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ABA BRIEFING | PARTICIPANT’S GUIDE

TRID Audit 4: Construction Loans

Thursday, September 29, 2016 Eastern Time

2:00 p.m.–4:00 p.m. Central Time

1:00 p.m.–3:00 p.m. Mountain Time

12:00 p.m.–2:00p.m. Pacific Time

11:00 a.m.–1:00 p.m.

American Bankers Association TRID Audit Series TRID Audit 4: Construction Loans Thursday, September 29, 2016 ▪ 2:00 – 4:00 p.m. ET

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II

Table of Contents

TABLE OF CONTENTS ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II

SPEAKER & ABA STAFF LISTING ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III

SPEAKER BIOGRAPHY ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV

PROGRAM OUTLINE ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V

CONTINUING EDUCATION CREDITS INFORMATION ... . . . . . . . . . . . . . . . . . . . . . . . . VI

CPA SIGN-IN/SIGN-OUT SHEET ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII

INSTRUCTIONS FOR RECEIVING CERTIFICATES OF ATTENDANCE .. VIII

PROGRAM INFORMATION ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ENCLOSED

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III

Speaker and ABA Staff Listing

Speaker Patti Joyner Blenden, CRCM President and Founder Financial Solutions for Growing Companies, Inc. PO Box 159 Lake Lure, NC 28746 (843) 870-7725 [email protected]

ABA Briefing/Webcast Staff Cari Hearn Senior Manager (202) 663-5393 [email protected] Linda M. Shepard Senior Manager (202) 663-5499 [email protected]

American Bankers Association 1120 Connecticut Avenue, NW Washington, DC 20036 www.aba.com

mailto:[email protected]



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IV

Speaker Biography

PATTI JOYNER BLENDEN, CRCM Patti Joyner Blenden founded Financial Solutions in 1990 to provide community financial institutions with effective solutions for the ever increasing need for cost-effective regulatory risk management. The company provides compliance reviews, in-house training, compliance policy and procedure development and other special projects for bank clients. Patti firmly believes that community bank has very little to do with your asset size, but everything to do with your heart! Patti’s ability to transform complex requirements into simple, practical solutions is bound by a deep conviction that “excellence is not optional” which translates into effective answers for community bankers. She has a thorough understanding of the current regulatory environment and is able to integrate, streamline and automate related priorities without compromising compliance or performance. Ms. Blenden is a frequent presenter for the American Bankers Association where she serves as a faculty member of its prestigious Stonier Graduate School of Banking and National, Intermediate and Graduate Compliance Schools. Additionally, Patti partnered with Lucy Griffin in the fall of 2013 to develop and deliver a four-part ABA briefing/webcast series on the new mortgage requirements which took effect in January 2014. She also works extensively with many state and regional banking associations, has been an invited speaker for various State and Federal regulatory agencies, and law enforcement agencies. In addition, Patti speaks at many national and state compliance seminars, schools and conferences, conducts in-bank training and is a published compliance resource. Patti has a B.S. degree in Accounting from Louisiana Tech University, has over 35 years of banking experience. She is a Certified Regulatory Compliance Manager (CRCM).


V

PROGRAM OUTLINE TIMES SESSION AND SPEAKERS

1:45 – 2:00 p.m. ET

Pre-Seminar Countdown

2:00 – 2:02 p.m.

Welcome and Speaker Introduction 1Source International

2:02 – 2:10 p.m.

Opening Comments Patti Blenden, CRCM Financial Solutions for Growing Companies, Inc.

2:10 – 2:25 p.m.

Construction Loans Construction-Only Loans Construction-Permanent Loans

2:25 – 2:40 p.m.

Purpose

2:40 – 2:50 p.m.

Other Considerations

2:50 – 3:30 p.m.

Loan Estimate Issues Appendix D for Multiple Advance Loans Construction Loan General Information Loan Terms and Projected Payments

3:30 – 3:45 p.m.

Loan Costs and Other Costs

3:45 – 3:50 p.m.

Additional Information about this Loan

3: 50 – 4:00 p.m.

Closing Issues Questions and Answers


VI

Continuing Education Credits Information

The Institute of Certified Bankers™ (ICB) is dedicated to promoting the highest standards of performance and ethics within the financial services industry.

The ABA Briefing/Webcast, “TRID Audit 4: Construction Loans” has been

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VII

CPA Required Sign-in/Sign-out Sheet

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VIII

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ABA TRID Audit Briefing ‐ Part 4: TRID Construction Loans

ABA: TRID Audit Part 4 – September 29, 2016

aba.com 1-800-BANKERS

TRID Audit Briefing Part 4: TRID Construction Loans

ABA Briefing Thursday September 29, 20162:00 – 4:00 p.m. ET


Disclaimer

This Briefing will be recorded with permission and is furnishedfor informational use only. Neither the speakers, contributorsnor ABA is engaged in rendering legal nor other expertprofessional services, for which outside competentprofessionals should be sought. All statements and opinionscontained herein are the sole opinion of the speakers andsubject to change without notice. Receipt of this informationconstitutes your acceptance of these terms and conditions.

2




Presenter

3

Patti Joyner Blenden, CRCMPresident and Founder Financial Solutions for Growing Companies, Inc.

http://www.finsolinc.com/pattib.htmhttp://www.finsolinc.com/compliancetools.htm


Agenda

• Opening Comments• Construction Loans

– Construction-Only Loans– Construction-Permanent Loans

• Purpose• Other Considerations• Loan Estimate Issues

– Appendix D for Multiple Advance Loans– Construction Loan General Information– Loan Terms and Projected Payments

• Loan Costs and Other Information• Additional Information about this Loan• Closing Issues

4



5

6



7


TRID Construction Loans

• §1026.2 Definitions and rules of construction

• Reg Z Subpart C – Closed-End Credit– § 1026.17 General disclosure requirements– § 1026.19 Certain mortgage and variable-rate transactions

• Appendix D – Multiple Advance Construction Loans– Part I – Construction Period Disclosed Separately – Part II—Construction and Permanent Financing Disclosed as

One Transaction

8




§1026.2(a)(24) Residential Mortgage Transaction (RMT)• Residential mortgage transaction means a transaction in which a mortgage,

deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.

– Purchase Money Loan– Loan to purchase or construct a principal dwelling

• Principal dwelling – Consumer can only have 1 principal dwelling at a time• If a consumer buys or builds a new dwelling that will become the

consumer's principal dwelling within a year or upon completion of construction, the new dwelling is considered the principal dwelling for purposes of applying this definition to a particular transaction.

– (See Commentary to §§1026.15(a) and 1026.23(a))

9


§1026.2(a)(24) Construction Financing

• Commentary 4: If a transaction meets the definition of an RMT and the creditor chooses to disclose it as several transactions under §1026.17(c)(6), each one is considered to be an RMT, even if different creditors are involved. For example:

– Creditor makes a construction loan to finance the initial construction of consumer's principal dwelling, and the loan will be disbursed in 5 advances. The creditor gives 6 sets of disclosures (5 for the construction phase and 1 for the permanent phase). Each one is an RMT.

– One creditor finances the initial construction of the consumer's principal dwelling and another creditor makes a loan to satisfy the construction loan and provide permanent financing. Both transactions are RMTs.

– This relieves us of the need to give the right to rescind for the multiple phases of construction loans (e.g., permanent phase of a construction loan). I realize, however, many investors require you to provide the right to rescind regardless in an effort to conservatively comply.

10




§1026.17(c) Basis of Disclosures and Use of Estimates

• 17(c)(6)(i) A series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction

• 17(c)(6)(ii) When a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction

• Commentary 3: Sections 1026.17(c)(6)(i) and (ii) are not mutually exclusive.

• Creditor has flexibility in how the transaction is disclosed.

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Comm Paragraph 17(c)(6)-2 Multiple Advance Construction Loans• Construction Only

– If advances are treated as 1 transaction and timing and amounts of advances are unknown, creditors must make disclosures based on estimates, as provided in §1026.17(c)(2)

• Construction-Permanent Loan– Usually 2 distinct phases as with 2 separate transactions. Construction loan may be for

initial construction or subsequent construction, such as rehabilitation or remodeling– Construction period usually involves several disbursements of funds at times and in

amounts unknown at the beginning with interest-only payments. Unless obligation is paid at that time, loan converts to permanent financing

– Creditor may give one combined disclosure or a separate set of disclosures for the 2 phases, regardless of whether consumer is already obligated to accept financing for both phases

– If consumer is obligated on both phases and creditor elects to give 2 sets of disclosures, both sets must be given to consumer at application

• Number of closings does NOT impact the choice of products!

12




Construction LoansLoan Estimate Issues


TRID Coverage

• Closed-end mortgage loans primarily for personal or household use secured by real property regardless of lien position (no dwelling required as collateral)

• Loans not previously covered by RESPA are now covered:

• Trusts as borrowers (e.g., tax or estate purposes)• Construction-only loans• Lot loan (vacant land)• Residential land parcels of 25 or more acres• Timeshare loans (only some of the TRID provisions apply)

14




TRID Covered Transaction?1s

t Is the applicant

an individual

or covered trust?

2nd Is the loan

primarily for

consumer purpose?

3rd Is the loan

secured by any real property (dirt)?

4th

TRID covered

loan!

15

Yes YesYes


TRID Loan Purpose

• Purpose is disclosed using 1 of 4 descriptions, in this hierarchy order!

– Purchase: Loan will be used to finance the acquisition of the identified Property (collateral property)

– Refinance: Loan will be used to refinance an existing obligation that is secured by the identified Property (even if creditor is not holder or servicer of original obligation)

– Construction: Loan will finance initial construction of a dwelling on property disclosed on Loan Estimate

– Home Equity Loan: Loan will be used for any other purpose not listed in the categories above

16




CFPB Proposed TRID Amendments

• Anywhere you see this image throughout the presentation, reference is made to key provisions of the July 2016 proposed amendments that are not yet final.

• We have tried to point out the areas where the proposal clarifies or formalizes guidance informally provided by the CFPB through webinars or other outlets

• CFPB stated in the preamble that it expects to issue final rule by April 1, 2017. An implementation period of 4 months was proposed for the final rule. – Leaves us with a potential effective date of August 1, 2017

17


TRID Transaction Timing Overview

Collection of 6 Application Items

Issue LE w/i 3 BdaysMust be 7 Bdays

before closing

Learn of Changed Circumstances that

warrant a revised LEIssue LE w/i 3 Bdays

Must be 4 Bdays before closing. Reset

Tolerances

Issue first Closing Disclosure. No more LE’s may be issued.

Applicants must receive CD 3 Bdays

before consummation.

Learn of Changed Circumstance within 4 Bdays before closing. We think tolerance

baseline can be reset by revised CD in this

window.

Closing can occur on the 3rd Bday after

consumer receives revised CD.

18




LE Considerations for Creditor

• The proposal attempts to clarify that if a Creditor regularly offers both construction and permanent lending, the Creditor must provide a Loan Estimate for a construction-permanent loan within 3 days of application, even if the application is for a construction-only loan.

• If the applicant specifically states the applicant will not get the permanent loan from the lender, the lender may provide the Loan Estimate for construction-only loan within 3-days of application.

• CFPB specifically requests comment on this proposal and whether an alternate approach is appropriate.

– One option is to delay the LE for the permanent loan until actual application – The Creditor could choose to provide the LE for combined construction-perm at application

• This could significantly impact the Creditors that provide a broad portfolio of products for customers, construction-perm or construction-only, especially if they use two closings

19


TRID Audit ChallengeGeneral Information

• Did we accurately and consistently disclose the property value, depending on whether the transaction involved a seller or not, between the LE and the CD?

– Collateralization by owned real property and the home to be constructed

– Purchase of personal property along with the construction project, or

– Permanent financing of the construction-only loan.

• Does the progression of file documentation support the property valuation (construction estimate, appraisal of the home to be constructed including land, appraisal post-construction, etc.) used for transaction loan-to-value (LTV) ratio and final Closing Disclosure (CD)?

• NOTE: TRID amendment proposes that costs that would be imposed only for the construction phase must be allocated to the construction phase and all other costs to the permanent phase. Changes the current guidance.

• Are all borrowers accurately identified and the final loan product and Loan Term, Purpose, and Loan Product correctly noted on the CD to match the final transaction terms.

20



TRID Covered Construction Loan ExamplesLoan Purpose Collateral TRID Purpose HMDA Purpose

Purchase of land on which a dwelling is to be constructed

Land to be used for dwelling in the future Purchase Not reported

Initial 12-month construction only loan to purchase land and construct dwelling

RE and the dwelling to be constructed Purchase Not reported

Initial 12-month dwelling construction on land already owned to be converted to long-term note

RE and the dwelling to be constructed Construction Not reported

Replace initial construction-perm loan via new loan plus cash out for construction renovation

Substituted propertyconstructed by and securing first loan with a different dwelling and real estate

Home Equity Home Improvement

Multiple advance loan to renovate consumer’s home Home being renovated Home Equity Home

Improvement

21

(1) HMDA (Comment 1003.2(h)-5) states that permanent refinancing of a construction loan is always categorized a “Purchase.”

TRID Covered Construction Loan ExamplesLoan Purpose Collateral TRID Purpose HMDA Purpose

Construction-Perm loan to buy land and construct dwelling

Property purchased and dwelling to be constructed Purchase Purchase

Permanent financing of the initial construction loan via a new loan

Same property constructed by and securing first loan Refinance Purchase (1)

Permanent financing of construction via modification at same bank

Secured by same property as initial loan that is now being modified

Not covered (modification) Purchase (1)

Construction-only loan to construct home on owned land

Certificate of depositNot covered Not reportable

Refinance previous mortgage loan used in renovating the house

Old loan and new loan secured by home being renovated

Refinance(not INITIAL construction)

Home Improvement

22

(1) HMDA (Comment 1003.2(h)-5) states that permanent refinancing of a construction loan is always categorized a “Purchase.”




§1026.19(e)(3)(iv)(F)Delayed Settlement Date on a Construction Loan

• In transactions involving new construction, where the creditor reasonably expects that settlement will occur more than 60 days after the Loan Estimate (LE) disclosures, the creditor may provide revised disclosures to the consumer if the original LE states clearly and conspicuously that at any time prior to 60 days before consummation, the creditor may issue revised disclosures.

• If no such statement is provided, the creditor may not issue revised disclosures, except as otherwise provided in paragraph (f) of this section (Closing Disclosure).

23


Construction Loans

• §1026.37(m)(8) Construction Loans • 1. Clear and conspicuous statement regarding redisclosure for

construction loans.

• For construction loans in transactions involving new construction, where the creditor reasonably expects the settlement date to be 60 days or more after the provision of the disclosures required under §1026.19(e)(1)(i), providing the statement, ‘‘You may receive a revised Loan Estimate at any time prior to 60 days before consummation’’ under the master heading ‘‘Additional Information About This Loan’’ and the heading ‘‘Other Considerations’’ pursuant to §1026.37(m)(8) satisfies the requirements set forth in §1026.19(e)(3)(iv)(F) that the statement be made clearly and conspicuously on the disclosure.

24




Commentary 19(e)(3)(iv)(F)

• 19(e)(3)(iv)(F) Delayed settlement date on a construction loan.• 1. Requirements. A loan for the purchase of a home that has

yet to be constructed, or a loan to purchase a home under construction (i.e., construction is currently underway), is a construction loan to build a home for the purposes of §1026.19(e)(3)(iv)(F).

• However, if a use and occupancy permit has been issued for the home prior to the issuance of the disclosures required under §1026.19(e)(1)(i), then the home is not considered to be under construction and the transaction would not be a construction loan to build a home for the purposes of §1026.19(e)(3)(iv)(F).

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Loan Estimate

26




Appendix D – Construction Loans

• Part I—Construction Period Disclosed Separately– Interest payable periodically or at end of construction– IA - Interest payable only on amount actually advanced for the time

it is outstanding– IB - Interest payable on entire commitment without regard to the

dates or amounts of actual disbursement

• Part II—Construction and Permanent Financing Disclosed as One Transaction– IIA – Estimating Interest Payable– IIB – Estimated APR– IIC – Repayment Schedule– IID – Amount Financed = Commitment - Prepaid Finance Charges

27


Appendix D - Commentary

• General Rule

• Variable-Rate Multiple-Advance Loans

• Calculation of the Total of Payments

• Annual Percentage Rate

• Interest Reserves

• Relation to §1026.18(s)

• Relation to §1026.37 and §1026.38 [New sections added by TRID]

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App D Comm: Relation to §1026.18(s)

• 6. §1026.18(s) Interest rate and payment summary for mortgage transactions

• A creditor must disclose either– An interest rate and payment summary table for certain

transactions secured by a dwelling per §1026.18(s), – General payment schedule required by §1026.18(g) or – The projected payments table required by §1026.37(c) and

§1026.38(c) [Loan Estimate and Closing Disclosure].

• Accordingly, some home construction loans that are secured by a dwelling are subject to §1026.18(s) and not §1026.18(g).

29


App D Comm: Relation to §§1026.37 & .38

• Comment 7. §§1026.37 & .38 Projected Payments Table

• Disclose a projected payments table for TRID covered transactions instead of the:– General payment schedule required by §1026.18(g), or – Interest rate and payments summary table required by

§1028.18(s)

30





• 7.i. Disclosing Construction and Permanent Phases as Separate Transactions

• Construction phase must disclose periodic payments during the construction phase in a projected payments table

• Previous reg allowing creditor to omit the # and $$ of construction phase periodic payments does not apply to TRID-covered transactions

• Calculate the construction phase interest-only payments using Appendix D, assumptions (1/2 commitment or 100% commitment for entire construction period) found in Part I

• Must also disclose the balloon payment required at end of the construction period and include it in the projected payments table

31

Fed Register Vol 80 No 247 December 24, 2015 pp. 80228 ‐ 80232


App D Part IA – Construction-Only (1/2 Commitment Option)• Part I—Construction Period Disclosed Separately• If interest is payable only on the amount actually advanced for the time it is

outstanding:– Estimated interest—Assume that one-half of the commitment amount is outstanding at the

contract interest rate for the entire construction period.– Estimated annual percentage rate—Assume a single payment loan that matures at the

end of the construction period. The finance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation purposes is determined by subtracting any prepaid finance charge from one-half of the commitment amount.

– Repayment schedule—The number and amounts of any interest payments may be omitted in disclosing the payment schedule under §1026.18(g). The fact that interest payments are required and the timing of such payments shall be disclosed.

– Amount financed—The amount financed for disclosure purposes is the entire commitment amount less any prepaid finance charge.

• §1026.17(c)(3) allows you to disregard different # of days in months

32





• 7.ii. Disclosing Construction and Permanent Phases as a Single Transaction

• The single transaction must disclose the interest-only payments during the construction phase in the first column followed by the appropriate columns for the amortizing payments during the permanent phase.

• Previous reg allowing creditor to omit the # and $$ of construction phase periodic payments does not apply to TRID-covered transactions

• Calculate the construction phase interest-only payments using Appendix D, Part II assumptions (either ½ Construction Loan Commitment or 100% Commitment Amount over Construction Period)

33


App D Part IIA – Const-Perm Loan (1/2 Commitment Option)

• Part II—Construction and Permanent Financing Disclosed as One Transaction

• Estimate interest payable during construction period to be included in the total finance charge as follows:– If interest is payable only on amount actually advanced, assume

that one-half of commitment is outstanding at contract interest rate for entire construction period.

– If interest is payable on entire commitment amount for construction period, assume entire commitment amount is outstanding at contract rate for entire construction period.

34




App D Part II – Construction-Perm Loan


• B. Compute estimated APR as follows: – Estimated interest payable during the construction period will be

treated:• For computation purposes as a prepaid finance charge• For disclosure purposes, not be treated as a prepaid finance charge

– Number of payments do not include any payments of interest only made during the construction period.

– First payment period shall consist of one-half of the construction period plus the period between the end of the construction period and the amortization payment.

35


App D Part II – Construction-Perm Loan


• C. The creditor shall disclose the repayment schedule as follows:– For loans under paragraph A.1 of part II, other than loans that are subject

to § 1026.19(e) and (f), without reflecting the number or amounts of payments of interest only that are made during the construction period. The fact that interest payments must be made and the timing of such payments shall be disclosed.

– For loans under paragraph A.2 of part II and loans under paragraph A.1 of part II that are subject to § 1026.19(e) and (f), including any payments of interest only that are made during the construction period.

• D. The creditor shall disclose the amount financed as the entire commitment amount less any prepaid finance charge.– Amount Financed = Commitment – Prepaid Finance Charge

36




Potential HCML/HPML Issues

• The construction phase of a construction-permanent loan is excluded from coverage of §1026.32 HCML/HOEPA and §1026.35 HPML, but the permanent phase may be a covered loan under both sections.

• Comment 17(c)(6)-5 does not provide guidance on how to allocate amounts so as to avoid violating TILA section 129(r), which prohibits structuring a loan transaction or dividing any loan transaction into separate parts for the purpose of evading the high-cost mortgage provisions.

• To help ensure consumer protections are not evaded and to assist creditors in properly disclosing construction-permanent loans, the Bureau is proposing to amend comment 17(c)(6)-5 to provide greater clarity on the allocation of amounts between the construction and permanent phases if a creditor chooses to disclose the credit extended as more than one transaction.

37


Allocation of Loan CostsConstruction and Permanent Phases• Comment 17(c)(6)-5 permits a creditor to disclose certain construction to

permanent transactions as multiple transactions using this rule and to allocate buyer’s points or similar amounts imposed on the consumer between the construction and permanent phases of the transaction in any manner the creditor chooses.

• CFPB is proposing to amend comment 17(c)(6)-5 to require the creditor to allocate to the construction phase all amounts imposed specifically for the construction financing.

• All other amounts would be allocated to the permanent financing, including amounts not imposed but for the permanent financing and all amounts that are not imposed exclusively because of the construction financing.

