and therefore the borrowers’ request was untimely. On summary judgment, the court determined that the rescission disclosure the lender provided to the borrowers, model disclosure form H-8, did not clearly and conspicuously disclose the date the rescission period expired. The court explained that the model disclosure is subject to more than one sensible reading and required the borrowers to conduct further research into the meaning of “business day.” The court reasoned that the fact that the borrowers were required to do anything to understand the notice is sufficient to disqualify the notice from being “clear and conspicuous.” The court granted partial summary judgment to the individual borrowers, holding that the borrowers are entitled to the three-year rescission period, and invited further briefing as to whether the borrowers have otherwise met their rescission burden.
CFPB Seeks Information On Mortgage Closing "Pain Points"
On January 2, the CFPB issued a request for information about “key consumer ‘pain points’ associated with mortgage closing and how those pain points might be addressed by market innovations and technology.” The request includes 17 specific questions about the closing process, common errors at closing, the role of “other parties” at closing, and closing documents. The CFPB stated that the request is part of the next phase of its Know Before You Owe initiative in which the CFPB will “encourage interventions that increase consumer knowledge, understanding, and confidence at closing.” In particular, the CFPB seeks to promote “the development of a more streamlined, efficient, and educational closing process as the mortgage industry increases its usage of technology, electronic signatures, and paperless processes.” The CFPB first announced this initiative in November 2013 in conjunction with the release of the final rule combining mortgage disclosures under TILA and RESPA. Responses to the request are due by February 7, 2014.
CFPB Increases Asset-Size Thresholds Under HMDA, TILA
On December 30, the CFPB announced final rules adjusting the asset-size thresholds under Regulation C (HMDA) and Regulation Z (TILA). Both rules take effect on January 1, 2014.
HMDA and Regulation C require certain lenders to collect and report data about mortgage application, origination, and purchase activity, and make such data available to the public. Institutions that have an asset level below a certain dollar threshold are exempt from the requirements of Regulation C. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $42 million to $43 million, thereby exempting institutions with assets of $43 million or less as of December 31, 2013, from collecting HDMA data in 2014.
TILA and Regulation Z, among other things, require creditors to establish escrow accounts when originating higher-priced mortgage loans. However, TILA exempts certain entities from this requirement, including entities that meet an asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2 billion to $2.028 billion, thereby exempting creditors with assets of $2.028 billion or less as of December 31, 2013, from the requirement to establish escrow accounts for higher-priced mortgage loans in 2014.
Sixth Circuit Holds Servicers Exempt from TILA Liability
On November 26, the U.S. Court of Appeals for the Sixth Circuit held that mortgage servicers are exempted from TILA liability, despite recent amendments to the statute. Marais v. Chase Home Fin. LLC, No. 12-4248, 2013 WL 6170977 (6th Cir. Nov. 26, 2013). A borrower had alleged that her servicer violated TILA by failing to properly respond to her written request for information regarding her loan. The Sixth Circuit rejected the borrower’s argument that amendments to TILA as part of the Helping Families Save Their Homes Act of 2009 created a cause of action against mere servicers, and held that servicers who are not creditors or creditor assignees are expressly exempt from TILA liability. The court, however, held that the servicer could be liable under RESPA for damages caused by its purported deficient response to the borrower’s request for information.
Special Alert: CFPB Finalizes Rule Combining TILA and RESPA Mortgage Disclosures
UPDATED OCTOBER 14, 2014: Updated to reflect amendments proposed by the CFPB on October 10, 2014.
On November 20, 2013, the CFPB finalized its long-awaited rule combining the mortgage disclosures consumers receive under the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). For more than 30 years, the TILA and RESPA mortgage disclosures had been administered separately by, respectively, the Federal Reserve Board (“FRB”) and the U.S. Department of Housing and Urban Development (“HUD”). In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) transferred authority over TILA and RESPA to the Bureau and directed the Bureau to create “rules and model disclosures that combine the disclosures required under [TILA] and sections 4 and 5 of [RESPA], into a single, integrated disclosure for mortgage loan transactions covered by those laws.” Congress did not, however, amend TILA and RESPA provisions governing timing, responsibility, and liability for the disclosures, leaving it to the Bureau to resolve the inconsistencies. The final rule generally applies to covered transactions for which the creditor or mortgage broker receives an application on or after August 1, 2015.
Click here to read our Special Alert. (Updated 10/15/14)
Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Jeffrey P. Naimon, (202) 349-8030
- Clinton R. Rockwell, (310) 424-3901
- John P. Kromer, (202) 349-8040
- Joseph M. Kolar, (202) 349-8020
- Jeremiah S. Buckley, (202) 349-8010
Federal Reserve, CFPB Announce Increased Consumer Credit, Lease Transaction Thresholds
On November 20, the Federal Reserve Board and the CFPB announced an increase in the dollar thresholds in Regulation Z (TILA) and Regulation M (Consumer Leasing) for exempt consumer credit and lease transactions. Transactions at or below the thresholds are subject to the protections of the regulations. Based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2013, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $53,500 or less beginning January 1, 2014. Private education loans and loans secured by real property remain subject to TILA regardless of the amount of the loan.
Preliminary Observations Regarding CFPB's Final Mortgage Disclosure Rule And Forms
**Update – The CFPB has now released the final rule and related materials, available here.**
Later today, as anticipated, the CFPB will release its final rule combining the TILA and RESPA mortgage disclosure forms and rules. We will review the final forms and rule, monitor the related field hearing, and prepare a preliminary Special Alert followed by a more detailed summary.