• The CFPB also believes applying the comment to all amounts will alleviate creditors’ uncertainty as to the comment’s scope. The amended comment would illustrate how the allocation would be made, using inspection and handling fees for the staged disbursement of construction loan proceeds as an example.

38




Comment 17(c)(6)-5

• Comment 5 – Allocation of costs

• …”For example, inspection and handling fees for the staged disbursement of construction loan proceeds must be included in the disclosures for the construction phase and may not be included in the disclosures for the permanent phase.

• If a creditor charges separate application or origination fees for the construction phase and the permanent phase, such fees must be allocated to the phase for which they are charged.

• If a creditor charges an application or origination fee for construction financing only but charges a greater application or origination fee for construction-permanent financing, the difference between the two fees must be allocated to the permanent phase.”

39


Comment 17(c)(6)-6• Comment 17(c)(6)-6—Financing By Same Creditor • CFPB proposes to clarify the meaning of the phrase “may be permanently

financed by the same creditor” under 1026.17(c)(6)(ii), that permits creditors to treat construction to permanent loans as one transaction or more than one transaction. This is intended to address the issue that at early stages of an application when the LE is delivered, creditors usually would not yet know whether they will provide permanent financing to any given consumer.

• Under proposed comment 17(c)(6)-6, the rule would explain that a loan to finance the construction of a dwelling may be permanently financed by the same creditor if the creditor generally makes both construction and permanent financing available to qualifying consumers, unless a consumer expressly states that the consumer will not obtain permanent financing from the creditor.

• Under this approach, the creditor must disclose as a construction-perm loan in all cases other than where:

– Permanent financing is not available at all from the creditor (i.e., the creditor does not offer permanent financing) or

– Consumer expressly informs the creditor that the consumer will not be obtaining permanent financing from the creditor.

• The proposal provides illustrations (Proposed comment 19(e)(1)(iii)-5.ithrough -5.iv) of how the Loan Estimate timing provisions apply to construction to permanent loans. Refer to the toolkit for the examples.

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General Loan Information

41


Loan Estimate: General Loan Info

• Date Issued: Date placed in the mail or delivered to the consumer– Construction Only – w/i 3 business days of completed application– Construction Perm w/1 closing and 1 application – w/i 3 business days

of the completed application• May disclose as 1 combined transaction or 2 separate (const-only and

separate perm loan); then would have to provide 2 separate Loan Estimates at initial application

– Construction Perm w/2 closings and 2 applications – w/i 3 business days of each completed application

• Applicants: – Name and mailing address of each consumer(s) applying for the loan– An additional page may be added if the space provided is insufficient.

42




Property

• Use the address, including zip code, that will secure transaction

• If address is unavailable, use description of location (lot number or property description)

• Personal property (i.e., furniture, appliances, etc.) may secure the credit transaction, but are not required to be included as Property

• An additional page may NOT be appended to Loan Estimate to disclose a description of personal property

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TRID Construction Loan: Property Value §1026.37(a)(7)

Transaction Examples Loan Estimate Label Valuation

Consumer owns land and proceeds to construct the dwelling; Bank has not

obtained any valuation yetPROP. VALUE Estimate provided by customer

at application

Consumer owns land and proceeds to construct the dwelling; Bank has

preliminary valuationPROP. VALUE

Estimate obtained by bank to be used in underwriting; If multiple

valuations, use best one available

Consumer purchasing land and will construct dwelling; Bank has not yet

obtained appraisalSALE PRICE**

Sales price of the land plus the estimated value of dwelling based on best information

available

Consumer purchasing land and willconstruct dwelling; Bank has obtained

multiple appraisals

SALE PRICE**Sales price of the land plus the

estimated value of dwelling based on valuation used in

underwriting

Consumer purchasing land and home is currently under construction SALE PRICE** Sales price of the land plus the

estimated value of dwelling

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Comment §1026.37(a)(7)‐1 **Seller involved




TRID Audit ChallengeProperty and Property Valuations

• Was each real property securing the mortgage accurately identified, including a zip code, even if no street address available?

• Did we accurately and consistently disclose the property value, depending on whether the transaction involved a seller?– Purchase of real property, – Purchase of personal property along with the real property, or – Collateralization by owned real property.

• Does the file documentation support the property valuations used for the initial Loan Estimate (LE), subsequent revised Loan Estimates and Closing Disclosure? Timing is critical!!!– Initial estimate by applicant– Construction contract received BEFORE or AFTER LE issuance– Appraisal received, reviewed and accepted

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LE Loan Term and Product Description

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Loan Term and Product Description

Even though interest-only payment and a balloon payment, the interest-only payment must be disclosed due to hierarchy




Clarification of Loan Term

• Amended Proposed Rule, App. D.7.i.:• i. Loan term. A. Disclosure as single transaction. If the

construction and permanent financing are disclosed as a single transaction, the loan term disclosed is the total combined term of the construction period and the permanent period. For example, if the term of the construction financing is 12 months and the term of the permanent financing is 30 years, and both phases are disclosed as a single transaction, the loan term disclosed is 31 years. See comment 37(a)(8)-3 for an explanation of the effect on disclosure of the loan term of minor variations in the number of days counted for the final month or year of a loan.

47

Red print Proposed language

LE Loan Term and Product Description

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Loan Term and Product Description

NOTE: Not a QM violation for term of 31 years since the construction term is the first 12 months of the term + the 30 year mortgage term!




TRID Audit ChallengeLoan Term and Product Descriptions

• Did we accurately describe the product and the loan term? There will generally be differences between:

Construction-Only Loan– Bank product (12 month interest-only fixed rate construction loan)– Loan term to maturity (12 months from origination to maturity)– TRID Product (11 mo. Interest Only, Fixed Rate)Construction-Perm Loan– Bank product (12 month fixed rate interest-only, fixed rate permanent loan)– Loan term to maturity (12 months construction + 30-year mortgage = 31 years)– TRID Product (1 year Interest Only, Fixed Rate)

• TRID Product description requires disclosure of two separate components in one mandatory field with specific formatting rules– Payment Feature + Interest Rate Feature– Summarized description focuses on duration and first change

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Loan Term vs. Product

• Example: Loan term is actually 6 months with 5 interest-only payments plus a balloon payment required in month 6. Disclose as:

• Loan Term may exceed 30 years by a construction phase of 12 months or less §1026.43(a)(3)(iii)

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Product: Payment Feature and Rate Feature

• This prescribed disclosure is rarely the same as your bank product description!

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Payment Feature

Duration of the disclosed payment

type

One payment type from ranked list of

features that change periodic payment

Rate Feature

Duration of rate change = introductory

period + first adjustment period

Interest rate type applied to the principal

balance


Product: Payment Feature• Any payment feature that may change periodic payment (hierarchy order is

important!)1. Negative Amortization: Principal balance of loan may increase due to the addition of

accrued interest to the principal of the loan2. Interest Only: When one or more periodic payments may be applied only to interest

accrued and not to principal of the loan3. Step Payment: When the scheduled variations in regular periodic payments amounts

occur after consummation and the rates that apply and the periods for which they apply are known at consummation

• Doesn’t matter whether the rate increases or decreases as it does with Loan Terms table• CFPB proposed a “fix” for that since it can occasionally occur with construction loans

4. Balloon Payment: When terms of legal obligation include a payment that is more than 2 times that of a regular periodic payment

5. Seasonal Payment: When terms of the obligation expressly provide that regular periodic payments are not scheduled between specified unit-periods on a regular basis (ex. “teacher” loan not requiring monthly payments during summer months)

– If a loan can be described with > one description, only first applicable feature is disclosed.• Ex: Both Negative Amortization and Balloon payment would only disclose Neg Am §1026.37(a)(10)(iii))

52




Product §1026.37(a)(10)

Reg Cite Product Feature Instructions & Examples

Payment FeatureIf multiple features, disclose only the highest ranking applicable feature from the list. If none of these, disclose only rate feature.

§1026.37(a)(10)(ii)(A) Negative amortization

These four features MUST be preceded by the duration of any introductory payment period plus the first adjustment period, as applicable.

§1026.37(a)(10)(ii)(B) Interest only

§1026.37(a)(10)(ii)(C) Step payment

§1026.37(a)(10)(ii)(D) Balloon payment

§1026.37(a)(10)(ii)(E) Seasonal paymentDuration disclosure does not apply. Disclose as “Seasonal Payment” without any period information.

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Product: Interest Rate Feature

• Adjustable Rate: Interest rate may increase after consummation, but rates that will apply or the periods for which they apply are not known at consummation

– Description must be preceded by duration of any introductory rate or payment period, and the first adjustment period , as applicable

– When no introductory period for an Adjustable Rate, disclose “0”

• Step Rate: Interest rate will change after consummation and the rates that apply and the periods for which they apply are known at consummation

– Description must be preceded by duration of any introductory rate or payment period, and the first adjustment period, as applicable

– When no introductory rate for a Step Rate, disclose “0” and then the applicable time period until the first adjustment

– NOTE: If you charge different rates in construction phase and permanent phase and know both rates, your construction-perm loan is a step rate product!

• Fixed Rate: Interest rate is not an Adjustable Rate or Step Rate

54




Product §1026.37(a)(10)Reg Cite Product

FeatureInstructions & Examples

Rate Feature

Disclose only the first introductory and first adjustment period.

Feature MUST be preceded by duration of any introductory rate period, and any applicable first adjustment period.

§1026.37(a)(10)(i)(A) Adjustable rateEX: Adjustable rate product that adjusts every 3 years with no introductory period, the product disclosure is “0/3 Adjustable Rate”

§1026.37(a)(10)(i)(B) Step rate

EX: A 10-year introductory rate followed by annual adjustments for the next 5 years, and then adjusts every 3 years for the next 15 years, disclose “10/1 Step Rate.” If no intro rate in this example, disclose “0/1 Step Rate.”

§1026.37(a)(10)(i)(C) Fixed rate If not an adjustable rate or a step rate as defined in this section, disclose as “Fixed rate.”

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TRID “Product” Construction Loan Examples

• Construction-only loan with single set of disclosures with interest-only payments for the 12 month construction term at a fixed rate– Disclose as “11 mo. Interest Only, Fixed Rate”

• Construction-perm loan with single set of disclosures with two different known fixed rates for each of the construction and perm phases– Disclose as a “Step Rate” because the rate changes after consummation

and the rates plus the period for which they will apply are known • §1026.37(a)(10)(i)(B)

• Construction-perm loan with single set of disclosures with an adjustable rate for one phase and a fixed rate for the other phase– Disclose as an “Adjustable Rate” if the interest rate may increase after

consummation, but the rates that will apply or the periods for which they will apply are not known at consummation

• §1026.37(a)(10)(i)(a) interest rate may increase after consummation to unknown rate

• §1026.37(b)(2) disclose the full-indexed rate as the interest rate

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Clarification of TRID Product • Comment App. D.7.ii.:

• ii. Product. A. Separate construction loan disclosure. If the construction financing is disclosed separately and has payments of interest only, the time period of the “Interest Only” feature that is disclosed as part of the product disclosure under §§1026.37(a)(10) and 1026.38(a)(5)(iii) is the period during which interest-only payments are actually made and excludes any final balloon payment of principal and interest. For example, the product disclosure for a fixed rate, interest-only construction loan with a term of 12 months in which there will be 11 monthly interest payments and a final balloon payment of principal and interest is “11 mo. Interest Only, Fixed Rate.”

• B. Combined construction-permanent disclosure. If a single, combined construction-permanent disclosure is provided, the time period of the “Interest Only” feature that is disclosed as part of the product disclosure under §§1026.37(a)(10) and 1026.38(a)(5)(iii) is the full term of the interest-only construction financing. For example, the product disclosure for a fixed rate, construction-permanent loan with an interest-only construction phase of 12 months is “1 Year Interest Only, Fixed Rate.”

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Subsequent Periodic Payments

• Principal & Interest amount or range may change due to:– Negative Amortization: P&I may change when negative amortization period ends– Interest Only: P&I may change when interest only period ends– Minor Periodic Payment: Variations due to months having a different number of

days are not triggering events– There is a scheduled Balloon Payment– Lender must automatically terminate Mortgage Insurance or any functional equivalent

• Even if borrower may cancel insurance earlier, use date on which lender must automatically terminate Mortgage Insurance coverage under applicable law

• Only termination of Mortgage Insurance is a triggering event, while a decline in Mortgage Insurance premiums is not

• When Periodic Payment amount changes more than once in a single year, show in subsequent column the Periodic Payment amounts in the year following the one in which there were multiple changes

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Monthly Principal and Interest Payment Calculation

• Appendix D – Part I.A.1 & Part II.A.1

• Interest on ½ Commitment for entire construction period– Interest only, payable only on

amount advanced– $100,000, 5%, 12 months– ½ X $100,000 = $50,000– $50,000 X .05 = $2,500– $2,500 / 12 = $208.33– Initial Payment = $208.33

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• Appendix D – Part 1.B.1 & Part II.A.2

• Interest on entire Commitment for the entire construction period– Interest only, payable on the

total loan amount over entire construction period

– $100,000, 5%, 12 months

– $50,000 X .05 = $5,000– $5,000 / 12 = $416.66– Initial Payment = $416.66

Loan Terms

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• Disclose in Loan Terms table:– Loan Amount (if the amount is in whole dollars, do not disclose cents)

(§1026.37(o)(4)),– Initial Interest Rate (fully indexed if not known at disclosure),

• Proposed clarification: Disclose by rounding the exact amount to three decimal places and then dropping any trailing zeros to the right of the decimal point.

– Initial Monthly Principal & Interest amount (based on fully indexed rate, if applicable)

– Any adjustments to these amounts after consummation, if applicable

– Whether the loan includes a Prepayment Penalty, – Whether the loan includes a Balloon Payment. (§1026.37(b))

– Disclose as a range if ARM could cause the exact amount to be unknown at disclosure




Adjustment to Loan Amount, Interest Rate and Monthly P&I after Consummation • If Loan Amount, Interest Rate or Monthly P&I can increase after

consummation, disclose “Yes” where applicable with information pertinent to adjustment after consummation

• Loan Amount Adjustment: Creditor must disclose maximum principal balance for transaction and due date (expressed as the year or month in which it occurs, rather than an exact date) of the last payment that may cause principal balance to increase, together with a statement whether the maximum principal balance may or will occur under the terms of the obligation. The date disclosed is the year in which the event occurs, counting from the due date of the initial periodic payment.

• Interest Rate Adjustment: Disclose frequency of interest rate adjustments, date when interest rate may first adjust, maximum interest rate and first date when interest rate can reach maximum interest rate. Date disclosed is year in which event occurs, counting from date that interest for the first scheduled periodic payment begins to accrue after consummation.

61


Adjustment to Loan Amount, Interest Rate and Monthly P&I after Consummation, cont.

– Monthly Principal and Interest Adjustment: Disclose the scheduled frequency of adjustments, due date of the first adjustment and maximum possible amount (and earliest date it can occur) of the monthly principal and interest. In addition, if there is a period during which only interest is required to be paid, also disclose with due date of last periodic payment. Date disclosed is year event occurs, counting from due date of initial payment

– Disclose & reference Adjustable Payment (AP) Table– When Loan Amount, Interest Rate or Monthly P&I cannot

increase after consummation, disclose No where applicable – Minor Periodic Payment Changes: Variations due to months

having a different number of days are not triggering events

62




Proposed Loan Terms Clarification

• For a fixed-rate construction-only loan, the proposed amendment would still allow the answer to “Can this amount increase after closing?” for the “Monthly Principal & Interest” row to be “NO,” consistent with the regulations.– Use ½ of commitment amount for entirety of construction phase– Ignore that months have different numbers of days

• The proposed amendment allows creditors to optionally disclose “YES” instead, but with no bullet points for a fixed-rate loan. – NO for fixed rate and no bullet points.– YES for an ARM construction-only disclosure and bullet points would be

required based on the note’s scheduled rate adjustments• I suggest the industry comment that an explanatory bullet would

help the consumer understand.– YES • Construction costs may increase and result in an increased payment.

63


Proposed Loan Terms Clarification

• Comment App D-7.v.B would allow creditors to omit bullets required under 37(b)(6)(iii) and the range of payments in Projected Payments per 37(c)(2)(i).

• Comment App D-7.v.C does not provide guidance on disclosing required bullets for 37(b)(6)(iii) or the range of payments based on changes to the interest rate and does not authorize omitting them. CFPB admitted that as a practical matter, there is no method for calculating 37(b)(6)(iii) and (c)(2)(i) as they relate to changes in total amount advanced for construction when timing and amounts are unknown at disclosure and closing.

• Stay tuned!

64




Prepayment Penalty & Balloon Payment

• Prepayment Penalty: Charge imposed for paying all or part of a transaction’s principal before due date of principal.

– Not including a third-party charge creditor initially waived but imposes later if consumer prepays loan’s entire principal sooner than 36 months after closing

– Disclose maximum Prepayment Penalty and date prepayment penalty terminates– Does the loan have these features? When loan has Prepayment Penalty, disclose Yes.

If Yes, also disclose as applicable:• Max amount of Prepayment Penalty and date when penalty provision terminates

– Example: As high as $3,240 if loan is paid off in first 2 years

• Balloon Payment: Payment that is more than 2 times a regular periodic payment

– Under subheading, disclose Max amount of Balloon Payment and due date of payment. • Example: You will pay $149,263 at the end of year 7

– Does the loan have these features? When loan has Balloon Payment disclose Yes. If Yes, also disclose as applicable:

• Example: As high as $3,240 if loan is paid off in first 2 years– If an ARM loan, disclose the minimum and maximum balloon payment amount in a range to

reflect that the exact amount is unknown.

65


Number of Columns

• Maximum number of columns Periodic Payments table may contain is 4. If loan has more than 4 triggering events, show a range of payments in the 4th column that reflects all remaining periodic payments not shown in the first three columns. EXCEPT:

– Final Balloon Payment: Always requires its own column• If disclosing final Balloon Payment triggers other events that will not fit within the 4

column max, show the other events as a range of payments in the 3rd column

– Non-Final Balloon Payment: Does not necessarily require its own column

– Automatic Termination of Mortgage Insurance: Generally requires corresponding periodic payment to be shown in its own column, unless number of columns exceeds the 4 column max

– Although auto termination of MI need not be shown in its own column, the column showing the next periodic payment or range of payments should show the periodic payment without Mortgage Insurance

66




Number of Columns

– Show a range of payments rather than a single payment when:

– Triggering events exceed 4 columns and one column must be used to show two or more periodic payment amounts

– More than one triggering event occurs in a single year or one event occurs in the same year as the initial periodic payment

– P&I payment may adjust based on an interest rate index and the rates are not yet known (for example, an ARM loan)

– For a column that contains a range of payments, show both minimum and maximum payment using rounded dollar amounts.

– For an Adjustable Rate loan, use max and min interest rates that could apply

– Ranges of payments are required for only P&I amount and the Estimated Total Monthly Payment. Do not show range of payments for Mortgage Insurance or Estimated Escrow.

67


Construction-Only Balloon Payment

• §1026.37(c)(1)(ii)(A) requires a balloon payment that's scheduled as a final payment under the terms of the legal obligation to be disclosed as a separate periodic payment or range of payments.

• The balloon payment disclosed in the second and final column of the Projected Payments table will be a range of payments when the construction loan has an adjustable rate.

• The balloon payment amount can change depending upon whether the final monthly interest payment included in the final balloon payment is the maximum or minimum amount of the monthly interest payment.

68




Construction-Permanent Loan with 6-Month Construction Phase

• Comment 37(c)(1)(i)(A)-3 states that in a loan with an interest-only feature, periodic principal and interest payments may change when the interest-only period ends. – In this example, the interest only periodic payment ends after 6 months

with principal and interest payments beginning in Month 7.

• §1026.37(c)(1)(iii)(B) requires disclosure of a range of payments if the periodic P&I payments (or range of P&Ipayments) may change during the same year as the initial periodic payment (or range of payments). – Interest-only payments qualify as “P&I payments" per §1026.37(d)(2)(i). – There will be a change during the same calendar year as the initial

interest only period payment when the payment of principal and interest begins in Month 7.

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Construction-Permanent Loan with 6-Month Construction Phase (cont.)

• Projected Payments Disclosures– Column 1 – Range of payments reflecting payment due during

the first calendar year because a change occurs in that first year • BOTH the 6-month interest-only construction phase payments

and Months 7 – 12 full P&I payments.• You have to include both the 6 monthly interest-only payments and

the first 6 months of the full payments because both phases occur in the first year. Disclose the two payments as a range of payments.

– Comment in Appendix D-7.ii requires disclosure of the interest-only payments during the construction phase in the first column, but does NOT limit the first column to just that initial 6 months’ payments.

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Construction-Perm with 5/1 Yr Hybrid ARM12 Month Construction Period Int-Only Payments

71

$399.99

$399.99

$799.99

$1,050

$800 min$1,000 max

$1,050 ‐ $1,250

$800 min$1200 max

$1,050 ‐ $1,450

Construction Perm (1 Loan Est) - Own Land and Construct Dwelling - 12 Mth Balloon w/Interest Only Payments Months 1-11

72



Projected Payments: Construction-Only Int-Only 12 MthsUse Appendix D. Part I.A.1 or I.B.1

73

Only interest Accrued interest + balloon paymentNOTE: Could be a range if the ARM causes amount of final interest payment to vary

Remember that your first column would still be “Year 1” if a 9 month construction loan. If you had an 18 month construction loan, first column would be "Years 1 – 2”


Balloon Payment Fluctuations• Comment §1026.37(c)(2)(i)-3 specifically notes that a balloon payment amount

can change depending on previous interest rate adjustments, and in such a case will be disclosed as a range of payments reflecting the max amount of interest on the high end as disclosed in Column 1.

• Construction-Only: If the construction-only loan has an adjustable rate, the maximum amount of balloon payment disclosed under section §1026.37(b)(7)(ii) is the maximum payment in the range of payments disclosed for the balloon payments in the second and final column of the Projected Payments table.

• Construction-Perm Loan: If the creditor elects to disclose the construction and permanent phases as a single transaction, the Projected Payments table must reflect the interest only payments during the construction phase in the first column followed by an appropriate column or columns reflecting the amortizing payments for the permanent phase as explained in Appendix D-7.ii.

– Example: If the interest only construction phase is 12 months, the first column of the Projected Payments table discloses the initial periodic principal and interest payment if the construction phase has a fixed rate. If the construction phase has an adjustable rate, the creditor discloses a range of payments. The permanent phase period payments or range of payments is disclosed in up to three additional columns depending on whether the permanent phase has a fixed or an adjustable rate.

• There is no balloon payment between the construction and permanent phases since the final amount after construction is completed is amortized over the life of the loan.

• There could be a balloon payment at the end of the loan if specified in, for example, your 10-year construction-perm balloon loan.

74



Projected Payments: Construction-Perm in 1

75

Calculate the interest-only payments using Appendix D. Part II.A.1 or II.A.2


Mortgage Insurance (MI) Disclosures

• If mortgage insurance will not be required for either the construction phase or the permanent phase, the creditor discloses "0" in the appropriate rows and columns of the Projected Payments table.

– Comments 37(c)(2)(ii)-1

• This disclosure is not impacted by whether each phase of a construction-to-permanent loan is disclosed separately or both phases are disclosed together.

• If MI is required in the permanent phase of a construction-perm single disclosure transaction, disclose the line item as “0” in the first column if the first column is exclusively the construction phase.

• If disclosing both construction and perm phase in column 1, disclose the MI premium in the first column reflecting the year in which payments commenced, even if payments were not made every month in that year. The premiums must be disclosed on the same periodic basis (monthly, quarterly, etc.) for which P&I payments are disclosed.

– Comment 37(c)(2)(ii)-2

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Escrow Disclosure

• If escrow will not be required for either the construction phase or the permanent phase, the creditor discloses "0" in the appropriate row and columns of the Projected Payments table.

– Comments 37(c)(2)(iii)-1

• This disclosure is not impacted by whether each phase of a construction-to-permanent loan is disclosed separately (2 sets of disclosures) or both phases are disclosed together (1 set of disclosures).

• Escrow is generally only required in the permanent phase of a construction-perm single disclosure transaction. If so, disclose the escrow line item as “-” in the first column if the first column is exclusively the construction phase.

• If disclosing both construction and perm phase in column 1 (e.g., construction phase of only 6 months) disclose the escrow payment in the first column reflecting the year in which payments commenced.

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Estimated Taxes, Insurance and Assessments

• The creditor discloses estimates based on the best information reasonably available at the time of the disclosure. The reasonably available standard requires a creditor to act in good faith and to exercise due diligence in obtaining the information.

– Comments 17(c)(2)(i)-1 and 19(e)(1)(i)-2

• The estimated property taxes to be disclosed for all TRID transactions, including construction loans, must reflect the taxable assessed value of the real property securing the transaction after consummation. This includes the value of any improvements on the property or to be constructed on the property, if known, regardless of whether the construction will be financed from the proceeds of the loan.

– §1026.37(c)(5)(i)

• The disclosed estimated homeowner's insurance must reflect the replacement costs of the property during the initial year after the transaction.

– §1026.37(c)(5)(ii)

• The estimated taxes and homeowner's insurance must be disclosed as a monthly amount even if no escrow account is established.

– §1026.37(c)(4)(ii)

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Construction Inspections and Draws

• There are unique fees and charges associated with the construction fees of a construction-permanent loan. These fees are generally inspection fees and handling or draw fees.

• These fees are loan costs as described in §1026.37(f) [Closing Cost Details: Loan Costs], which requires the disclosure of all known costs associated with the transaction. Inspection and draw fees may be collected at or before consummation. Where construction financing is involved, a creditor may not know the actual schedule of inspections or draws for disclosing the inspection and draw fees at consummation.

– It appeared that this last sentence above allowed disclosure of these fees that will generally be collected after closing as part of the construction financing transaction.

• When a creditor is uncertain about the actual amount of particular cost, as Comments 17(c)(2)(i)-1 and 19(e)(1)(i)-2 explain, the creditor is held to the best information reasonably available standard.

• A creditor may base estimates of inspection and draw fees for a particular transaction on past experience with other transactions of similar scope and complexity, a certain builder or other applicable factors.

79


Construction Inspection & Handling Fees

• The CFPB clarified that inspection and handling fees are loan costs and are required to be disclosed.

• However, the preamble included a discussion that timing of the collection of the fees will mandate disclosure:– Collected at or before consummation

• Disclose as Loan Costs– Collected after consummation

• Proposing to add new commentary to support disclosure of these fees on an addendum to the LE and CD under a heading of “Inspection and Handling Fees Collected After Closing”

• The fees paid after closing would NOT be counted in the “Calculating Cash to Close” table

• Proposed comments to 37(f)-3, 37(f)(6)-3, 38(f)-2 and additional commentary under Appendix D-7.viii.

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LE Page 2 Closing Costs: Other Costs (E) through (H)

• 37(g) Closing cost details; other costs.• Comm -1. General description. The items listed under the heading of “Other Costs” pursuant to

§1026.37(g) include services that are ancillary to the creditor’s decision to evaluate the collateral and the consumer for the loan. The amounts disclosed for these items are:

– Established by government action;

– Determined by standard calculations applied to ongoing fixed costs; or

– Based on an obligation incurred by the consumer independently of any requirement imposed by the creditor.

• Except for prepaid interest under § 1026.37(g)(2)(iii), or charges for optional credit insurance provided by the creditor, the creditor does not retain any of the amounts or portions of the amounts disclosed as other costs.

• Comm -2. Charges pursuant to property contract. The creditor is required to disclose charges that are described in §1026.37(g)(1) through (3). Other charges that are required to be paid at or before closing pursuant to the property contract for sale between the consumer and seller are disclosed on the Loan Estimate to the extent the creditor has knowledge of those charges when it issues the Loan Estimate, consistent with the good faith standard under § 1026.19(e). A creditor has knowledge of those charges where, for example, it has the real estate purchase and sale contract. See also § 1026.37(g)(4) and comment 37(g)(4)-3.

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Loan Estimate Page 2

82

• Up to 4 main categories of costs– A good-faith itemization of the Loan Costs and Other

Costs. (§1026.37(f) and (g))– A Calculating Cash to Close table that shows how

the amount of cash needed at closing is calculated. (§1026.37(h))

– Optional:– For transactions with adjustable monthly payments,

an Adjustable Payments (AP) Table with relevant information about how the monthly payments will change. (§1026.37(i))

– For transactions with adjustable interest rates, an Adjustable Interest Rate (AIR) Table with relevant information about how the interest rate will change. (§1026.37(j))

• Loan Costs are those paid by the consumer to the creditor and third-party providers of services the creditor requires to be obtained during the origination of the loan. (§ 1026.37(f))

• Other Costs include taxes, governmental recording fees, and certain other payments involved in the real estate closing process. (§ 1026.37(g))




Adjustable Payment or Adjustable Interest Rate?

• For transactions with adjustable monthly payments, an Adjustable Payments (AP) Table with relevant information about how the monthly payments will change. (§ 1026.37(i))

– Disclosed when the periodic principal and interest payment may change after consummation, but not because of a change to the interest rate, or the loan is considered to be a Seasonal Payment product. (§1026.37(i))

• If loan does not contain these features, AP Table is not disclosed. (Comm. 37(i)-1)

• For transactions with adjustable interest rates, an Adjustable Interest Rate (AIR) Table with relevant information about how the interest rate will change. (§ 1026.37(j))

– Adjustable Rate Mortgages (ARM) require this disclosure

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Adjustable Payment Table

The AP Table includes the following information (§1026.37(i)):• Whether there are Interest Only Payments, and, if so, the period during which the interest

only payment would apply (§1026.37(i)(1));• Whether the amount of any periodic payment can be selected by the consumer as an

Optional Payment and, if so, the period during which the consumer can select optional payments (§1026.37(i)(2));

• Whether the loan is a Step Payment product and, if so, the period during which the regular periodic payments are scheduled to increase (§1026.37(i)(3));

• Whether the loan is a Seasonal Payment product, and, if so, the period during which the periodic payments are not scheduled (§1026.37(i)(4));

• A subheading of Monthly Principal and Interest Payments (§1026.37(i)(5))

• Notice this does NOT include Balloon Payment here because the Balloon Payment is NOT a change in the periodic P & I Payment! It is a separate payment that is more than 2 times the periodic P & I Payment. No AP Table because there are interest-only payments for the entire construction-only loan term until the balloon payment due at maturity.

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Adjustable Payment Table: Monthly Principal and Interest Payments• A subheading of Monthly Principal and Interest Payments (§ 1026.37(i)(5)),

that also lists: – As First Change/Amount, the number of the payment that may change, counting from the first

periodic payment due after consummation, and the amount or range of the periodic principal and interest payment for such payment (§1026.37(i)(5)(i));

– The frequency of Subsequent Changes to the periodic payment (§ 1026.37(i)(5)(ii)); and– The Maximum Payment that may be paid during the term of the loan with the number of the first

periodic principal and interest payment that can reach such Maximum Payment amount. (§1026.37(i)(5)(iii))

• First Change/Amount– If the exact payment number of the first payment adjustment is not known at the time of the Loan

Estimate, the earliest possible payment that may change must be disclosed. (Comment 37(i)(5)-2)

• Monthly Principal and Interest Payments– The label “Monthly Principal and Interest Payments” can be changed to reflect a payment

schedule that is not monthly, such as Biweekly or Annual. (Comment 37(i)(5)-1)– Disclose any scheduled periodic payment that only covers some or all of the interest that is due

and not any principal as Monthly Principal and Interest Payments, even though the AP Table refers to Monthly Principal and Interest Payments. (Comment 37(i)(5)-5)

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Construction-Perm Adjustable Payment (AP) Table

• When a construction-to-permanent loan is disclosed as a single transaction, the Adjustable Payment table is disclosed consistent with section 1026.37(i) as it would be for any other loan, while using appendix D's assumption to compute the interest only periodic payments.

• Regardless of whether the construction and permanent phases have fixed rates, or adjustable rates, or one phase is fixed and the other is adjustable, the guiding concept to keep in mind is that the loan is considered a single transaction and the creditor follows the disclosure rules at section 1026.37(i) [Adjustable Payment Table].

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Adjustable Payment (AP) Table –Construction-Perm

• For transactions with adjustable monthly payments, an Adjustable Payments (AP) Table with relevant information about how the monthly payments will change. (§1026.37(i))

• Interest only payments during the first 12 months of the construction period and completed construction amount will be financed over the fixed rate loan term

• Disclose the range of minimum and maximum payments that will be made in “First Change/Amount” during permanent phase

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CFPB confirmed (March 1) we DO need this table when you have a construction-perm non-interest rate based payment change after initial interest-only payments.

YES Starting at 13th payment


Adjustable Interest Rate (AIR) Table (Construction-Only)

• The Adjustable Interest Rate (AIR) Table is disclosed when the loan’s interest rate may increase after consummation (§ 1026.37(j)) based on a chance in index or scheduled changes to the interest rate.

• If the loan’s interest rate will not increase after consummation, the AIR Table is not disclosed.

– (Comment 37(j)-1)

• You must include the AIR Table for a Construction-Permanent loan with separate fixed rates if the interest rate for the permanent phase is higher than the interest rate for the construction phase but not if it is the same or lower.

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No special considerations for a typical interest-only construction period

followed by an ARM




Property-Related Costs: Builder’s Risk Insurance

• If property-related costs (specifically things like builder’s risk insurance) on a construction loan where escrow will not be established, the insurance policy will not be effective until vertical construction begins.

• If the cost of the builder’s risk insurance is being paid by the consumer and the costs are known prior to consummation for the construction loan, or can be estimated at the time of Loan Estimate issuance or before consummation, then in good faith they would be disclosed.

– Commentary §1026.37-1

• BUT, if the premium is not to be paid until after closing, this conflicts with the general instructions to include costs paid before or at closing on the Loan Estimate. Hoping we can include on the addendum for costs paid AFTER closing.

– Ask your loan platform vendor how they are handling it.

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Construction Perm with Increasing Interest Rates

If the interest rate may increase after consummation, a separate "Adjustable Interest Rate (AIR) Table" under "Closing Cost Details" should contain the following information:• Index and margin. If the interest rate may adjust, the index and the margin, if any, labeled

"Index + Margin."• Increases in interest rate. If the product type is a "Step Rate" and not also an "Adjustable Rate" under

paragraph (a)(10)(i)(A) of this section, the maximum amount of any adjustments to the interest rate that are scheduled and pre-determined, labeled "Interest Rate Adjustments."

• Initial interest rate. The interest rate at consummation of the loan transaction, labeled "Initial Interest Rate."

• Minimum and maximum interest rate. The minimum (floor) and maximum interest rates (Ceiling) for the loan, after any introductory period expires, labeled "Minimum/Maximum Interest Rate."

• Frequency of adjustments:– The month when the interest rate after consummation may first change, calculated from the date interest for

the first scheduled periodic payment begins to accrue, labeled "First Change"; and– The frequency of interest rate adjustments after the initial adjustment to the interest rate, labeled,

"Subsequent Changes."• Limits on interest rate changes:

– The maximum possible change for the first adjustment of the interest rate after consummation, labeled "First Change"; and

– The maximum possible change for subsequent adjustments of the interest rate after consummation, labeled "Subsequent Changes."

Citation(s): §1026.37(j)90




Construction Costs

• The construction costs may be included here as an additional cost the consumer has contracted to pay as a line item (or two if a reserve or “construction holdback” is held) in the “H. Other” category of Other Costs. This results in a high closing cost but can work mathematically.

• If not, construction costs can be factored into Cash to Close as a payment to a third party.

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Construction Costs

• The CFPB indicated that there was an alternative option to disclose a Construction Holdback and when the alternative option is used, it should be included in the total amount of all existing debt being satisfied in the transaction for purposes of calculating “Closing Costs Financed” and “Funds for Borrower”

• There are some differences in the regulatory LE and CD calculations especially when dealing with a purchase loan (can’t use the alternative tables)

• For a purchase, construction costs may be required to be disclosed as an Adjustment in the Calculating Cash to Close Table. If so, either the result works on the Loan Estimate but not the Closing Disclosure Calculating Cash to Close table or it works on the Closing Disclosure and not on the Loan Estimate without deviating from the regulatory calculations.

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Construction Costs

• The proposed amendment would require all of the following to be disclosed in Section H. Other for a purchase loan or any other transaction when you elect NOT to use the alternative disclosures:– Construction Costs– Construction Escrow Holdback– Payoff of existing liens secured by the subject property– Payoff of unsecured debt

• Creditors would still have a choice of where to disclose for Alternative LE and CD tables, either in Section H. Other or in the Alternative Table’s Payoffs and Payments

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LE Additional Information About This Loan

• Construction-Only – Even though the term of your loan may only be 12 months, you do not change any of the language in the Comparisons. Use Appendix D for interest amount calculation. Simply calculate TIP based on the actual short-term loan. TIP will be low because of the short term resulting in less interest.

• Construction-Perm – Calculations are more comparable to the standard 30 year mortgages and don’t require any special adjustments.

– TIP will be higher and more on par with the 30 year mortgages.

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aba.com 1-800-BANKERS 95

If you are participating on the Web:Enter your Question in the “Questions” Box

and Press ENTER / SUBMIT

If you are participating by Phone:Email your question to: [email protected]


Mark Your Calendar!

TRID Audit 5: Cash-to-Close and Loan CalculationsTuesday, October 18, 2016

2:00 – 4:00 p.m. ET

Program Information available soon!www.aba.com/briefings

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TRID Construction LoansTRID Audit Briefing - Part 4 Toolkit

Thursday, September 29, 2016

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Construction LoansCash-to-Close

We will discuss this further in the separate briefing addressing Cash‐to‐Close.


Construction Cost Disclosure Methods

• The CFPB outlined 3 options for disclosure of the construction costs contracted by the consumer to pay the builder

– Other Costs: (H) Other

– Standard “Calculating Cash to Close” Table• Line item “Adjustments and Other Credits”

– Alternative “Calculating Cash to Close” Table• Line item “Adjustments and Other Credits”

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Method 1: Other Costs

• Other Costs include taxes, governmental recording fees, and certain other payments involved in the real estate closing process. (§1026.37(g))

• The “Other Costs” are generally allowed to vary from estimates prepared in good faith in any amount (i.e., no limitations).

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Method 1: LE Closing Cost: Other Costs – (H) Other

• (4) Other. Under the subheading “Other,” an itemization of any other transaction amounts the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, list a descriptive label of each amount plus the subtotal of all such amounts.– For any item that is a component of title insurance, the introductory

description “Title –” shall appear at the beginning of the label for that item.

– The parenthetical description “(optional)” shall appear at the end of the label for items disclosing any premiums paid for separate insurance, warranty, guarantee, or event-coverage products.

– The number of items disclosed under this paragraph (g)(4) is limited to five.

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Section H - Other

• Section H, ‘Other,’ includes items not required by the creditor or broker but that the borrower is likely to pay and of which the creditor or broker are aware at the time of preparing the Loan Estimate. This includes, but is not limited to:– An owner's title insurance policy (disclosed as "title—owner's title

insurance (optional));– Credit life insurance (include "optional");– Warranties (include "optional");– Real estate commissions;– Homeowner’s association-related ownership transfer charges;– The purchase of personal property from the seller; and– A maximum of five other items.

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LE Closing Cost: Other Costs – (H) Other Examples

• Commentary 4. Examples.• Examples of other items that are disclosed under §1026.37(g)(4) if the

creditor is aware of those items when it issues the Loan Estimate include, but are not limited to:

– Commissions of real estate brokers or agents– Additional payments to the seller to purchase personal property pursuant to the

property contract – Homeowner’s association and condominium charges associated with the transfer of

ownership – Fees for inspections not required by the creditor but paid by the consumer pursuant to

the property contract. • Although the consumer is obligated for these costs, they are not imposed

upon the consumer by the creditor or loan originator. Therefore, they are not disclosed with the parenthetical description “(optional)” at the end of the label for the item, and they are disclosed pursuant to §1026.37(g) rather than §1026.37(f).

• Even if such items are not required to be disclosed on the Loan Estimate under §1026.37(g)(4), however, they may be required to be disclosed on the Closing Disclosure pursuant to §1026.38. Comment 19(e)(3)(iii)-3 discusses application of the good faith requirement for services chosen by the consumer that are not required by the creditor.

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Construction HoldbackLE Closing Cost: Other Costs – (H) Other • Per §1026.37(g)(4), Section 8 of the Loan Estimate requires

itemization of any other transaction amounts the consumer is likely to pay at closing or that the consumer has contracted with a person other than the creditor or loan originator to pay at closing.

• These funds represent a portion of loan proceeds placed in or designated to a reserve or other account at consummation.– Example: $100,000 Loan for construction costs only, with $10,000 of the

proceeds reserved. The consumer contracts at closing to pay for the entire amount at closing.

• Creditor may disclose these funds separately (two amounts of $90,000 and $10,000) or combined ($100,000).

• The designated amount may be labeled “Construction Holdback" if that is what it's called under the terms of the legal obligation. If the designated amount is not given a specific label in the legal obligation, label it in a way that meets the “clear and conspicuous” standard explained in Comment 37(f)(5)-1.

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LE Calculating Cash to Close TableMethods 2 and 3

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• Standard Table (with or without a Seller)

• Alternative Table (only without a Seller)

Examples include Refinances, Construction‐only where customer already owns land, etc.

Examples include purchases, constructionloans where land is being purchased, etc.

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Method 2: Construction Cost Disclosure

• If the creditor does not disclose the designated amounts or construction costs as an “Other" costs in Section H, the entire construction cost (including the holdback amount) is factored into the Standard “Calculating Cash to Close” table in accordance with §1026.37(h)(1)(ii), “Closing Costs to be Financed” as part of the closing costs to be paid out of loan proceeds.

– Comment 37(h)(1)(ii)-1 explains that the amount of closing costs financed that is disclosed is determined by subtracting the estimated total amount of payments to third parties not otherwise disclosed pursuant to section 1026.37(f) and (g) from the total loan amount disclosed pursuant to section 1026.37(b)(1).

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Method 2: Construction Cost Disclosure (cont.)

• Payments to 3rd Parties Not Disclosed in Total Closing Costs §1026.37(h)(1)(ii)

• If the construction costs are not otherwise disclosed per §1026.37(g), they can be included in the estimated Total Amount of Payments to Third Parties that are subtracted from the total loan amount to calculate the “Closing Costs Financed (Paid from Your Loan Amount).”

– Loan Amount– - Payments to 3rd Parties Not Disclosed in Total Closing Costs– = Closing Costs Financed (Paid from your Loan Amount)

• Disclosed in any of these ways, the calculation results in the accurate disclosure of the estimated cash to close that the consumer may expect to be responsible for at closing.

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LE Calculating Cash to CloseLE Closing Costs Financed (Paid from Your Loan Amount)

• Closing Costs Financed (Paid from Your Loan Amount) is calculated by subtracting the estimated total amount of payments to third parties not otherwise disclosed in the Loan Costs and Other Costs tables from the Loan Amount disclosed on page 1 of the Loan Estimate.

• Loan Amt - Payments to 3rd Parties Not Disclosed in Total Closing Costs = Closing Costs Financed (Paid from your Loan Amt)

– Examples of Payments to 3rd Parties Not Disclosed in Total Closing Costs• Sales Price in a purchase transaction• Construction Contract in a Construction Loan• Tax lien for delinquent state, federal or other taxes• Credit card debt or other loans paid off

• If the result of the calculation is a positive number, Closing Costs Financed (Paid from Your Loan Amount) is that amount, disclosed as a negative number, but only to the extent that it does not exceed the amount of Total Closing Costs.

• If the result of the calculation is zero or negative, then Closing Costs Financed(paid from Your Loan Amount) is disclosed as $0.