The final rule and forms follow two years of drafting, testing, and revision by the Bureau. According to the Bureau, its testing demonstrates that the new forms significantly improve the ability of consumers with a variety of experience levels and loan types to answer questions about their loans, compare competing loans, and compare estimated and final loan terms and costs.
The text of the final rule will not be available until later today. However, we are able to make several preliminary observations based on our review of the materials made available thus far, perhaps most importantly that industry will have until August 1, 2015 to make the changes to systems and training necessary to implement the new forms, which is longer than anticipated. Additional observations follow.
Loan Estimate Disclosure
- The new Loan Estimate will combine the disclosures currently provided in the Good Faith Estimate and the initial Truth in Lending statement.
- It appears that the final rule will require lenders to provide the Loan Estimate three business days after an application is submitted by a consumer, excluding days that the lender is not open (e.g., Saturdays). However, it is not clear based from materials available thus far when a consumer has submitted sufficient information to constitute an “application.”
- The design and layout of the Loan Estimate does not appear to differ substantially from the proposed form, except that estimated closing costs and estimated cash to close are now disclosed in separate rows on the bottom of page 1. The CFPB also states that it modified the forms to include checkboxes to tell consumers whether they are receiving or paying cash at closing and to provide a streamlined calculation of that amount.
- Owner’s title insurance is listed as “optional” on page 2. During a recent House Financial Services Committee hearing with CFPB Director Cordray, two committee members–Reps. Miller (R-CA) and Perlmutter (D-CO)–expressed concern that identifying this cost as optional would not serve consumers’ best interests.
- The Total Interest Percentage (TIP) disclosure, which was required by the Dodd-Frank Act and opposed by industry, has been retained on page 3.
- The Annual Percentage Rate (APR) appears on page 3, despite requests by consumer advocates that it appear in a prominent location on the first page. In addition, it appears that the Bureau did not adopt the proposal to revise the APR calculation to include more items in the finance charge and thereby potentially increase the number of loans that would fail the Qualified Mortgage’s points-and-fees test or would be treated as “high cost” or “higher priced.”
- It is unclear from the materials provided what changes, if any, will be made to the restrictions on changes in costs (or tolerances) imposed by the Department of Housing and Urban Development (HUD) in 2010. It is also unclear whether, under the final rule, TILA or RESPA liability will apply to violations of those restrictions.
Closing Disclosure
- The Closing Disclosure will combine the disclosures currently provided in the HUD-1 settlement statement and any revised Truth in Lending statement.
- It appears that the final rule will require the lender to ensure that the consumer receive the Closing Disclosure three business days before closing. This would mean that the lender must be able to demonstrate that the consumer received the Closing Disclosure three business days before closing.
- The CFPB materials indicate that, in comparison to the proposal that changes to the information provided in the Closing Disclosure generally require re-disclosure and an additional three business day waiting period before closing, the final rule limits the additional waiting period to situations in which there is a substantial change in the APR, a change in the loan product, or the addition of a prepayment penalty.
- It is unclear from the materials provided what role, if any, the settlement agent will play in the preparation of the Closing Disclosure and whether TILA or RESPA liability will apply.
- Like the final Loan Estimate, the design and layout of the final Closing Disclosure do not appear to differ substantially from the proposed form, except for the changes noted above.
- In addition, the final Closing Disclosure, like the proposed form, eliminates the HUD-1 line numbers. The final Closing Disclosure also eliminates the Average Cost of Funds (ACF) disclosure, which was added by the Dodd-Frank Act but opposed by industry.
Other Issues
- It appears that the CFPB has not adopted the proposed requirement that lenders retain records in an electronic, machine-readable format. Instead, the CFPB will work with the Fannie Mae and Freddie Mac to create a data standard based on the Closing Disclosure.
For additional background, please review our report on the rule as proposed.
CFPB Issues Interpretive Rule Regarding Homeownership Counseling Organizations Lists
On November 8, the CFPB issued an interpretive rule setting forth instructions for lenders on how to comply with the homeownership counseling list requirements set forth in the High-Cost Mortgage and Homeownership Counseling Amendments to TILA and the Homeownership Counseling Amendments to RESPA, which are scheduled to take effect on January 10, 2014. In addition, the CFPB released its homeownership counseling list generation tool to help lenders produce a list that complies with RESPA requirements.
The interpretive rule clarifies the requirement under RESPA that lenders must provide a list of homeownership counseling organizations to consumers obtained from the CFPB or HUD. Specifically, the rule requires lenders to:
- Provide a list of ten HUD-approved housing counseling agencies to consumers;
- Generate the list by using the consumer’s current five-digit zip code to ensure that the homeownership counseling organization will be in the consumer’s location;
- Include the following information for each housing counseling agency listed: (i) agency name; (ii) phone number; (iii) street address, city, state, zip code; (iv) website URL; (v) email address; (vi) counseling services provided; and (vii) languages spoken; and
- Include the following language:
The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you. This list shows you several approved agencies in your area. You can find other approved counseling agencies at the Consumer Financial Protection Bureau’s (CFPB) website: consumerfinance.gov/mortgagehelp or by calling 1-855-411-CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries at http://portal.hud.gov/hudportal/HUD?src=/ohc_nint.