– (Comment 37(h)(1)(ii)-1)

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Method 3: Construction Cost Disclosure

• “Funds for Borrower” §1026.37(h)(1)(v)• The construction costs, including the holdback amount, if

not disclosed under Section H of the Loan Estimate, can also be factored into the “Calculating Cash to Close” table calculation under §1026.37(h)(1)(v), “Funds for Borrower,” and included in the total amount of all existing debt being satisfied as part of this transaction.

• Total of All Existing Debt Satisfied (except amount itemized in Other Loan Costs: (H) Other)

– - Loan Principal Amount (Excluding Amount Disclosed as “Paid from Your Loan Amount”)

– = Closing Costs Financed (Paid from your Loan Amount)

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Calculating Cash to Close: Down Payment/Funds from Borrower• Purchase Transactions (Construction Loans with Land Purchase)• Down Payment/Funds from Borrower is the difference between the

purchase price of the property and the principal amount of the loan, disclosed as a positive number. (§1026.37(h)(1)(iii)(A))

– Purchase Price – Loan Amount = Down Payment• When the loan amount exceeds the purchase price of the property, disclose

$0 as Down Payment/Funds from Borrower. (Comment 37(h)(1)(iii)-1) – Loan Amount > Purchase Price = $ 0– Cash back to Borrower or 3rd Party

• All Other Transactions (Refinances, Cash Out Refinances, etc.)• Subtract the principal amount of credit extended (excluding any amount

disclosed as Closing Costs Financed (Paid from Your Loan Amount)) from the total amount of all existing debt being satisfied in the transaction. When this calculation yields an amount that is positive, Down Payment/Funds from Borrower is that amount.

– Total Amount of All Existing Debt Satisfied – [Loan Amount – Closing Costs Financed]– If the calculation yields a result that is negative or $0, Down Payment/Funds from

Borrower is $0. (§1026.37(h)(1) (iii)(B))

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LE Calculating Cash to Close

• Total amount from page 2 of the Loan Estimate

• Sum of– Loan Costs (D)– + Other Costs (I)– – Lender Credits – = Total Closing Costs

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1 - Total Closing Costs (J)

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LE Calculating Cash to Close

• This is a calculated field.• On standard version with a

Seller, cost is always a negative number or $0.

• Sum of– Loan Amount– - Payments to 3rd Parties Not

Disclosed – in Total Closing Costs– = Closing Costs Financed (Paid

from your Loan Amount)

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2 - Closing Costs Financed (Paid from your Loan Amount)

§1026.37(h)(1)(viii)

Check with your vendor to see how your platform handles this!!

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Calculating Cash to Close

• In a Purchase transaction, Down Payment/Funds from Borrower is the difference between the purchase price of the property and the principal amount of the loan, disclosed as a positive number. (§1026.37(h)(1)(iii)(A))

– Purchase Price – Loan Amount = Down Payment

• When the loan amount exceeds the purchase price of the property, disclose $0 as Down Payment/Funds from Borrower. (Comment 37(h)(1)(iii)-1)

– Loan Amount > Purchase Price = $ 0– Cash back to Borrower or 3rd Party

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3 – Down Payment/Funds from Borrower

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• In a Purchase transaction, Deposit is the amount, disclosed as a negative number, that is paid to the seller or held in trust or escrow by an attorney or other party under the terms of the contract for sale of the property. (§1026.37(h)(1)(iv)(A))

• All other transactions, Deposit is $0. (§ 1026.37(h)(1)(iv)(B))

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4 – Deposit (e.g. Earnest money)

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• In a Purchase transaction, Funds for Borrower is $0 when a Down Payment. (Comment 37(h)(1)(v)-1)

– Refinance with Cash Out Negative or $ 0 amount

• In all other transactions, subtract the principal amount of debt extended (excluding any amount disclosed as Closing Costs Financed (Paid from Your Loan Amount)) from the total amount of all existing debt being satisfied in the transaction.

– Total Amount of Debt Satisfied - [Loan Amount –Closing Costs Financed]

• If calculation yields a negative amount, then Funds for Borrower is that amount.

• If the calculation yields a positive amount or $0, then Funds for Borrower is $0. (§1026.37(h)(1)(v))

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5 – Funds for Borrower

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Construction Loan Show total amount disbursed to borrower to be paid to the builder through draws over construction period.

$xxx, xxx

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• Seller Credits is the total amount that the seller will pay for items included in the Loan Costs and Other Costs tables, to the extent known, disclosed as a negative number.

• (§1026.37(h)(1)(vi))

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6 – Seller Credits

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• Adjustments and Other Credits is the total amount of all items in the Loan Costs and Other Costs tables that are paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at closing pursuant to the contract of sale (if any), disclosed as a negative number.

• (§1026.37(h)(1)(vii))

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7 – Adjustments and Other Credits

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Adjustments and Other Credits

• Total amount of all items in the Loan Costs and Other Costs tables that are paid by persons other than the loan originator, creditor, consumer, or seller– Gifts from family members, and – Credits from home builder or developer for items in Loan Costs and

Other Costs table. (Comment 37(h)(1)(vii)-1 & -2)– Funds provided to the consumer from the proceeds of subordinate

financing, local or State housing assistance grants, or other similar sources. (Comment 37(h)(1)(vii)-5)

– LESS

• Adjustments - Other amounts paid by the consumer at closing per sale contract. Adjustment and Other Credits is reduced by any such additional charges. (Comment 38(h)(1)(vii)-6)– Personal property purchased by the consumer from the seller– Property taxes or homeowner’s association dues prorated to consumer – Delinquent taxes to be paid by the borrower

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Calculating Cash to CloseConstruct Home on Land Previously Owned (No Seller)

• Closing Costs (J)• Loan Amount – Payments to 3rd parties not Disclosed

in Closing Costs– > 0 = Disclose as a negative #, to the extent # < Total

Closing Costs– < 0 = Disclose as $ 0

• Down Payment/Borrower Funds– Total Debt Satisfied – (Loan Amount – Closing Costs

Financed)– > 0 = Disclose as a positive #– < 0 = Disclose as $ 0

• Deposit – No purchase escrow = $ 0• Funds for Borrower

– Total Debt Satisfied – (Loan Amount – Closing Costs Financed)

– < 0 = Disclose as a positive #– > 0 = Disclose as $ 0

• Seller Credits = Should be $ 0 since no seller• Adjustments and Other Credits – Total of all amounts in

the Loan Costs and Other Costs that are paid by persons other than the Loan Originator, Creditor, Consumer or Seller LESS Other amounts required to be paid at closing by the consumer, if any

– Disclose as a Negative Number unless contract requires more costs like prorated homeowners association dues or property taxes

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Calculating Cash to Close with a Seller ExamplesExample 1 – Construction Costs to Borrower to go to

Builder via Draws

Example 2 – Construction Costs to Builder via Draws

$ 999 $ 999

$ 0 $ 0

$ 0 $ 0

$ 0 $ 0

‐$ 999,999 $ 0

$ 0 $ 0

$ 0 $ 0

‐$ 999,000 $ 999

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“Paid” to Borrower Held for Builder

I don’t like this method due to lack of clarity


Alternative Calculating Cash to Close Table Transactions Without a Seller [Refinance]

• This Alternative Calculating Cash to Close table replaces the Standard Table General Method (§1026.37(h)(2))

• A creditor that uses the optional Alternative Calculating Cash to Close table must also use the alternative disclosure provisions of the Alternative Costs at Closing table on Loan Estimate page 1. (Comment 37(h)(2)-1)

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Loan Estimate: Alternative Calculating Cash to Close (no seller!)

• 1 - Loan Amount is the same amount disclosed as Loan Amount on Loan Estimate page 1. (§1026.37(h)(2)(i))

• 2 – Total Closing Costs (J) is from the Other Costs table, disclosed as a negative number (§1026.37(h)(2)(ii))

• 3 – Estimated Total Payoffs and Payments total amount to be paid to third parties not otherwise disclosed as items in the Loan Costs or Other Costs tables, disclosed as a negative number. (§1026.37(h)(2)(iii))

• 4 - Estimated Cash to Close is the sum of Items 1, 2 and 3. (§1026.37(h)(2)(iv)) Check boxes are used to disclose whether the Estimated Cash to Close is

• Due from consumer or will be paid to the consumer at consummation. (Comment 37(h)(2)(iv)-1)

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1234

‐Builder $$

Builder $$ = Payment to Builderfor construction costs


Alternative Calculating Cash to CloseEstimated Total Payoffs and Payments• Estimated Total Payoffs and Payments total amount to be paid

to third parties not otherwise disclosed as items in the Loan Costs or Other Costs tables, disclosed as a negative number. (§ 1026.37(h)(2)(iii))

• Examples can include:– Payoffs of existing liens secured by the property such as mortgages,

deeds of trust, judgments that have attached to the property,– Mechanics’ and materialmans’ liens,– Local, State, and Federal tax liens,– Payments of unsecured outstanding debts of the consumer, and– Payments to other third parties for outstanding debts of the consumer as

required to be paid as a condition for the extension of credit. (Comment 37(h)(2)(iii)-1)

• Payments to the builder for constructing the home

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Alternative Calculating Cash to Close: Closing Costs Financed

• Closing Costs Financed is the sum of – Loan Amount LESS Payoffs and Payments

• BUT, only to the extent the amount is > $0 and < sum of Total Closing Costs. (§1026.37(h)(2)(v))

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Example 1 Example 2 Example 3

Loan Amount + $ 100,000 + $ 100,000 + $ 100,000

Payoffs and Payments ‐ $ 80,000 ‐ $ 95,000 ‐ $ 110,000

Total Closing Costs + $ 10,000 + $ 10,000 + $ 10,000

Closing Costs Financed $ 10,000 $ 5,000 $ 0

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August 2016

KBYO Proposed Rule: Amendments to Federal Mortgage Disclosure Requirements

under the Truth in Lending Act (Reg. Z) August 2016

On July 28, the Bureau of Consumer Financial Protection (Bureau) issued proposed amendments to federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act as implemented under Regulation Z, also known as the “Know Before You Owe” Mortgage Disclosure Rule (KBYO). The proposed rule offers various amendments to existing regulations and memorializes the informal guidance and clarifications issued by the Bureau since the KBYO rule was finalized in December 2013. Comments to these proposals must be received on or before October 18, 2016. The Bureau is further proposing an effective date of 120 days after publication in the Federal Register of any final rule based on this proposal. Overview The Bureau is proposing various amendments to the integrated mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act, as implemented in Regulation Z.1 The Bureau states that its objective is to integrate some of the Bureau’s existing informal guidance, whether provided through webinar, compliance guides, or otherwise, into the regulation text and commentary. The agency states that it does not intend “to revisit major policy decisions in this rulemaking.” The Bureau is not, under this proposal, adding or clarifying any cure or liability provisions under KBYO, which was a priority request by industry stakeholders. The Bureau explains that “further definition of cure provisions would not be practicable without substantially undermining incentives for compliance with the rule.” These proposed amendments offer various regulatory additions and revisions. The proposed changes would affect tolerances for certain required figures, existing exemptions, coverage for cooperative units, and guidance regarding the sharing of information with third parties. The rule also provides needed fixes and clarifications on affiliate charges, the calculating cash to close table, construction loans, numerical disclosures (decimal places and rounding), escrow account disclosures, escrow cancellation notices, expiration dates for the Loan Estimate figures, gift funds, future payment projection calculation, lender and seller credits, lenders’ and settlement agents’ respective responsibilities, the list of service providers, model forms, non-obligor consumers, partial payment policy disclosures, payment ranges on the projected payments table, the payoffs and payments table, payoffs with a purchase loan, post-consummation fees, principal reduction (principal curtailment), disclosure and good faith determination of taxes and property values, rate locks, recording fees, simultaneous second lien loans, the summaries of

1 78 FR 79730 (Dec. 31, 2013) (TILA-RESPA Final Rule); see also Consumer Fin. Prot. Bureau’s “Know Before You Owe” Mortgage Forms (July 9, 2012), http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-knowbefore-you-owe-mortgage-forms/

Toolkit Page 16

http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-knowbefore-you-owe-mortgage-forms/

http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-knowbefore-you-owe-mortgage-forms/

August 2016

transactions table, the total interest percentage calculation, trusts, and importantly, informational updates to the Loan Estimate disclosures. Detailed descriptions of these new proposals are set forth below. Summary of Proposals Section 1026.1 Authority, Purpose, Coverage, Organization, Enforcement, and Liability

Section 1(d)(5)—Cooperatives

The Bureau is proposing to include closed-end credit transactions, other than reverse mortgages, that are secured by a cooperative unit within the scope of loans covered by § 1026.19(e) and (f), regardless of whether a cooperative unit is treated as real property under State or other applicable law. The Bureau is proposing conforming amendments to § 1026.1(d)(5) to reflect this proposed change to the coverage of § 1026.19(e) and (f).

In addition, and with the objective of standardizing all relevant sections, the Bureau proposes to amend Regulation Z, including § 1026.19(e), (f), and (g) and comments 19(e)(1)(i)-1 and -2, 19(f)(1)(i)-1 and 19(f)(3)(ii)-3, to cover closed-end consumer credit transactions secured by cooperative units, regardless of whether State or other applicable law considers cooperative units to be real or personal property.

Section 1(d)(5)-1—Post-consummation Transactions

The Bureau is proposing to clarify that the disclosures in §§ 1026.20(e) and 1026.39(d)(5) (together, the “post-consummation disclosures,” which generally encompass escrow disclosures and partial payment disclosure notices) apply to all covered transactions as of the effective date. Under this provision, the Bureau is proposing to clarify that the post-consummation disclosure requirements apply to all covered transactions, via a comment under 1(d)(5)-1 that the post-consummation disclosures apply prospectively to transactions for which an application was received prior to October 3, 2015. The proposed comment under 1(d)(5)-1 would state that the post-consummation disclosures take effect for such transactions on October 1, 2017.

Section 1026.2 Definitions and Rules of Construction 2(a)(11)—Trusts

The Bureau proposes to amend comment 2(a)(11)-3 to clarify that, in addition to credit extended to land trusts, credit extended to trusts established for tax or estate planning purposes is also considered to be extended to a natural person for purposes of the definition of consumer in § 1026.2(a)(11), consistent with comment 3(a)-10. Note that currently, comment 2(a)(11)-3 clarifies that credit extended to land trusts is considered to be extended to a consumer for purposes of the definition of consumer in § 1026.2(a)(11). Also, current Comment 3(a)-10 states that credit extended for consumer purposes to land trusts and trusts that a consumer has created for tax or estate planning purposes is considered to be credit extended to a natural person rather than credit extended to an organization.

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Section 1026.3 Exempt Transactions

3(h)—HFAs

Section 1026.3(h) provides that the TILA-RESPA integrated disclosure requirements do not apply to certain transactions, predominantly those utilized by HFAs. In such instances, the creditor must, however, provide the disclosures required by § 1026.18 (i.e., the pre-KBYO disclosures), ensuring that the consumer receives TILA disclosures of the cost of credit. The purpose of these partial exemptions is to permit creditors to provide streamlined disclosures for certain low-cost, non-interest bearing subordinate lien transactions.

The Bureau is proposing to revise § 1026.3(h) to clarify that transfer taxes may be payable by the consumer at consummation without losing eligibility for the partial exemption under Section 3(h), and to exclude recording fees and transfer taxes from the one percent (1%) threshold of total costs payable by the consumer at consummation. The Bureau believes that clarifying that transfer taxes may be payable in connection with such transactions without losing eligibility for the partial exemption and excluding recording fees and transfer taxes, which are costs inherent to the transaction and not imposed by the creditor, from the one percent (1%) threshold would enable more loans to satisfy the criteria in § 1026.3(h).

Under § 1026.3(h)(5)(i), the Bureau proposes to clarify that, for the purposes of this partial exemption, fees for recordation of security instruments, deeds, and similar documents include transfer taxes. The Bureau proposes to revise § 1026.3(h)(5) to permit expressly both recording fees and transfer taxes, which are defined terms under Regulation Z. The Bureau proposes to re-designate and revise § 1026.3(h)(5) as § 1026.3(h)(5)(i) to provide that the costs payable by the consumer in connection with the transaction at consummation are limited to: (A) recording fees; (B) transfer taxes; (C) a bona fide and reasonable application fee; and (D) a bona fide and reasonable fee for housing counseling services. The Bureau proposes to revise § 1026.3(h)(5)(ii) to require that the total of costs payable by the consumer under § 1026.3(h)(5)(i)(C) and (D) be less than one percent (1%) of the amount of credit extended. Under proposed § 1026.3(h)(5)(ii), the application and housing counseling fees would count towards the one percent (1%) threshold, but recording fees and transfer taxes would not.

17(c) Basis of Disclosures and Use of Estimates

17(c)(6)—Construction Loans

According to the Bureau, creditors have expressed uncertainty as to the scope of the allocations currently permitted under comment 17(c)(6)-5. Comment 17(c)(6)-5 permits a creditor, when using this special rule, to disclose certain construction to permanent transactions as multiple transactions and to allocate buyer’s points or similar amounts imposed on the consumer between the construction and permanent phases of the transaction in any manner the creditor chooses.

The Bureau is proposing to amend comment 17(c)(6)-5 to provide greater clarity on the allocation of amounts between the construction and permanent phases if a creditor chooses to disclose the credit extended as more than one transaction. The revised comment would explain that the creditor must allocate to the construction phase all amounts that would not be imposed

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but for the construction financing. All other amounts would be allocated to the permanent financing, including all amounts that would not be imposed but for the permanent financing and all amounts that are not imposed exclusively because of the construction financing.

The amended comment would illustrate how the allocation would be made, using inspection and handling fees for the staged disbursement of construction loan proceeds as an example. The revised comment would also provide examples of how to allocate origination and application fees between the construction phase and the permanent phase.

New 17(c)(6)-6—Financing By Same Creditor

The Bureau is proposing to clarify the meaning of the phrase “may be permanently financed by the same creditor” under 1026.17(c)(6)(ii), that permits creditors to treat construction to permanent loans as one transaction or more than one transaction. Under proposed comment 17(c)(6)-6, the rule would explain that a loan to finance the construction of a dwelling may be permanently financed by the same creditor, within the meaning of § 1026.17(c)(6)(ii), if the creditor generally makes both construction and permanent financing available to qualifying consumers, unless a consumer expressly states that the consumer will not obtain permanent financing from the creditor. Under this approach, the construction phase may be permanently financed by the same creditor, within the meaning of § 1026.17(c)(6)(ii), in all cases other than where permanent financing is not available at all from the creditor (i.e., the creditor does not offer permanent financing) or the consumer expressly informs the creditor that the consumer will not be obtaining permanent financing from the creditor. (This comment addresses the issue that at early stages of an application when the Loan Estimate is delivered, creditors usually would not yet have made a determination as to whether they will provide permanent financing to any given consumer.)

1026.17(c)(2)(ii)—Per Diem Calculation

Current Section 1026.17(c)(2)(ii) provides that, for a transaction in which a portion of the interest is determined on a per-diem basis and collected at consummation, any disclosure affected by the per-diem interest shall be considered accurate if the disclosure is based on the information known to the creditor at the time that the disclosure documents are prepared for consummation of the transaction. Proposed comment 19(f)(2)(iii)-2 would clarify that a creditor is not required to provide to the consumer a corrected Closing Disclosure as required under § 1026.19(f)(2)(iii) for any disclosure that is accurate under § 1026.17(c)(2)(ii), even if the amount actually paid by the consumer differs from the amount disclosed under § 1026.38(g)(2) and (o).

1026.19(e)(1) Provision of Disclosures

19(e)(1)(iii) Timing—Timing for Construction to Permanent Financing

Proposed comment 19(e)(1)(iii)-5 would explain how the timing requirements apply in the case of construction to permanent loans. Current Comment 17(c)(6)-2 explains that, if the consumer is obligated on both phases of a construction to permanent financing and the creditor chooses to give two sets of disclosures, both sets must be given to the consumer initially because both transactions would be consummated at that time. Proposed new comment 19(e)(1)(iii)-5

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summarizes the relevant provisions for construction to permanent loans of §§ 1026.17(c)(6)(ii) and 1026.19(e)(1)(iii), and comment 17(c)(6)-2.

Proposed comment 19(e)(1)(iii)-5 would explain that a creditor that generally makes both construction and permanent financing available, upon receiving a consumer’s application for either construction financing only, without the consumer expressly stating that the consumer will not obtain permanent financing from the creditor, or combined construction to permanent financing, complies with § 1026.19(e)(1)(iii) by delivering or placing in the mail the disclosures required by § 1026.19(e)(1)(i) for both the construction financing and the permanent financing, either disclosed as one or more than one transaction, not later than the third business day after the creditor receives the application and not later than the seventh business day before consummation. The proposal sets forth illustrations (Proposed comment 19(e)(1)(iii)-5.i through -5.iv) of how the Loan Estimate timing provisions apply to construction to permanent loans. The comments would explain that if a consumer expressly states that the consumer will not obtain permanent financing from the creditor after a combined construction to permanent financing disclosure already has been provided, the creditor complies with § 1026.17(c)(6)(ii) by issuing a revised disclosure for construction financing only in accordance with the timing requirements of § 1026.19(e)(4).

The Bureau seeks comment on an alternative approach that would allow a creditor to provide the Loan Estimate only for the financing for which the consumer applied. Under this approach, if a consumer applied for construction financing only, a creditor would be required to provide the Loan Estimate for only the construction financing. If the construction financing may be permanently financed by the same creditor, the creditor would be permitted to provide the Loan Estimate for the permanent financing at the same time as the Loan Estimate was provided for the construction financing but would not be required to do so. If the consumer applied for construction and permanent financing at the same time, the creditor would be required to provide the Loan Estimates for both phases within three days of receiving the application. If the consumer applied for construction and permanent financing separately, the creditor would be required to provide Loan Estimates within three days of receipt of each application. However, a Loan Estimate for the separately-applied-for permanent phase would not be required if the Loan Estimate for the permanent phase had already been provided because the transaction met the condition that the construction phase may be permanently financed by the same creditor.

19(e)(1)(vi) Shopping for Settlement Service Providers

The Bureau is proposing clarifications to Section 1026.19(e)(1)(vi), which defines how a creditor permits a consumer to shop for services and requires the creditor to identify the services the consumer may shop for and provide a written list identifying available providers of those services.

First, with regard to identifying services and available providers, the proposal would clarify that, if the charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify that service unless, based on the best information reasonably available, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Proposed revised comment 19(e)(1)(vi)-2 would also further clarify that specific identification of each

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service in such a package is not required provided that all such services are services for which the consumer is permitted to shop.

Second, proposed revised comment 19(e)(1)(vi)-4 would clarify that, if the charge for a particular service for which the consumer is permitted to shop is payable by the consumer, the creditor must specifically identify an available provider of that service on the written list of providers unless, based on the best information reasonably available, the creditor knows that the service is provided as part of a package (or combination of settlement services) offered by a single service provider. Again, specific identification of each service in such a package is not required provided they all are services for which the consumer is permitted to shop.

Third, although current form H-27 sets forth a model list of the written list of providers, the Bureau would clarify that form H-27(A) is not a mandatory form. The Preamble clarifies that TILA section 105(b) permits creditors to delete non-required information or rearrange the format of a model form without losing the safe harbor protection afforded by use of the model form if, in making such deletion or rearranging the format, the creditor does not affect the substance, clarity, or meaningful sequence of the disclosure.

19(e)(3) Good Faith Determination for Estimates of Closing Costs

The Bureau is proposing various tweaks to § 1026.19(e)(3) and its commentary regarding the good faith determination for closing cost estimates.

19(e)(3)(i)-8—Technical Clarification

New proposed comment 19(e)(3)(i)-8 clarifies charges paid by or imposed on the consumer. The new comment would state that the phrases “paid by or imposed on the consumer” and “payable by the consumer” both reflect the same standard in Regulation Z.

19(e)(3)(ii)-2—Failure to Provide List

Proposed amendments to comments 19(e)(3)(ii)-2 and 19(e)(3)(iii)-2 would clarify that, if the creditor permits the consumer to shop but fails to provide the list required by § 1026.19(e)(1)(vi)(C) or the list does not comply with the requirements of § 1026.19(e)(1)(vi)(B) and (C), good faith is determined under § 1026.19(e)(3)(i) and therefore subject to zero tolerance.

§ 1026.19(e)(3)(iii)—Charges Paid to Affiliates

Proposed amendments to § 1026.19(e)(3)(iii) and comment 19(e)(3)(iii)-4 would clarify the application of the good-faith standard for purposes of non-bona fide charges and charges paid to affiliates of the creditor. Existing Section 1026.19(e)(3)(iii) states that certain charges (including charges paid to affiliates of the creditor) are in good faith if they are consistent with the best information reasonably available, regardless of whether the amounts paid by the consumer exceed the amounts disclosed under § 1026.19(e)(1)(i). An exception to this provision would, however, apply to the following five categories of charges: (A) prepaid interest; (B) property insurance premiums; (C) amounts placed into an escrow, impound, reserve, or similar account; (D) charges paid to third-party service providers selected by the consumer

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consistent with § 1026.19(e)(1)(vi)(A) that are not on the list provided under § 1026.19(e)(1)(vi)(C); and (E) charges paid for third-party services not required by the creditor.

The preamble cites to uncertainties as to whether all five of these categories include charges paid to affiliates of the creditor or if only the last category (i.e., charges paid for third-party services not required by the creditor) includes charges paid to affiliates of the creditor. Although the Bureau believes there are reasonable arguments to support either of those interpretations under the current rule, it is proposing to change the rule prospectively so that all five categories expressly include charges paid to affiliates. The Bureau’s proposal would amend § 1026.19(e)(3)(iii) to clarify that good faith is determined under § 1026.19(e)(3)(iii) for all five of the categories of charges listed therein, regardless of whether such charges are paid to affiliates of the creditor, so long as the charges are bona fide.

For purposes of the “bona fide” standard, the Bureau proposes to add new comment 19(e)(3)(iii)-4 to clarify that, to be bona fide, charges must be lawful and for services that are actually performed. This proposed bona fide determination under § 1026.19(e)(3)(iii) would be specifically for determining good faith for purposes of § 1026.19(e)(1)(i), and such determination would be distinct from the broader finance charge determination under § 1026.4(c)(7) (i.e., whether certain fees are bona fide and reasonable in amount) and the points and fees determination under § 1026.32(b) (e.g., the bona fide discount point definition requires, among other things, a calculation that is consistent with established industry practices).

1026.19(e)(3)(iii)(E)—Property Taxes

Proposed amendments to § 1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)-3 clarify, for purposes of § 1026.19(e)(1)(i), how good faith is determined for estimates of property taxes. The Bureau is proposing to clearly delineate that property taxes are not subject to tolerance by explicitly enumerating property taxes in § 1026.19(e)(3)(iii)(E). Therefore, the proposal revises § 1026.19(e)(3)(iii)(E) and comment 19(e)(3)(iii)-3 to clarify that an estimate of property taxes is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under § 1026.19(e)(1)(i). The proposed revisions to comment 19(e)(3)(iii)-3 also provide an illustrative example.

19(e)(3)(iv) Revised Loan Estimates

Proposed amendments to § 1026.19(e)(3)(iv) and its commentary address the provision of Loan Estimates for purposes of resetting tolerances or for informational purposes. Current law allows lenders to provide LE revisions that would reset tolerances if the revision is due to any of the reasons stated in § 1026.19(e)(3)(iv)(A) through (F). The Bureau cites to lingering uncertainty as to whether a creditor is prohibited from providing the consumer with a revised Loan Estimate for informational purposes if a revision is not based on any of the reasons stated in subsections (A) through (F).

The Bureau proposes to amend comment 19(e)(3)(iv)-2 and to add new comment 19(e)(3)(iv)-4 to clarify that the rule (under § 1026.19(e)(3)(iv)) does not prohibit the creditor from issuing revised disclosures for informational purposes only, even outside the scope of § 1026.19(e)(3)(iv)(A) through (F). The Bureau proposes to add new comment 19(e)(3)(iv)-5 to

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clarify that, regardless of whether a creditor issues a revised Loan Estimate to reset tolerances or simply for informational purposes, any disclosures on the revised Loan Estimate must be based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer. The Bureau offers the following example:

“For example, if the creditor issues revised disclosures reflecting a new rate lock extension fee for purposes of determining good faith under § 1026.19(e)(3)(i), other charges unrelated to the rate lock extension should be reflected on the revised disclosures based on the best information reasonably available to the creditor at the time the disclosures are provided. Nonetheless, any increases in those other charges unrelated to the lock extension may not be used for the purposes of determining good faith under § 1026.19(e)(3).”

19(e)(3)(iv)(D) Interest Rate Dependent Charges

The proposal would add new comment 19(e)(3)(iv)(D)-2 to clarify that the creditor may not provide a revised Loan Estimate on or after the date on which the creditor provides the Closing Disclosure, even if the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure. If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide to the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms. If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii) (e.g., the section outlining “changes before consummation requiring a new waiting period”), the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation, as provided in that paragraph.

See also the summary under § 1026.19(e)(4)(ii), below.

19(e)(3)(iv)(E) Expiration

Under existing law, the creditor may reset the applicable tolerance with an updated LE if the consumer indicates an intent to proceed with the transaction more than 10 business days after the Loan Estimate is provided. The Bureau cites to uncertainty whether a creditor may reset tolerances under § 1026.19(e)(3)(iv)(E) if the consumer indicates an intent to proceed after the 10-business-day period, but within a longer period for which the creditor promised to honor the estimated charges originally disclosed on the Loan Estimate. The Bureau proposes to add new comment 19(e)(3)(iv)(E)-2 to clarify that, if a creditor voluntarily extends the period to a period greater than 10 business days, that longer time period becomes the relevant time period for purposes of using revised estimates under § 1026.19(e)(3)(iv)(E). Proposed comment 19(e)(3)(iv)(E)-2 would further add that a creditor establishes such a period greater than 10 business days by communicating the greater time period to the consumer, including through oral communication.

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19(e)(4) and 19(f) Provision of Revised Disclosures

The Bureau proposes to add comment 19(e)(4)(ii)-2 to clarify that creditors may use corrected Closing Disclosures provided under § 1026.19(f)(2)(i) or (ii) to reflect further changes in costs that will be used for purposes of determining good faith under § 1026.19(e)(3). Stated differently, a creditor may use a corrected Closing Disclosure to reset applicable good faith tolerances when there are fewer than four business days remaining before consummation or when the Closing Disclosure has already been issued, provided that the creditor also complies with the other requirements of § 1026.19(e)(4). The Bureau is proposing comment 19(e)(4)(ii)-2 to clarify this point.

19(f)(4) Provision of Disclosures to Seller

Under existing § 1026.19(f)(4)(i), the settlement agent is required to either provide to the seller a copy of the Closing Disclosure provided to the consumer (if it also contains the information under § 1026.38 relating to the seller’s transaction), or by providing the disclosures under § 1026.38(t)(5)(v) or (vi), which set forth form options that separate consumer and seller information, or delete from the form certain information, as set forth in appendix H. The Bureau is proposing to streamline § 1026.19(f)(4)(i) and comment 19(f)(4)(i)-1 by eliminating unnecessary text and to add comment 19(f)(4)(i)-2 to clarify that, in purchase transactions with a simultaneous loan for subordinate financing, the settlement agent complies with § 1026.19(f)(4)(i) by providing the seller with only the Closing Disclosure for the first lien transaction if that Closing Disclosure records the entirety of the seller’s transaction. If the first lien Closing Disclosure does not record the entirety of the seller’s transaction, which may occur when, for example, the seller contributes to the costs of the simultaneous loan for subordinate financing, the Closing Disclosure for the simultaneous loan for subordinate financing must reflect the seller’s transaction as applicable to the subordinate financing. The settlement agent in that case complies by providing the seller with a copy of the Closing Disclosure for both the first lien and the simultaneous loan for subordinate financing, if they also contain the information under § 1026.38 relating to the seller’s transaction, or by providing the disclosures under § 1026.38(t)(5)(v) or (vi), as applicable.

Section 1026.23 Right of Rescission

23(g)—Tolerances for Accuracy

Under pre-KBYO rules affecting a consumer’s right to rescind, TILA section 106(f)(2) set forth the applicable tolerances for accuracy of the finance charge and other disclosures affected by any finance charge, which have been understood to include the “total of payments.” See Section 1026.23(g). The finance charge tolerance therefore applied to the total of payments because that calculation was affected by the finance charge. In the TILA-RESPA Final Rule, the Bureau modified the requirement under TILA section 128(a)(5) to disclose the total of payments as the sum of the amount financed and the finance charge by requiring instead that a creditor disclose the total of payments on the Closing Disclosure as the sum of principal, interest, mortgage insurance, and loan costs.

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The Bureau believes it is appropriate to continue to apply the tolerances for the finance charge to the modified total of payments calculation. Specifically, the Bureau proposes to re-designate certain sections and amend § 1026.23(g)(1)(ii) to provide that, in general, the total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of § 1026.23 if the disclosed total of payments: (A) is understated by no more than 1⁄2 of 1 percent of the face amount of the note or $100, whichever is greater; or (B) is greater than the amount required to be disclosed. The Bureau further proposes to amend § 1026.23(g)(2)(ii) to provide that, in a refinancing of a residential mortgage transaction with a new creditor (other than a transaction covered by § 1026.32), if there is no new advance and no consolidation of existing loans, the total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of § 1026.23 if the disclosed total of payments: (A) is understated by no more than 1 percent of the face amount of the note or $100, whichever is greater; or (B) is greater than the amount required to be disclosed.

23(h)(2)—Special Tolerance Rules for Foreclosures

For purposes of exercising rescission rights after the initiation of foreclosure, TILA section 125(i)(2) explains that the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as being accurate if the amount disclosed as the finance charge does not vary from the actual finance charge by more than $35 or is greater than the amount required to be disclosed. Section 1026.23(h)(2) implements this statutory provision.

The Bureau proposes to revise comment 23(h)(2)-1 to explain that, for each transaction subject to § 1026.19(e) and (f), § 1026.23(h)(2) is also based on the accuracy of the total of payments, taken as a whole, rather than its components.

Section 1026.37 Content of Disclosures for Certain Mortgage Transactions (Loan Estimate)

37(a) General Information

37(a)(7)—Sale Price

Under § 1026.37(a)(7)(ii), creditors must provide the estimated value of the property in transactions where there is no seller. The Bureau is proposing to revise comment 37(a)(7)-1 to clarify that, if a creditor has performed its own estimate of the property value by the time the disclosure is provided to the consumer, the creditor must disclose its own estimate under § 1026.37(a)(7)(ii).

37(a)(8)—Loan Term

Section 1026.37(a)(8) requires disclosure of the term to maturity of the credit transaction. The Bureau is proposing to add comment 37(a)(8)-3 to provide a cross-reference to proposed new comment app. D-7.i, which explains the disclosure of the loan term for a construction permanent loan, taking into account the unique features of such a transaction.

37(a)(9)—Purpose

Section 1026.37(a)(9) requires a creditor to disclose on the Loan Estimate the consumer’s intended use for the credit, labeled “Purpose.” In instances where the proceeds from a simultaneous loan for subordinate financing in a purchase transaction are used to purchase the

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property that will secure the extension of credit, the Bureau is proposing to amend comment 37(a)(9)-1.i to clarify that simultaneous subordinate financing in such cases is also disclosed with the purpose as “Purchase.”

37(a)(10)—Product

Section 1026.37(a)(10) requires a description of the loan product to be disclosed, including the features that may change the periodic payment. The Bureau is proposing to add a cross-reference in comment 37(a)(10)-2.ii, relating to interest-only features, to proposed comment app. D-7.ii, which would explain the disclosure of the time period of the interest only feature for a construction loan or a construction to permanent loan.

37(a)(13)—Rate Lock

Section 1026.19(e)(3)(iv)(E) provides that, for the purpose of determining good faith under § 1026.19(e)(3)(i) and (ii), a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed on the Loan Estimate (i.e., the creditor may reset the applicable tolerance) if the consumer indicates an intent to proceed with the transaction more than 10 business days after the Loan Estimate is provided. The Bureau proposes to amend comment 37(a)(13)-2 to clarify the relationship between the expiration date disclosure under § 1026.37(a)(13)(ii) and the ability to reset tolerances under § 1026.19(e)(3)(iv)(E). The Bureau also proposes to amend comment 37(a)(13)-2 by adding a cross-reference to new proposed comment 19(e)(3)(iv)(E)-2, which would clarify when the creditor may use a revised estimate of a charge for the purposes of determining good faith under § 1026.19(e)(3)(i) and (ii) when the creditor voluntarily extends the period for which it will honor the estimated charges disclosed on the Loan Estimate for a period beyond 10 business days. The Bureau further proposes to add new comment 37(a)(13)-3 to clarify that, once the consumer has indicated an intent to proceed with the transaction, the date and time at which estimated closing costs expire would be left blank on revised Loan Estimates, if any.

37(b)(1)—Loan Amount

Section 1026.37(b)(1) currently requires the disclosure on the Loan Estimate of the amount of credit to be extended under the terms of the legal obligation, labeled “Loan Amount.” This amount is then used in various other calculations required under the regulations. To reduce inconsistent language in Regulation Z and facilitate compliance, the Bureau proposes to revise § 1026.37(b)(1) to provide that the loan amount disclosed on the Loan Estimate (and, accordingly, on the Closing Disclosure) is the total amount the consumer will borrow, as reflected by the face amount of the note. This language would parallel that of § 1026.32(c)(5), which, as the Bureau noted in the section-by-section analysis of § 1026.37(b)(1) in the TILA-RESPA Final Rule, requires the disclosure of the total amount the consumer will borrow, as reflected by the face amount of the note, for loans subject to HOEPA. The Bureau believes that revising the definition of loan amount in § 1026.37(b)(1) to parallel the language in § 1026.32(c)(5) would make clearer that the same amount should be disclosed under both sections, as indicated in the 2012 TILA-RESPA Proposal.

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37(b)(2)—Interest Rate

Section 1026.37(b)(2) requires disclosure of the interest rate that will be applicable to the transaction at consummation. The Bureau is proposing to add a cross-reference in comment 37(b)(2)-1 to proposed comment app. D-7.iii, which would explain the disclosure of the permanent financing interest rate for a construction to permanent loan.

37(b)(3)—Principal and Interest Payment

Section 1026.37(b)(3) requires disclosure of the initial periodic payment amount. The Bureau is proposing to add a cross-reference in comment 37(b)(3)-2 to proposed comment app. D-7.iv, which would explain the disclosure of an initial periodic payment for a construction or construction to permanent loan.

37(b)(6)(iii)— Adjustments After Consummation and Increase in Periodic Payment

Section 1026.37(b)(6)(iii) requires disclosures of increases in the periodic payment. The Bureau is proposing to add a cross-reference in comment 37(b)(6)(iii)-1 to proposed comment app. D-7.v, which would explain the disclosure of an increase in the periodic payment for a construction or construction to permanent loan.

37(c)—Adjustments After Consummation and Projected Payments

Section 1026.37(c) requires itemization of each separate periodic payment or range of payments. As described below, the Bureau is proposing to amend the commentary accompanying § 1026.37(c), (c)(1)(iii)(B), and (c)(4)(iv). Proposed comment 37(c)-2 would provide a cross-reference to comment app. D-7.vi, which explains the projected payments disclosure for a construction or construction to permanent loan.

37(c)(1)—Periodic Payment or Range of Payments

Section 1026.37(c) requires creditors to disclose an itemization of the periodic payments. Comment 37(c)(1)(iii)(B)-1 illustrates the disclosure of separate periodic payments or ranges when multiple events occur during a single year. The Bureau is proposing clarifying amendments to comment 37(c)(1)(iii)(B)-1 because it has identified inconsistencies in one of the examples in that comment that should be harmonized to match the requirements of § 1026.37(c)(1).

37(c)(4)—Taxes, Insurance, and Assessments

Section 1026.37(c)(4) requires the disclosures of taxes, insurance, and assessments on the Loan Estimate. Under comment 37(c)(4)(iv)-2, the rules permit creditors to disclose that a portion of the property taxes or homeowner’s insurance payments are being paid from escrow, consistent with other situations where the creditor pays only a portion of the disclosed amounts from escrow. The Bureau notes, however, that uncertainty remains over the disclosure that only a portion of the property taxes and homeowner’s insurance payments will be paid from escrow. The Bureau is proposing to revise comment 37(c)(4)(iv)-2 to clarify that creditors may indicate that a portion of the property taxes and homeowner’s insurance will be paid by the creditor using funds from the escrow account when that is the case.

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37(d)(2)—Optional Alternative Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing

Section 1026.37(d)(2) only permits creditors to use the optional alternative cash to close disclosure in transactions without a seller. The Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative disclosure may be used for the simultaneous subordinate financing Loan Estimate if the first lien Closing Disclosure will record the entirety of the seller’s transaction and the seller did not contribute to the cost of the subordinate financing. The Bureau is proposing to amend § 1026.37(d)(2) and comment 37(d)(2)-1 to clarify that creditors may use the optional alternative cash to close disclosure for simultaneous loans for subordinate financing in purchase transactions if the first lien Closing Disclosure will record the entirety of the seller’s transaction.

37(f) Closing Cost Details; Loan Costs -- Construction Loan Inspection and Handling Fees

Section 1026.37(f) requires the disclosure of all loan costs associated with the transaction. Construction loan inspection and handling fees are loan costs associated with the construction transaction for purposes of § 1026.37(f). If such inspection and handling fees are collected at or before consummation, they are disclosed in the loan costs table in the same manner as any other loan cost.

Under proposed comment 37(f)-3, a creditor would disclose construction loan inspection and handling fees that are collected after consummation in a separate addendum to the Loan Estimate rather than in the loan costs table, as proposed comment 37(f)(6)-3, discussed below, would provide. The creditor would not count such fees for purposes of the calculating cash to close table.

Proposed comment 37(f)-3 would include a cross-reference to proposed comment 37(f)(6)-3 for an explanation of the addendum that would be used to disclose post-consummation inspection and handling fees, as discussed below. Proposed comment 37(f)-3 also would include cross-references to comments 38(f)-2 and app. D-7.viii, for additional explanations of the disclosure of such fees. Because the number of post-consummation construction loan inspections and disbursements may not be known at the time the disclosures are required to be provided, comment 37(f)-3 would include a cross-reference to comment 19(e)(1)(i)-1, which includes instruction on providing disclosures based on the best information reasonably available. Finally, comment 37(f)-3 would provide a cross-reference to § 1026.17(e) and its commentary for an explanation of the effect of subsequent events that cause inaccuracies in disclosures.

37(f)(6)—Use of Addenda

The Bureau is proposing to add comment 37(f)(6)-3 to provide instruction for the addendum that would be used to disclose post-consummation construction loan inspection and handling fees. If, pursuant to proposed comment 37(f)-3, a creditor is required to disclose construction loan inspection and handling fees that will be collected after consummation, proposed comment 37(f)(6)-3 would explain that the creditor discloses the total of such fees under the heading “Inspection and Handling Fees Collected After Closing” in an addendum.

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Proposed comment 37(f)(6)-3 would also cross-reference comment 19(e)(1)(i)-1 and explain that, if the amount of post-consummation inspection and handling fees is not known at the time the disclosures are provided, the disclosures in the addendum would be based upon the best information reasonably available. Proposed comment 37(f)(6)-3 would offer an example of the best information reasonably available standard for purposes of disclosing post-consummation inspection and handling fees by providing such information could include amounts the creditor has previously charged in similar transactions.

37(g) Closing Cost Details; Other Costs

37(g)(4)—Other

Section 1026.37(g)(4) currently requires the disclosure of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted, with a person other than the creditor or loan originator, to pay at consummation and of which the creditor is aware at the time of issuing the Loan Estimate. Currently, amounts for construction costs, payoff of existing liens, or payoff of unsecured debt may be, but are not required to be, disclosed under § 1026.37(g)(4). If such amounts are not disclosed under § 1026.37(g)(4), they are factored into the cash to close calculations but are not otherwise disclosed on the Loan Estimate.

The Bureau is proposing to revise comment 37(g)(4)-4 to require the disclosure of construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified under § 1026.37(a)(6), or payoff of unsecured debt under § 1026.37(g)(4), unless those items are disclosed under § 1026.37(h)(2)(iii) on the optional alternative calculating cash to close table. To the extent construction costs, payoff of existing liens, or payoff of unsecured debt are bona fide, they would be subject to the determination of good faith under § 1026.19(e)(3)(iii)(E), as discussed above. Finally, the Bureau is proposing to revise comment 37(g)(4)-4 to cross-reference proposed comment app. D-7.vii for an explanation of the disclosure of construction costs for a construction or construction to permanent loan and proposed comment app. D-7.viii for an explanation of the disclosure of construction loan inspection and handling fees.

37(g)(6)—Total Closing Costs

Section 1026.37(g)(6)(ii) requires creditors to disclose the amount of any lender credits. Comment 37(g)(6)(ii)-1 cross references comment 19(e)(3)(i)-5 and describes lender credits as payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided under § 1026.37. However, as finalized in the TILA-RESPA Final Rule, comment 19(e)(3)(i)-5 states that lender credits, as identified in § 1026.37(g)(6)(ii), represent the sum of non-specific lender credits and specific lender credits. To correct this inconsistency, the Bureau is proposing to revise comment 37(g)(6)(ii)-1 to conform with the language in comment 19(e)(3)(i)-5.

37(h)—Calculating Cash to Close

Section 1026.37(h) currently requires the disclosure of the calculation of an estimate of cash due from or to the consumer at consummation, under the heading “Calculating Cash to Close,” and permits the use of an alternative calculating cash to close table for transactions without a

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seller. The Bureau observes that this “calculating cash to close” table is designed to maximize consumer understanding and offer a “reasonably reliable estimate of the cash due from or to the consumer at consummation.” The Bureau acknowledges that this consumer focus creates a situation where the actual amount of cash to close at consummation could differ “significantly” from the amount disclosed on the Loan Estimate. The Bureau is concerned about consumer understanding and the high level of questions from the industry on the proper calculation of the various amounts disclosed on the calculating cash to close table.

Accordingly, the Bureau is not offering specific proposals on fixing this table, but rather, solicits comment on the calculating cash to close table generally. “This includes comments on possible alternative methods to determine the amounts disclosed on the calculating cash to close table, whether the proposed clarifications and revisions discussed below will result in more consistent calculation of the amounts on the calculating cash to close table, and other ways to simplify the calculating cash to close table while providing the consumer with a reasonably reliable estimate of the amount due from or to the consumer at consummation, consistent with the requirements of TILA section 128(a)(17) and the Bureau’s goal of providing understandable and consistent information to consumers. The Bureau recognizes that any redesign of the calculating cash to close table, including its components, could require extensive changes to existing processes and software investments by industry and seeks comment on the extent of such changes that would be required by the Bureau’s proposal, or by any other proposals suggested by commenters, for revisions to the calculating cash to close table.”

37(h)(1)—For All Transactions

Section 1026.37(h)(1) requires the disclosure of a calculation, yielding an estimate of the cash needed from the consumer at consummation of the transaction, based on seven components. Each of the seven components, disclosed under § 1026.37(h)(1)(i) through (vii), respectively, is determined by a prescribed calculation. The Bureau is proposing to add comment 37(h)(1)-2 to clarify that, on the Loan Estimate for a simultaneous loan for subordinate financing, the sale price disclosed under § 1026.37(a) is not used in any of the § 1026.37(h)(1) calculations. Omitting the sale price from the cash to close calculations required under § 1026.37(h)(1) for simultaneous loans for subordinate financing will result in a cash to close amount reflecting the proceeds of the subordinate financing, itself disclosed on the first lien Loan Estimate under § 1026.37(h)(1)(vii).

37(h)(1)(ii)—Closing Costs Financed

Comment 37(h)(1)(ii)-1 explains that the amount of closing costs financed disclosed under § 1026.37(h)(1)(ii) is determined by subtracting the estimated total amount of payments to third parties not otherwise disclosed under § 1026.37(f) and (g) from the loan amount disclosed under § 1026.37(b)(1). If the result of the calculation is a positive number, that amount is disclosed as a negative number under § 1026.37(h)(1)(ii), but only to the extent that it does not exceed the total amount of closing costs disclosed under § 1026.37(g)(6). If the result of the calculation is zero or negative, the amount of $0 is disclosed under § 1026.37(h)(1)(ii). The Bureau is proposing revisions to provide greater clarity regarding the sale price and loan amount.

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Revised comment 37(h)(1)(ii)-1 would clarify that the sale price may be included in the closing costs financed calculation as a payment to a third party not otherwise disclosed under § 1026.37(f) and (g). However, as explained in proposed comment 37(h)(1)-2, sale price is not used in any calculating cash to close calculations on the Loan Estimate for a simultaneous loan for subordinate financing in a purchase transaction. In addition, the Bureau is proposing to remove the word “total” from the phrase “total loan amount” because “total loan amount” is a defined term under § 1026.32(b)(4), and the Bureau intends only to reference the loan amount disclosed under proposed § 1026.37(b)(1).

Proposed comment 37(h)(1)(ii)-2 would explain that the loan amount disclosed under § 1026.37(b)(1) is the total amount the consumer will borrow, as reflected by the face amount of the note, consistent with proposed revisions to § 1026.37(b)(1), discussed above. The comment would also explain that financed closing costs, such as mortgage insurance premiums payable at or before consummation, do not reduce the loan amount. The addition of this comment will clarify that, regardless of how the term “loan amount” is used by creditors or in relation to programmatic requirements of specific loan programs, for purposes of the Loan Estimate, the amount disclosed as the loan amount, and the basis for the calculating cash to close table calculations, is the total amount the consumer will borrow as reflected by the face amount of the note. This definition does not affect how other agencies may define or use similar terms for purposes of their own programmatic requirements. For example, the “Base Loan Amount” and “Total Loan Amount” for loans made under programs of the Federal Housing Administration may not be the same as the loan amount required to be disclosed under revised § 1026.37(b)(1).

37(h)(1)(iii)—Down Payment and Other Funds from Borrower

Section 1026.37(h)(1)(iii)(A) currently requires that disclosure of the down payment amount in a purchase transaction appear as a positive number. Comment 37(h)(1)(iii)-1 explains that, in the case of a transaction (other than construction loan) where the loan amount exceeds the purchase price of the property, the amount of the down payment disclosed must be $0.

The Bureau is proposing to revise § 1026.37(h)(1)(iii)(A) to account for the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions. Revised § 1026.37(h)(1)(iii)(A)(1) would specify that, in a purchase transaction as defined in § 1026.37(a)(9)(i), the creditor subtracts the sum of the loan amount and any amount for loans assumed or taken subject to that will be disclosed on the Closing Disclosure, based on the best information reasonably available at the time the creditor provides the Loan Estimate, from the sale price of the property. Revised § 1026.37(h)(1)(iii)(A)(2) would provide that, in a purchase transaction as defined in § 1026.37(a)(9)(i), when the sum of the loan amount and any amount for loans assumed or taken subject to that will be disclosed on the Closing Disclosure exceeds the sale price of the property, the creditor calculates the estimated funds from the consumer in accordance with proposed § 1026.37(h)(1)(v), as revised. These provisions, as proposed, would apply to all purchase transactions as defined in § 1026.37(a)(9)(i), including purchase transactions that include a construction loan component.

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Section § 1026.37(h)(1)(iii)(B), as revised, would provide that, for all other transactions, the estimated funds from the consumer would also be calculated in accordance with the “Funds for Borrower” calculation in proposed § 1026.37(h)(1)(v). Comment 37(h)(1)(iii)-2 would explain the amount to be disclosed under § 1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B) is determined in accordance with the “Funds for Borrower” calculation in proposed § 1026.37(h)(1)(v).

The Bureau recognizes that some loan programs require borrowers to provide minimum cash investments, which, under the regulations or requirements of those loan programs, may be referred to as “down payments.” Revised comment 37(h)(1)(iii)-1 would explain the down payment calculation that must be followed for accurate disclosure of the down payment amount. The comment would also explain that the minimum cash investments required of consumers under some loan programs are not necessarily reflected in the down payment disclosure, and accurate disclosure of the down payment does not affect compliance or non-compliance with such loan programs’ requirements.

37(h)(1)(v)—Funds for Borrower

The term “Funds for Borrower,” as calculated under § 1026.37(h)(1)(v), represents generally the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction, such as in cash-out refinance transactions, and “Funds from Borrower” represents the amount expected to be paid by the consumer at consummation. The determination of whether the transaction will result in “Funds for Borrower” is made under § 1026.37(h)(1)(v). The Bureau is proposing to revise § 1026.37(h)(1)(v) to: (a) account for the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions, (b) revise comment 37(h)(1)(v)-1 to explain when $0 is disclosed as “Funds for Borrower” in purchase transactions, and (c) add comment 37(h)(1)(v)-2 to clarify what amounts are included as existing debt being satisfied in the transaction.

As to the first revision, the Bureau recognizes that the current disclosure rules do not properly reflect circumstances when a purchase transaction will result in funds being disbursed to the consumer—thus, the disclosure of “Funds for Borrower” under § 1026.37(h)(1)(v) should not, as currently required, be shown as $0 in such instances. The Bureau is proposing revisions to § 1026.37(h)(1)(v) which would specify that in purchase transactions, when the sum of the loan amount exceeds the sale price, the “Funds for Borrower” calculation in proposed 1026.37(h)(1)(v) will be used for the transaction. A further proposed revision to comment 37(h)(1)(v)-1 would change the language to no longer provide that the “Funds for Borrower” calculation under § 1026.37(h)(1)(v) is only used in non-purchase transactions.

Proposed comment 37(h)(1)(v)-2 would provide that the amounts disclosed under § 1026.37(h)(1)(iii)(A)(2) or (h)(1)(iii)(B), as applicable, and (h)(1)(v) are determined by subtracting the sum of the loan amount disclosed under § 1026.37(b)(1) and any amount of existing loans “assumed or taken subject to” that will be disclosed on the Closing Disclosure under § 1026.38(j)(2)(iv) (less any closing costs financed disclosed under § 1026.37(h)(1)(ii)) from the total amount of all existing debt being satisfied in the transaction. Proposed comment 37(h)(1)(v)-2 would further clarify that the phrase “total amount of all existing debt being

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satisfied by the transaction” refers to amounts that will be disclosed under §§ 1026.38(j)(1)(ii), (iii), and (v).

37(h)(1)(vi)—Seller Credits

Current section 1026.37(h)(1)(vi) requires creditors to disclose the amount that the seller will pay for total loan costs and total other costs, labeled “Seller Credits,” under the heading “Calculating Cash to Close.” Section 1026.37(f) and (g) require creditors to disclose loan costs and other transaction costs under the headings “Loan Costs” and “Other Costs,” respectively.

The Bureau proposes to amend comment 37(h)(1)(vi)-2 to clarify that specific seller credits may be disclosed in the calculating cash to close table under § 1026.37(h)(1)(vi) or, at the creditor’s option, may be reflected within the amounts disclosed for those specific items in the loan costs and other costs tables, under § 1026.37(f) and (g), respectively.

37(h)(1)(vii)—Adjustments and Other Credits

Current section 1026.37(h)(1)(vii) requires that the amount of all loan costs determined under § 1026.37(f) and other costs determined under § 1026.37(g) that are to be paid by persons other than the loan originator, creditor, consumer, or seller, together with any other amounts that are required to be paid by the consumer at consummation pursuant to a purchase and sale contract, be disclosed as a negative number. This assumes something that the Bureau acknowledges is not always the case—that the amount required to be paid by the consumer at consummation pursuant to a purchase and sale contract will be greater than the amount of credits.

The Bureau is therefore proposing to revise § 1026.37(h)(1)(vii) to eliminate the requirement that the amount disclosed be a negative number and to make corresponding revisions to comment 37(h)(1)(vii)-6. The Bureau is proposing to revise comment 37(h)(1)(vii)-1 to distinguish between amounts paid by third parties at consummation and amounts given to consumers in advance of consummation. As proposed, the revision to comment 37(h)(1)(vii)-1 would state that amounts expected to be paid at consummation by third parties not involved in the transaction, such as gifts from family members, and not otherwise identified under § 1026.37(h)(1), are included in the amount disclosed under § 1026.37(h)(1)(vii), although amounts expected to be provided to consumers in advance of consummation by third parties not otherwise involved in the transaction, including gifts from family members, are not required to be disclosed under § 1026.37(h)(1)(vii).

Further, the Bureau is proposing to revise comment 37(h)(1)(vii)-5 to clarify that funds that are provided to the consumer from the proceeds of subordinate financing, local or State housing assistance grants, or other similar sources are included in the amount disclosed under § 1026.37(h)(1)(vii) on the first lien Loan Estimate. Finally, the Bureau is proposing to revise comment 37(h)(1)(vii)-6 to clarify that amounts that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments that will be disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) may be included in the adjustments and other credits amount disclosed on the Loan Estimate under § 1026.37(h)(1)(vii), provided they are not also included in the calculation for proposed § 1026.37(h)(1)(iii) or (v) as debt being satisfied in the real estate transaction. (Otherwise, such amounts will be factored into the cash to close calculations twice.)

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37(h)(2)—Optional Alternative Calculating Cash to Close Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing

Section 1026.37(h)(2) only permits the use of the optional alternative calculating cash to close table in transactions without sellers. The Bureau is proposing to amend § 1026.37(h)(2) and comment 37(h)(2)-1 to permit creditors to use the optional alternative calculating cash to close table for the disclosure of simultaneous loans for subordinate financing in purchase transactions if the first lien Closing Disclosure will record the entirety of the seller’s transaction. The Bureau specifically seeks comment on whether allowing a creditor to use the optional alternative cash to close table for disclosure of simultaneous loans for subordinate financing in purchase transactions only if the first lien Closing Disclosure will record the entirety of the seller’s transaction is an appropriate limitation.

37(h)(2)(iii)—Payoffs and Payments

Section 1026.37(h)(2)(iii) requires the disclosure of the total of all payments to third parties not otherwise disclosed under § 1026.37(f) and (g) as a negative number. The requirement to disclose a negative number, however, does not account for limited circumstances in which funds provided by third parties and the proceeds of subordinate financing exceed the total amount of payoffs and payments to third parties.

The Bureau is proposing to revise § 1026.37(h)(2)(iii) in various ways. First, the Bureau is proposing to amend this section to allow for the disclosure of the total of all payments to third parties not otherwise disclosed under § 1026.37(f) or (g) as a positive amount and to make conforming revisions to comment 37(h)(2)(iii)-1. The Bureau also is proposing to add comment 37(h)(2)(iii)-2 to provide additional clarity on the disclosure of proceeds from a simultaneous loan for subordinate financing on the Loan Estimate for a first lien transaction disclosed under § 1026.37(h)(2), such as a refinance. Proposed comment 37(h)(2)(iii)-2 would explain that, on the first lien Loan Estimate, the proceeds of the simultaneous loan for subordinate financing are included, as a positive number, in the total amount disclosed under § 1026.37(h)(2)(iii). On the first lien Loan Estimate, the total amount disclosed under revised § 1026.37(h)(2)(iii) will be a negative number unless the proceeds from subordinate financing and any amounts entered as credits under comment 37(h)(2)(iii)-1 exceed the total amount of other payoffs and payments that are included in the calculation for the amount disclosed under § 1026.37(h)(2)(iii). The funds from the subordinate financing that will be applied to the first lien transaction are not included in the estimated total payoffs and payments amount on the simultaneous loan for the subordinate financing Loan Estimate.

37(k)—Contact information

The Bureau is proposing to make a technical, non-substantive, amendment to comment 37(k)-3 to correct a typographical error. The Bureau is proposing to replace the current reference to § 1026.38(k)(2) in comment 37(k)-3 with a reference to § 1026.37(k)(2), which describes the disclosure of license numbers or other unique identifiers.

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37(l)(1)—Comparison In Five Years

The Bureau is proposing to make a technical, non-substantive amendment to comment 37(l)(1)(i)-1 to correct a typographical error. The Bureau is proposing to replace the word “fractional” with functional” in comment 37(l)(1)(i)-1 to conform to the language of comment 37(c)(1)(i)(C)-1.

37(l)(3)—Total Interest Percentage

The Bureau is proposing to amend comment 37(l)(3)-1 to clarify further that prepaid interest is included when calculating the TIP.

37(o)(4)—Rounding

The Bureau understands that there is continued uncertainty about rounding requirements on the Loan Estimate. The Bureau is proposing revisions to simplify the rounding and disclosure requirements of § 1026.37(o)(4).

The proposed revisions to § 1026.37(o)(4)(i)(A) would clarify that the per diem amount required to be disclosed by § 1026.37(g)(2)(iii) and the monthly amounts required to be disclosed by § 1026.37(g)(3)(i) through (iii) and (g)(3)(v) are rounded to the nearest cent and disclosed to two decimal places. The proposed revision to comment 37(o)(4)(i)(A)-1 adds clarifying language and adds an illustrative example of the disclosure of per diem interest.

The Bureau is proposing revisions to § 1026.37(o)(4)(ii) to simplify the rounding requirements for amounts disclosed under § 1026.37(o)(4)(ii). Proposed § 1026.37(o)(4)(ii) states that the percentage amounts required to be disclosed under paragraphs (b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), (l)(2), and (l)(3) of this section must be disclosed by rounding the exact amounts to three decimal places and then dropping any trailing zeros to the right of the decimal point. Proposed comment 37(o)(4)(ii)-1 illustrates the requirements of § 1026.37(o)(4)(ii) with examples.

Section 1026.38—Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure)

Section 1026.38 sets forth the content of the Closing Disclosure required by § 1026.19(f) to be provided to the consumer. The Bureau is proposing to add comment 38-4, which would provide options for the disclosure of reductions in principal balance, referred to as a principal curtailments, in various provisions of § 1026.38. Creditors may use lender credits disclosed under § 1026.38(h)(3) to provide a credit for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3). However, contractual or other legal obligations of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, may prevent the creditor from refunding cash to the consumer as lender credits. Therefore, the Bureau is proposing to add comment 38-4, which would provide options for the disclosure of principal curtailments under § 1026.38(g)(4), (j)(4)(i), (t)(5)(vii)(B), and (t)(5)(ix) to provide refunds related to the good faith analysis under § 1026.19(f)(2)(v). The disclosure would contain a statement conveying that the disclosed amount includes a refund for an amount that exceeds the limitations on increases in closing costs under § 1026.19(e)(3) and the amount of such refund under § 1026.19(f)(2)(v).

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38(a)(3)(iii)—Disbursement Date

Section 1026.38(a)(3)(iii) requires disclosure of the disbursement date. Currently, if a non-purchase transaction is disclosed using the alternative disclosures, the disbursement date will be the date amounts disclosed under § 1026.38(t)(5)(vii)(B) are expected to be paid to the consumer or a third party. If a non-purchase transaction is not disclosed using the alternative disclosures, the disbursement date will be the date the loan amount disclosed under § 1026.38(j)(2)(iii) is expected to be paid to the consumer or a third party. Regardless of whether a non-purchase transaction is disclosed using the alternative disclosures, the Closing Disclosure for the non-purchase transaction will include the loan amount under § 1026.38(b). To streamline the provision, the Bureau is proposing to revise § 1026.38(a)(3)(iii) regarding the disbursement date for non-purchase transactions by replacing the cross-references to § 1026.38(j)(2)(iii) and (t)(5)(vii)(B) with a cross-reference to § 1026.38(b). In addition, because the entire loan amount may not be disbursed at one time, such as in non-purchase construction transactions, the Bureau proposes to clarify that the disbursement date is the date some or all of the loan amount is expected to be paid to the consumer or a third party.

The Bureau is also proposing to add comment 38(a)(3)(iii)-1 to clarify that, although a simultaneous loan for subordinate financing is disclosed as a purchase transaction under § 1026.37(a)(9)(i), the disbursement date for this type of transaction will be the same as the disbursement date for non-purchase transactions. The comment would clarify that the disbursement date on the Closing Disclosure for a simultaneous loan for subordinate financing is the date some or all of the loan amount disclosed under § 1026.38(b) is expected to be paid to the consumer or a third party.

38(a)(3)(vii)—Sale Price

In a transaction where there is no seller, § 1026.38(a)(3)(vii)(B) requires the creditor to disclose the appraised value of the property. The Bureau is proposing to revise comment 38(a)(3)(vii)-1 to clarify that, if the creditor has performed its own estimate of the property value for purposes of approving the credit transaction by the time the disclosure is provided to the consumer, the creditor must disclose the estimate it used for purposes of approving the credit transaction.

38(a)(4)—Transaction Information

Section 1026.38(a)(4) requires the disclosure of specific information about the transaction, including the name and address of the seller. Comment 38(a)(4)-2 clarifies that, in transactions where there is no seller, the disclosure of the seller’s name and address required by § 1026.38(a)(4)(ii) may be left blank. The Bureau is proposing to revise comment 38(a)(4)-2 to include simultaneous loans for subordinate financing in purchase transactions if the first lien Closing Disclosure will record the entirety of the seller’s transaction in transactions for which a creditor may leave the § 1026.38(a)(4)(ii) disclosure blank and omit the seller’s name.

Section 1026.38(a)(4)(i) also requires the consumer’s name and mailing address, labeled “Borrower.” Section 1026.2(a)(11) defines “consumer” as a natural person to whom consumer credit is offered or extended. The definition further provides that, in rescindable transactions, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to

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the security interest. The Bureau proposes to add new comment 38(a)(4)-4 to clarify that, in rescindable transactions, § 1026.38(a)(4)(i) requires disclosure of the name and mailing address of each natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest and regardless of whether that person is an obligor.

38(d)(2)—Alternative Table for Transactions Without a Seller and Simultaneous Loans for Subordinate Financing

Section 1026.38(d)(2) only permits creditors to use the optional alternative cash to close table on the Closing Disclosure in transactions without a seller where the creditor disclosed the optional alternative calculating cash to close table under § 1026.37(d)(2) on the Loan Estimate. The Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative table may be used for the simultaneous subordinate financing Closing Disclosure if the first lien Closing Disclosure records the entirety of the seller’s transaction and the seller did not contribute to the subordinate financing. The Bureau is proposing to amend § 1026.38(d)(2) and comment 38(d)(2)-1 to permit explicitly the use of the optional alternative cash to close table for simultaneous loans for subordinate financing in purchase transactions if the first lien Closing Disclosure records the entirety of the seller’s transaction. The Bureau specifically seeks comment on whether allowing a creditor to use the optional, alternative cash to close table for disclosure of simultaneous loans for subordinate financing in purchase transactions only if the first lien Closing Disclosure records the entirety of the seller’s transaction is an appropriate limitation.

38(e)—Alternative Calculating Cash to Close Table for Transactions without a Seller and Simultaneous Loans for Subordinate Financing

Section 1026.38(e) provides for the disclosure of an alternative calculation of an estimate of cash needed from the consumer at consummation for transactions without a seller, using the heading “Calculating Cash to Close.” Note that the Bureau is seeking comment on the calculating cash to close table generally, but on this specific item, the Bureau is proposing to revise § 1026.38(e) and comment 38(e)-1 to clarify when a simultaneous loan for subordinate financing in a purchase transaction may use the optional alternative calculating cash to close table and to add comment 38(e)-6 to specify which amounts are disclosed under the subheading “Loan Estimate” on the Closing Disclosure’s calculating cash to close table.

In past instances, the Bureau has provided informal guidance that, in purchase transactions with a simultaneous loan for subordinate financing, the optional alternative calculating cash to close table may be used for the simultaneous subordinate financing Closing Disclosure if the first lien Closing Disclosure records the entirety of the seller’s transaction and the seller did not contribute to the subordinate financing. The Bureau is proposing to amend § 1026.38(e) and comment 38(e)-1 to permit explicitly the use of the optional alternative calculating cash to close table for simultaneous loans for subordinate financing in purchase transactions, if the first lien Closing Disclosure records the entirety of the seller’s transaction. The use of the alternative calculating cash to close table is required if the alternative calculating cash to close table was provided on the Loan Estimate.

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The Bureau proposes comment 38(e)-6 to clarify that the amounts disclosed under the subheading “Loan Estimate” under § 1026.38(e)(1)(i), (2)(i), (4)(i) and (5)(i) are the amounts disclosed on the most recent Loan Estimate provided to the consumer. This is true whether the amounts on the most recent Loan Estimate provided to the consumer reflected updated amounts provided for informational purposes only or the amounts used for purposes of determining good faith under § 1026.19(e)(3).

The Bureau notes that the amounts disclosed on the Closing Disclosure’s alternative calculating cash to close table under the subheadings “Loan Estimate” and “Final” are not, in and of themselves, subject to the § 1026.19(e)(3) good faith standard. These amounts are disclosed based on the best information reasonably available to the creditor at the time the disclosure is provided. Any increases or changes to the amounts, based on the best information reasonably available to the creditor, do not result in any separate violation of any standard under Regulation Z.

On this item, the Bureau is soliciting views on other alternatives to provide consumers with a comparison of estimated and final amounts.

38(e)(2)—Total Closing Costs

For transactions using the alternative calculating cash to close table, § 1026.38(e)(2)(ii) requires the creditor to disclose the amount of total closing costs disclosed under § 1026.38(h)(1). The “Final” total closing costs disclosed under § 1026.38(e)(2)(ii) show an amount owed by the consumer; therefore, the Bureau specified that the total closing costs be disclosed as a negative number. However, lender credits under § 1026.38(h)(3) may sometimes exceed the subtotal of closing costs under § 1026.38(h)(2), resulting in a net credit to the consumer. In that case, the total closing costs disclosed under § 1026.38(e)(2)(ii) should be disclosed as a positive number, to reflect the expected credit to the consumer. Therefore, the Bureau is proposing to revise § 1026.38(e)(2)(ii) to explain that the amount disclosed under that section is disclosed as a negative number if the amount disclosed under § 1026.38(h)(1) is a positive number and is disclosed as a positive number if the amount disclosed under § 1026.38(h)(1) is a negative number.

38(e)(4)—Payoffs and Payments

Section 1026.38(e)(4)(ii) provides that the total amount of payoffs and payments made to third parties disclosed under § 1026.38(t)(5)(vii)(B), to the extent known, is disclosed as a negative number. The requirement to disclose a negative number under § 1026.38(e)(4)(ii) supposes that the amount disclosed under § 1026.38(t)(5)(vii)(B) will always be a positive number. The Bureau is proposing to revise § 1026.38(e)(4)(ii) to allow for the disclosure of a negative or positive amount, based on the facts and circumstances of the transaction.

38(f)—Closing Cost Details; Loan Costs

The Bureau is proposing to add comment 38(f)-2 which would provide that construction loan inspection and handling fees are loan costs associated with the transaction for purposes of the Closing Disclosure under § 1026.38(f). The proposed new comment would also add a cross reference to proposed comments 37(f)-3, 37(f)(6)-3, and app. D-7.viii, making those comments’

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discussions of inspection and handling fees for the staged disbursement of construction loan proceeds explicitly applicable to the disclosures required by § 1026.38(f).

38(g)(1) Closing Costs; Taxes and Other Government Fees

Section 1026.38(g)(1) requires creditors to disclose an itemization of each amount that is expected to be paid to State and local governments for taxes and government fees, including recording fees. Closing Disclosure form H-25 of appendix H illustrates such disclosures on a line labeled “Recording Fees,” with the additional labels “Deed” and “Mortgage,” respectively.

To resolve lingering uncertainty as to how recording fees should be disclosed on the Closing Disclosure, the Bureau proposes to amend § 1026.38(g)(1) to clarify that the total amount of fees for recording deeds and the total amount of fees for recording security instruments must each be disclosed on the first line under the subheading “Taxes and Other Government Fees” before the columns described in § 1026.38(g). The Bureau also proposes to amend § 1026.38(g)(1) to clarify that the total amounts paid for recording fees (including but not limited to fees for recording deeds and security instruments) must be disclosed in the applicable column described in § 1026.38(g). Finally, the Bureau proposes to add new comment 38(g)(1)-3 to clarify the labels for recording fees on form H-25 of appendix H.

38(g)(4)—Other

Comment 38(g)(4)-1 clarifies that the charges for services disclosed under § 1026.38(g)(4) include all real estate brokerage fees, homeowner’s or condominium association charges paid at consummation, home warranties, inspection fees, and other fees that are part of the real estate transaction but not required by the creditor or disclosed elsewhere in § 1026.38. Currently, amounts for construction costs, payoff of existing liens, or payoff of unsecured debt may be, but are not required to be, disclosed under § 1026.38(g)(4).

The proposal would revise comment 38(g)(4)-1 to reflect the disclosure of construction costs in connection with the transaction that the consumer will be obligated to pay, payoff of existing liens secured by the property identified in § 1026.38(a)(3)(vi), and payoff of unsecured debt, even if payable directly or indirectly to the creditor, under § 1026.38(g)(4) unless those items are disclosed under § 1026.38(t)(5)(vii)(B) on the optional alternative calculating cash to close table. See the section-by-section analysis of § 1026.38(t)(5)(vii)(B) below for a discussion of the proposed change to the requirement to include payoff of existing liens secured by the property identified in § 1026.38(a)(3)(vi) in the payoffs and payments calculation on the optional alternative calculating cash to close table. The Bureau is also proposing to revise comment 38(g)(4)-1 to cross-reference proposed comment app. D-7.vii for an explanation of the disclosure of construction costs for a construction or construction to permanent loan and proposed comment app. D-7.viii for an explanation of the disclosure of construction loan inspection and handling fees.

The Bureau also is proposing to revise comment 38(g)(4)-1 to clarify that inspection fees disclosed under § 1026.38(g)(4) are for pre-consummation inspection fees, not post consummation inspection fees, such as those often associated with construction loans. As discussed in the section-by-section analysis of § 1026.38(f), post-consummation inspection fees would be disclosed in an addendum attached as an additional page after the last page of the

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Closing Disclosure. Revised comment 38(g)(4)-1 would also clarify that, if amounts for construction costs are contracted to be paid at closing, even though they will be disbursed after closing, they are disclosed in the paid “At Closing” column.

38(i)—Calculating Cash to Close

Section 1026.38(i) requires the disclosure of the calculation of an estimate of cash needed from the consumer at consummation of the transaction, using the heading “Calculating Cash to Close.” The Bureau is proposing to revise comment 38(i)-2 to streamline the comment and clarify how amounts should be disclosed under the subheading “Loan Estimate” on the Closing Disclosure’s calculating cash to close table. The Bureau is proposing to revise comment 38(i)-3 for consistency with proposed changes discussed in the section-by-section analysis of § 1026.38(i)(7) below.

The Bureau is proposing to add comment 38(i)-5 to clarify that the amounts disclosed under the subheading “Loan Estimate” under §§ 1026.38(i)(1)(i), (3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), and (9)(i) are the amounts disclosed on the most recent Loan Estimate provided to the consumer.

The Bureau notes that the disclosures on the Closing Disclosure’s calculating cash to close table under the subheadings “Loan Estimate” and “Final” are not, in and of themselves, subject to the § 1026.19(e)(3) good faith standard. These amounts are disclosed based on the best information reasonably available to the creditor at the time the disclosure is provided and any increases or changes to the amounts based on the best information reasonably available to the creditor do not result in any separate violation of any standard under Regulation Z. For purposes of determining good faith under § 1026.19(e)(3), the amounts used are the amounts disclosed under § 1026.37, and may be disclosed over multiple Loan Estimates, or even corrected Closing Disclosures, depending upon the facts and circumstances of the transaction.

The Bureau is soliciting comments on other alternatives to provide consumers with a comparison of estimated and final amounts.

38(i)(1)—Total Closing Costs

Section 1026.38(i)(1)(iii)(A) specifies the creditor’s requirements when the amount of closing costs disclosed under the subheading “Final” in the row labeled “Total Closing Costs (J)” is different than the estimated amount of such costs as shown on the Loan Estimate. As set forth above (in proposed comment 38-4), the Bureau is proposing to clarify that, when contractual or other legal obligations of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to the consumer as lender credits, a reduction in principal balance (principal curtailment) may be disclosed, as a negative number, under § 1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) to provide a refund under § 1026.19(f)(2)(v). The Bureau is proposing to revise both § 1026.38(i)(1)(iii)(A)(3) and comment 38(i)(1)(iii)(A)-3 to allow a creditor to provide a statement directing the consumer to the disclosure of a principal reduction (principal curtailment) under §§ 1026.38(g)(4), (j)(4)(i), or (t)(5)(ix) if a principal curtailment is used to provide such refund. As a result of these proposed clarifications, the Bureau also is proposing to clarify that the examples provided by form H-25(F) of appendix H only relate to statements provided under § 1026.38(h)(3).

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38(i)(3)—Closing Costs Financed

The Bureau is proposing to add comment 38(i)(3)-1 to explain how to calculate closing costs financed and to add comment 38(i)(3)-2 to clarify the loan amount that is used in the closing costs financed calculation. Although the Loan Estimate has commentary explaining how to perform the closing costs financed calculation (see § 1026.37(h)(1)(ii)), the Closing Disclosure does not have such commentary. Therefore, the Bureau is proposing to add comment 38(i)(3)-1 to explain that the amount of closing costs financed disclosed under § 1026.38(i)(3) is determined by subtracting the total amount of payments to third parties not otherwise disclosed under § 1026.38(f) and (g), which may include, for example, the sale price of the property disclosed under § 1026.38(j)(1)(ii), from the loan amount disclosed under § 1026.38(b). If the result of the calculation is zero or negative, the amount of $0.00 would be disclosed under § 1026.38(i)(3). If the result of the calculation is positive, that amount would be disclosed as a negative number under § 1026.38(i)(3), but only to the extent that that the absolute value of the amount disclosed under § 1026.38(i)(3) does not exceed the total amount of closing costs disclosed under § 1026.38(h)(1). The total amount of closing costs disclosed under § 1026.38(h)(1) would never be less than zero because, if the total amount of closing costs disclosed under § 1026.38(h)(1) is a negative number, the amount of $0.00 would be disclosed under § 1026.38(i)(3).

Also, the Bureau is proposing to add comment 38(i)(3)-2 to clarify that the loan amount disclosed under § 1026.38(b) is the total amount the consumer will borrow, as reflected by the face amount of the note, which is consistent with proposed revisions to § 1026.37(b)(1), discussed above. The comment would also explain that financed closing costs, such as mortgage insurance premiums payable at or before consummation, do not reduce the loan amount. The addition of this comment would clarify that regardless of how the term “loan amount” is used by creditors or in relation to programmatic requirements of specific loan programs, for purposes of the Closing Disclosure, the amount disclosed as the loan amount, and the basis for the calculating cash to close table calculations, is the total amount the consumer will borrow as reflected in the face amount of the note. This definition does not affect how other agencies may define or use similar terms for purposes of their own programmatic requirements. For example, the “Base Loan Amount” and “Total Loan Amount” for loans made under programs of the Federal Housing Administration may not be the same as the loan amount required to be disclosed under § 1026.38(b).

38(i)(4)—Down Payment/Funds from Borrower

Section 1026.38(i)(4)(ii)(A) requires the down payment amount in a purchase transaction as defined in § 1026.37(a)(9)(i) to be disclosed as a positive number. In these transactions, the down payment is calculated as the difference between the purchase price of the property and the principal amount of the credit extended. This calculation does not capture the amount of existing loans, assumed or taken subject to, disclosed under § 1026.38(j)(2)(iv). The Bureau is proposing to revise § 1026.38(i)(4)(ii)(A) to account for any amount disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions, and to make other conforming revisions to the regulations.

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The proposal would revise § 1026.38(i)(4)(ii)(A) to specify that, in a purchase transaction, the creditor subtracts the sum of the loan amount and any amount for loans assumed or taken subject to from the sale price of the property, except when the sum of the loan amount and any amount for loans assumed or taken subject to exceed the sale price of the property. When the sum of the loan amount and any amount for existing loans assumed or taken subject to exceeds the sale price of the property, the creditor instead calculates the funds from the consumer in accordance with § 1026.38(i)(6)(iv).

Revised comment 38(i)(4)(ii)(A)-1 would explain the down payment calculation that must be followed for accurate disclosure of the down payment amount on the Closing Disclosure. The comment would also explain that the minimum cash investments required of borrowers under some loan programs are not necessarily reflected in the down payment disclosure, and accurate disclosure of the down payment does not affect compliance or non-compliance with such loan programs’ requirements. To conform with proposed clarifications discussed in the section-by-section analysis of §§ 1026.37(h)(1)(iii) and (v) above, the Bureau is proposing to revise comment 38(i)(4)(ii)(B)-1 to clarify that the “total amount of all existing debt being satisfied in the real estate transaction” means the sum of amounts disclosed under §§ 1026.38(j)(1)(ii), (iii), and (v).

Consistent with other proposed revisions (see §§ 1026.37(h)(1)(iii) and (v) above), the Bureau is proposing to revise comment 38(i)(4)(ii)(B)-1 to account for the amount of existing loans “assumed or taken subject to” disclosed under § 1026.38(j)(2)(iv).

38(i)(6)—Funds for Borrower

Comment 38(i)(6)(ii)-1 provides clarification about how the actual “Funds for Borrower” amount is determined under § 1026.38(i)(6)(iv) and to whom such amount is disbursed. The rule proposes to revise comment 38(i)(6)(ii)-1 to conform to proposed revisions and clarifications discussed in the section-by-section analysis of § 1026.38(i)(6)(iv) below. The Bureau is proposing to add comment 38(i)(6)(ii)-2 to conform to proposed revisions discussed in the analysis of § 1026.37(h)(1)(v) above.

Also, Section 1026.38(i)(6)(iv) provides that the “Funds for Borrower” disclosed under § 1026.38(i)(4)(ii)(B) and “Funds from Borrower” disclosed under § 1026.38(i)(6)(ii) are determined by subtracting the principal amount of the credit extended (excluding closing costs financed, disclosed under § 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the real estate consummation and disclosed under § 1026.38(j)(1)(v) (except to the extent the satisfaction of such existing debt is disclosed under § 1026.38(g)). This calculation does not capture the amount of existing loans, assumed or taken subject to, disclosed under § 1026.38(j)(2)(iv). The Bureau is proposing to revise § 1026.38(i)(6)(iv) to account for the amount expected to be disbursed to the consumer or used at the consumer’s discretion at consummation of the transaction in purchase transactions and improve clarity, consistent with the proposed revisions discussed in the section-by-section analysis of § 1026.37(h)(1)(v).

The Bureau is proposing to revise § 1026.38(i)(6)(iv) to account for the amount of existing loans, assumed or taken subject to, disclosed under § 1026.38(j)(2)(iv). The Bureau also is proposing to revise § 1026.38(i)(6)(iv) to clarify that the phrase “total amount of all existing debt being

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satisfied by the transaction” means amounts that are disclosed in the summaries of transactions table under §§ 1026.38(j)(1)(ii), (iii), and (v). The Bureau seeks comment whether defining the phrase “total amount of all existing debt being satisfied by the transaction” to mean amounts disclosed under §§ 1026.38(j)(1)(ii), (iii), and (v) is too prescriptive and how else the Bureau might provide greater clarity around amounts that must be included in this calculation as part of the “total amount of all existing debt being satisfied by the transaction.”

38(i)(7)—Seller Credits

Section 1026.38(i)(7) requires creditors to compare the amount of seller credits disclosed on the Loan Estimate to the amount disclosed on the Closing Disclosure. The Bureau points out, however, that § 1026.38(j)(2)(v) and comment 38(j)(2)(v)-1 state that only general (i.e., lump sum) seller credits are disclosed under § 1026.38(j)(2)(v), whereas seller credits attributable to a specific cost should be reflected in the seller-paid column in the Closing Cost Details tables under § 1026.38(f) or (g).

The proposed amendment to § 1026.38(i)(7)(iii)(A) would clarify that, if there is a difference between the amount of seller credits disclosed under § 1026.37(h)(1)(vi) and that disclosed under § 1026.38(j)(2)(v) that is not attributed to rounding of the amount disclosed under § 1026.37(h)(1)(vi), the creditor must disclose a statement that the consumer should see the details disclosed under § 1026.38(j)(2)(v) and, as applicable, in the seller-paid column under § 1026.38(f) or (g). The Bureau also proposes new comment 38(i)(7)(iii)(A)-1 with examples of the required statement.

38(i)(8)(ii) & (iii)—Adjustments and Other Credits

Section 1026.38(i)(8)(ii) provides that the amount disclosed is the total of the amounts due from the borrower disclosed on the Closing Disclosure under §§ 1026.38(j)(1)(iii) and (v) through (x), reduced by the amounts already paid by or on behalf of the borrower disclosed on the Closing Disclosure under §§ 1026.38(j)(2)(vi) through (xi). However, the Bureau notes that amounts disclosed under §§ 1026.38(j)(1)(iii) and (v) may have already been factored into calculations for prior components of the calculating cash to close table, thereby being counted twice. The Bureau is proposing to revise § 1026.38(i)(8)(ii) to clarify that, when amounts disclosed on the Closing Disclosure under § 1026.38(j)(1)(iii) or adjustments disclosed on the Closing Disclosure under § 1026.38(j)(1)(v) are accounted for in the calculations for § 1026.38(i)(4) or (6) as debt being satisfied in the real estate transaction, as provided by proposed revisions to those paragraphs, they are not also counted in the adjustments and other credits calculation under revised § 1026.38(i)(8)(ii). The Bureau also is proposing a technical correction to comment 38(i)(8)(ii)-1, which incorrectly references § 1026.37(h)(7) instead of § 1026.37(h)(1)(vii).

Also, as per the analysis of § 1026.38(i)(8)(ii) above, the Bureau is proposing to revise § 1026.38(i)(8)(iii)(A) to conform with the proposed revisions to § 1026.38(i)(8)(ii).

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8(j)(1)—Itemization of Amounts Due from Borrower

Current requirements provide that in purchase transactions where there is a seller, the contract sales price is disclosed under § 1026.38(j)(1)(ii), in addition to § 1026.38(a)(3)(vii)(A). The Bureau is proposing to revise comment 38(j)(1)(ii)-1 to clarify that the sale price is not disclosed under § 1026.38(j)(1)(ii) on the simultaneous loan for subordinate financing Closing Disclosure.

Also, Section 1026.38(j)(1)(v) requires the creditor to provide a description and the amount of any additional seller-paid items that are reimbursed by the consumer at the real estate closing and a description and the amount of any other items owed by the consumer not otherwise disclosed. Comment 38(j)(1)(v)-1 provides examples. The Bureau is proposing to revise comment 38(j)(1)(v)-1 to clarify the amounts disclosed can include amounts owed to the seller but payable to the consumer after the real estate closing, providing as examples: any balance in the seller’s reserve account held in connection with an existing loan, if assigned to the consumer in a loan assumption; any rent the consumer would collect after closing for a time period prior to closing; and any tenant security deposit. Comment 38(j)(1)(v)-1 would also provide that the amounts owed to the seller but payable to the consumer after the real estate closing would be listed under the heading “Adjustments.”

38(j)(1)—Itemization of Amounts Due from Borrower

To conform with proposed amendments to the commentary of § 1026.37(h)(1) (regarding the use of the sale price in the calculating cash to close table calculations on the Loan Estimate for a simultaneous loan for subordinate financing as discussed above), the Bureau is proposing to revise comment 38(j)(1)(ii)-1 to clarify that the sale price is not disclosed under § 1026.38(j)(1)(ii) on the simultaneous loan for subordinate financing Closing Disclosure.

In addition, Section 1026.38(j)(1)(v) currently requires the creditor to provide a description and the amount of any additional seller-paid items that are reimbursed by the consumer at the real estate closing. The Bureau is proposing to revise comment 38(j)(1)(v)-1 to clarify the amounts disclosed can include amounts owed to the seller but payable to the consumer after the real estate closing, providing the following as examples: any balance in the seller’s reserve account held in connection with an existing loan, if assigned to the consumer in a loan assumption; any rent the consumer would collect after closing for a time period prior to closing; and any tenant security deposit. Comment 38(j)(1)(v)-1 would also provide that the amounts owed to the seller but payable to the consumer after the real estate closing would be listed under the heading “Adjustments.”

38(j)(2) Itemization of Amounts Already Paid by or on Behalf of Borrower

Section 1026.38(j)(2)(vi) provides for the disclosure of “Other Credits” and “Adjustments” in the summary of the borrower’s transaction table. The Bureau is proposing to revise § 1026.38(j)(2)(vi) to explain what items should be disclosed under the heading “Adjustments.” Amounts due from the seller to the consumer, under the purchase and sale agreement, would be disclosed under the “Adjustments” heading. As discussed in more detail below, the Bureau is proposing to revise comment 38(j)(2)(vi)-2 to clarify that subordinate financing proceeds are disclosed on the first lien transaction Closing Disclosure and to revise comment 38(j)(2)(vi)-5 to clarify that amounts provided to consumers in advance of the real estate closing are not required to

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be disclosed. The Bureau also proposes to add new comment 38(j)(2)(vi)-6 to provide an example of the types of amounts that would be disclosed under the heading “Adjustments.” Comment 38(j)(2)(vi)-2 does not specify whether the disclosure of subordinate financing proceeds not otherwise disclosed under § 1026.38(j)(2)(iii) or (iv) is made on the first lien transaction Closing Disclosure or on the subordinate financing Closing Disclosure. The Bureau proposes to revise comment 38(j)(2)(vi)-2 to clarify that the disclosure of subordinate financing proceeds under § 1026.38(j)(2)(vi) is made on the first lien transaction disclosure. Comment 38(j)(2)(vi)-2, as revised, would provide an example of how the disclosure works when a consumer uses a second mortgage to finance part of the purchase price. Comment 38(j)(2)(vi)-2 would also explain that the principal amount of the second loan must be disclosed on the summaries of transactions table for the consumer’s transaction either on line 04 under the subheading “L. Paid Already by or on Behalf of Borrower at Closing,” or under the subheading “Other Credits.”

The Bureau proposes to revise comment 38(j)(2)(vi)-5 to clarify more specifically that the requirement to disclose any money or other payments made by family members or third parties, not otherwise associated with the transaction, only applies to money or payments provided at the real estate closing; amounts provided to consumers in advance of the real estate closing by third parties, including family members, not otherwise associated with the transaction, would not be required to be disclosed under revised § 1026.38(j)(2)(vi).

Existing Comment 38(j)(2)(xi)-1 clarifies that the amounts disclosed under § 1026.38(j)(2)(xi) are for other items not paid by the seller, such as utilities used by the seller, rent collected in advance by the seller from a tenant for a period extending beyond the closing date, and interest on loan assumptions. The Bureau is proposing to remove the example of rent collected in advance by the seller from a tenant for a period extending beyond the closing date from comment 38(j)(2)(xi)-1. Proposed comment 38(j)(2)(vi)-6 would add that example as an item to be disclosed under the “Adjustments.”

38(j)(4)—Items Paid Outside of Closing Funds

Section 1026.38(j)(4)(i) requires that any charges not paid from closing funds but that otherwise are disclosed under § 1026.38(j) be marked as “paid outside of closing” or “P.O.C.” The comment to this section explains that the disclosure must include a statement of the party making the payment, such as the consumer, seller, loan originator, real estate agent, or any other person. The Bureau is proposing to add a cross-reference to comment 38-4, which proposes to clarify that, when contractual or other legal obligations of the creditor, such as the requirements of a government loan program or the purchase criteria of an investor, prevent the creditor from refunding cash to the consumer as lender credits, a reduction in principal balance (principal curtailment) may be used to provide a refund under § 1026.19(f)(2)(v). Proposed comment 38-4 would provide options for the disclosure of principal curtailments. The Bureau is also proposing to clarify that “a statement of the party making the payment” means the disclosure must identify the party making the payment.

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38(k)—Summary of Seller’s Transaction

Comment 38(k)-1 explains that § 1026.38(k) does not apply in transactions where there is no seller, such as a refinance transaction. The Bureau is proposing to add additional examples of transactions for which § 1026.38(k) does not apply in revised comment 38(k)-1, such as loans with a construction purpose as defined in § 1026.37(a)(9)(iii) that also do not have a seller or simultaneous loans for subordinate financing if the first lien Closing Disclosure records the entirety of the seller’s transaction.

38(l)—Loan Disclosures

Various sub-sections of 1026.38(l) require certain disclosures based on the tax, insurance, and assessment amounts described in § 1026.37(c)(4)(ii). Section 1026.37(c)(4)(ii), in turn, includes the mortgage-related obligations identified in § 1026.43(b)(8). However, § 1026.37(c)(4)(ii) specifically excludes amounts for mortgage insurance identified in § 1026.4(b)(5) (because amounts for mortgage insurance are already disclosed in the projected payments table under § 1026.37(c)(2)(ii)). The Bureau is aware that, in some instances, creditors may establish an escrow account for the payment of ongoing mortgage insurance premiums. The Bureau proposes amending § 1026.38(l)(7)(i) and comments 38(l)(7)(i)(A)(2)-1, 38(l)(7)(i)(A)(4)-1, and 38(l)(7)(i)(B)(1)-1 to permit disclosure of such escrow accounts by removing references to § 1026.37(c)(4)(ii) and adding references to mortgage-related obligations, including mortgage insurance, described in § 1026.37(c)(2) or 1026.43(b)(8), as appropriate.

38(l)(7)(i)(A)—Calculating Non-Escrowed Property Cost

The Bureau is proposing to add new comment 38(l)(7)(i)(A)(2)-2 to allow the methods used to calculate escrowed property costs when calculating non-escrowed property cost. The Bureau is seeking comment on the use of the escrow account analysis prescribed in § 1026.38(l)(7)(i)(A)(5) to calculate non-escrowed property costs.

38(l)(7)(i)(A)(5)—Disclosure of Escrowed Property Costs

Section 1026.38(l)(7)(i)(A)(4) requires disclosure of the amount the consumer will be required to pay into the escrow account with each periodic payment during the first year after consummation. Section 1026.38(l)(7)(i)(A)(1) requires a disclosure, labeled “Escrowed Property Costs over Year 1,” calculated as the amount disclosed under § 1026.38(l)(7)(i)(A)(4) multiplied by the number of periodic payments scheduled to be made to the escrow account during the first year after consummation. Creditors may base such disclosures on less than 12 payments if, based on the payment schedule dictated by the legal obligation, fewer than 12 periodic payments will be made to the escrow account during the first year after consummation.

To reduce uncertainty about whether the amounts disclosed under § 1026.38(l)(7)(i)(A)(1) and (4) should be based on 12 payments or less than 12 payments, the Bureau is proposing to add new comment 38(l)(7)(i)(A)(5)-1 to clarify, for example, that creditors may base such disclosures on less than 12 payments if, based on the payment schedule dictated by the legal obligation, fewer than 12 periodic payments will be made to the escrow account during the first year after consummation. Alternatively, § 1026.38(l)(7)(i)(A)(5) permits the creditor to base the disclosures required by §§ 1026.38(l)(7)(i)(A)(1) and (4) on amounts derived from the escrow

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account analysis required under Regulation X, 12 CFR 1024.17, even if those disclosures differ from what would otherwise be disclosed under §§ 1026.38(l)(7)(i)(A)(1) and (4), as, for example, when there are fewer than 12 periodic payments scheduled to be made to the escrow account during the first year after consummation.

Section 38(o)—Loan Calculations and Total of Payments

The Bureau is proposing to adopt tolerances for the total of payments that parallel the statutory tolerances for the finance charge and disclosures affected by the finance charge. In the TILA-RESPA Final Rule, the Bureau adopted a definition of total of payments for purposes of the Closing Disclosure that differs from the statutory definition under TILA section 128(a)(5), which explicitly references finance charges. The preamble explains the Bureau’s view that this change introduced ambiguity as to whether the total of payments for purposes of the Closing Disclosure is a disclosure affected by the finance charge and therefore subject to the same tolerances. These proposed revisions to § 1026.38(o)(1) would “unambiguously” apply the tolerances for accuracy of the disclosed finance charge and other disclosures affected by the disclosed finance charge to the total of payments on the Closing Disclosure. In modifying the total of payments calculation in the TILA-RESPA Final Rule, the Bureau did not intend to alter the tolerances for accuracy applicable to the total of payments, and this is important because the total of payments is one of the disclosures that may give rise to civil liability as set forth in TILA section 130 for a creditor’s failure to comply, including actual damages, statutory damages (individual and class action), costs, and attorney’s fees.

Specifically, the Bureau proposes to revise § 1026.38(o)(1) to provide that the disclosed total of payments shall be treated as accurate if the amount disclosed as the total of payments: (i) is understated by no more than $100; or (ii) is greater than the amount required to be disclosed. The Bureau also proposes conforming revisions to § 1026.23(g) and (h)(2), as well as new comment 38(o)-1 to provide two examples illustrating the interaction of the finance charge and total of payments accuracy requirements for each transaction subject to § 1026.19(e) and (f). Further, the Bureau proposes to revise comment 38(o)(1)-1. Comment 38(o)(1)-1 explains that the total of payments is calculated in the same manner as the “In 5 Years” disclosure under § 1026.37(l)(1)(i), except that the disclosed amount reflects the total payments through the end of the loan term. The Bureau proposes to revise comment 38(o)(1)-1 to clarify that the total of payments calculation on the Closing Disclosure excludes charges for loan costs disclosed under § 1026.38(f) that are designated on the Closing Disclosure as paid by seller or paid by others.

A seller or other party, such as a lender, may agree to offset a particular loan cost, whether in whole or in part, through a specific credit, for example through a specific seller or lender credit. The proposed revision to the comment would clarify that, because these loan costs are not paid by the consumer, the amounts of such loan costs offset by specific credits are excluded from the total of payments calculation.

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38(t)(3)—Technical Fix

The Bureau proposes to make technical amendments to comment 38(t)(3)-1 to insert two missing words and make a non-substantive stylistic edit. Specifically, in the first sentence of the comment, the Bureau proposes to add the words “is not” and delete the prefix “non” that precedes the word “federally.” This proposed technical amendment would not alter the substance of comment 38(t)(3)-1.

38(t)(4)(ii)—Rounding

Section 1026.38(t)(4)(ii) provides rounding rules for the percentage amounts disclosed under §§ 1026.38(b), (f)(1), (n), (o)(4), and (o)(5). Section 1026.38(t)(4)(ii), however, provides that the percentage amounts disclosed for loan terms, origination charges, the adjustable interest rate table, and the TIP shall not be rounded and shall be disclosed up to two or three decimal places and the percentage amount required to be disclosed for the annual percentage rate shall not be rounded and shall be disclosed up to three decimal places. If the amount is a whole number, then the amount disclosed shall be truncated at the decimal point.

The Bureau understands that there is uncertainty about the rounding requirements and is proposing to revise § 1026.38(t)(4)(ii) to simplify the rounding requirements for the percentages disclosed pursuant to the requirements of § 1026.38(t)(4)(ii). As proposed, § 1026.38(t)(4)(ii) would require that the percentage amounts disclosed under §§ 1026.38(b), (f)(1), (n), (o)(4), and (o)(5) be disclosed by rounding the exact amounts to three decimal places and then dropping any trailing zeros to the right of the decimal point.

38(t)(5)—Separation of Consumer and Seller Information

There has been ongoing doubt and controversy regarding the duty and ability of creditors to provide a Closing Disclosure to sellers or seller’s agents. Lenders have raised concerns that the provision of the Closing Disclosure to any party other than the consumer could implicate privacy restrictions under Regulation P. The Bureau recognizes that credit transactions secured by real property where the consumer is purchasing the property from a seller pose “particular considerations related to the sharing of information.” The Bureau is proposing some clarifications to alleviate confusion in this area.

Regulation Z currently requires that the lender provide the Closing Disclosure to the consumer and requires the settlement agent to provide a copy of the Closing Disclosure to the seller under § 1026.19(f). Under § 1026.38(t)(5)(vi), the creditor or settlement agent is permitted to providea separate Closing Disclosure to the seller that contains limited consumer information. Thesettlement agent must provide to the seller either a copy of the Closing Disclosure or apermissible separate Closing Disclosure, under § 1026.19(f)(4)(iv).

The Bureau observes that Regulation Z does not contain any further explanation of parties to whom the Closing Disclosure may be provided, the extent to which the consumer’s information may be provided to the seller or the seller’s agent, or the extent to which the seller’s information may be provided to the consumer or consumer’s agent.

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As a first step towards more clarity, the Bureau is proposing to add new commentary under § 1026.38(t)(5)(v) to clarify that, at its discretion, the creditor may make modifications to the Closing Disclosure form to accommodate the provision of separate Closing Disclosure forms to the consumer and seller.

Second, via the preamble, the Bureau observes that there are exemptions to the privacy notice and opt-out requirements of GLBA and Regulation P. The Bureau describes in the preamble that GLBA section 502(e)(8) provides an exception that applies if a financial institution shares its customer’s non-public personal information to comply with Federal, State, or local laws, rules and other applicable legal requirements. GLBA sections 502(e)(1) and 509(7)(A) provide another exception that applies if a financial institution’s sharing of its customers’ non-public personal information is required, or is a usual, appropriate, or acceptable method, to provide the customer or the customer’s agent or broker with a confirmation, statement, or other record of the transaction, or information on the status or value of the financial service or financial product. The Bureau then makes the statement that, based on its understanding of the real estate settlement process, the Bureau understands that it is usual, appropriate, and accepted for creditors and settlement agents to provide the combined or separate Closing Disclosure as a confirmation, statement, or other record of the transaction, to consumers, sellers, and their agents, or information on the status or value of the financial service or financial product to their customers or their customers’ agents or brokers.” In addition, the Bureau is proposing to add comment 38(t)(5)(v)-1 to clarify that, at its discretion, the creditor may make modifications to the Closing Disclosure form to accommodate the provision of separate Closing Disclosure forms to the consumer and the seller and the three methods by which a creditor can separate such information. The Bureau further proposes to add comments 38(t)(5)(v)-2 and -3 to provide examples where the creditor may choose to provide separate Closing Disclosure forms to the consumer and seller.

38(t)(5)(vii)—Transactions Without a Seller and Simultaneous Loans for Subordinate Financing

The Bureau is advancing various tweaks to Section 1026.38(t)(5)(vii), which permits modifications to form H-25 of appendix H for transactions not involving a seller. The Bureau is proposing to—

(1) Revise § 1026.38(t)(5)(vii) to include simultaneous loans for subordinate financing astransactions for which a modification of form H-25 of appendix H is permitted.

(2) Add comment 38(t)(5)(vii)(B)-1 to clarify that amounts provided by third parties maybe disclosed as credits in the payoffs and payments table,

(3) Add comment 38(t)(5)(vii)(B)-2 to clarify the disclosure of subordinate financingproceeds, and comment 38(t)(5)(vii)(B)-3 to cross-reference comment 37(h)(2)(iii)-1for additional examples and comment 38-4 for the disclosure of a reduction inprincipal balance (principal curtailment) to provide a refund.

(4) Add comment 38(t)(5)(vii)(B)-1 to clarify that amounts paid by third parties whoprovide funds on behalf of the consumer are considered funds provided bydesignees, and may be disclosed as credits in the payoffs and payments table usingnegative numbers.

(5) Add comment 38(t)(5)(vii)(B)-2 which would clarify that, on the Closing Disclosure fora first lien transaction that also has a simultaneous loan for subordinate financing,

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the proceeds of the subordinate financing are included in the payoffs and payments table under § 1026.38(t)(5)(vii)(B) as a negative number. The disclosure of a negative amount for proceeds of the subordinate financing signifies additional cash being provided to the transaction on behalf of the borrower.

(6) Add comment 38(t)(5)(vii)(B)-3 to refer to other examples provided in comment 37(h)(2)(iii)-1. Proposed comment 38(t)(5)(vii)(B)-3 would also refer to proposed comment 38-4, which would provide options for the disclosure of a reduction in principal balance (principal curtailment) to provide a refund under § 1026.19(f)(2)(v), including disclosure under § 1026.38(t)(5)(vii)(B).

38(t)(5)(ix)—Customary Recitals and Information

The Bureau is proposing to revise comment 38(t)(5)(ix)-1 to cross-reference proposed comment 38-4, which would provide options for the disclosure of a reduction in principal balance (principal curtailment) to provide a refund under § 1026.19(f)(2)(v), including disclosure under § 1026.38(t)(5)(ix).

Appendix D – Construction Loans

The Bureau makes the general statement that creditors have expressed difficulty with making disclosures under the TILA-RESPA Final Rule for construction financing. Under this proposed rule, the Bureau is proposing a series of fixes to Appendix D, to clarify how certain additional, specific disclosure requirements of §§ 1026.37 and 1026.38 apply in the unique context of construction and construction to permanent loans and to provide additional methods that creditors may use, at their option, to estimate and disclose those terms:

(1) Under proposed comment app. D-7.i.A, if the creditor discloses the construction and permanent financing as a single transaction, the loan term disclosed would be the total combined term of the construction period and the permanent period.

(2) Proposed comment app. D-7.i.B clarifies how to disclose the term of the permanent phase of a construction to permanent loan when the creditor elects to disclose the two phases as separate transactions. Proposed comment app. D-7.i.B explains that, consistent with proposed comment 37(a)(8)-3, the loan term of the permanent financing is counted from the date that interest for the first scheduled periodic payment of the permanent financing begins to accrue, regardless of when the permanent phase is disclosed.

(3) Proposed comment app. D-7.ii would explain how to disclose the duration of the “Interest Only” feature of a construction loan or the construction phase of a construction to permanent loan under §§ 1026.37(a)(10)(ii)(B) and 1026.38(a)(5)(iii). The duration of the interest only period depends on whether the construction phase is disclosed separately, which would be covered by proposed comment app. D-7.ii.A, or as a combined transaction with the permanent phase, which would be covered by proposed comment app. D-7.ii.B.

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(4) Proposed comment app. D-7.ii.A would provide an explanation and exampleof the fact that in construction loans, the final payment will typically be aballoon payment that is the sum of the final interest payment and the loanprincipal. As a payment that includes principal, the final balloon payment isnot counted for purposes of determining the duration of the “Interest Only”payment period.

(5) Proposed comment app. D-7.ii.B would explain that, if a single, combinedconstruction permanent disclosure is provided, the time period of the interestonly feature that is disclosed as part of the product disclosure under §§1026.37(a)(10) and 1026.38(a)(5)(iii) is the full term of the interest onlyconstruction financing. In such cases, the construction and permanentphases are considered together as a single loan or transaction, and there isno balloon payment of principal and interest at the end of the constructionphase.

(6) Proposed comment app. D-7.iii would address the situation where thepermanent phase is disclosed at the same time as the construction phase,either in a combined disclosure with the construction phase or in a separatedisclosure of only the permanent phase, the interest rate of the permanentfinancing may not be known because the conversion to permanent financingmay not take place for several months. The proposed comment would alsoprovide instruction on post-consummation disclosures that may be required ifthe creditor may modify the rate disclosed for the permanent financing whenthe construction financing converts to permanent financing.

(7) Proposed comment appendix D-7.iv would clarify that the general rule of §1026.17(c)(3), which allows creditors to disregard the effects of certain minorvariations in making calculations and disclosures, applies to the appendix Dcalculation of the initial periodic payment amount disclosed under §§1026.37(b)(3) and 1026.38(b). For example, the effect of the fact that monthshave different numbers of days may be disregarded in making the disclosure.

(8) Section 1026.37(b)(6) requires a creditor to provide an affirmative or negativeanswer to the question, “Can this amount increase after closing?” withrespect to certain amounts, including the initial periodic payment amountdisclosed under § 1026.37(b)(3). New proposed comment app. D-7.v (andsubsections) would offer guidance on answering this question where theactual schedule of advances is not known.

(9) With regard to the Projected Payments Table, new comment app. D-7.vi.Awould specify that the creditor determines the amount of the interest-onlypayment to be made during the construction phase using the assumption inappendix D, part I.A.1 if interest is payable only on the amount actuallyadvanced for the time it is outstanding. As proposed, the comment wouldexplain that the first column also reflects the amortizing payments for thepermanent phase if the term of the construction phase is not a full year.

(10) Proposed comment app. D-7.vii.A would explain the amount ofconstruction costs is disclosed under the subheading “Other” under §1026.37(g)(4), consistent with informal guidance provided by the Bureau and

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the proposed changes to § 1026.37(g)(4). Section 1026.37(g)(4) requires disclosure of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate.

(11) Proposed comment app. D-7.vii.B would clarify disclosure of a portion ofa construction loan’s proceeds that is placed in a reserve or other account atconsummation. Such amounts are sometimes referred to as a “constructionholdback.” Consistent with informal guidance provided by the Bureau, theproposed comment would explain that the amount of such an account may bedisclosed separately from other construction costs or may be included in theamount disclosed for construction costs for purposes of required disclosuresand calculations under §§ 1026.37 and 1026.38, at the creditor’s option. Ifthe amount is disclosed separately, the balance of construction costs mustexclude the designated amount to avoid double counting.

(12) Proposed comment app. D-7.viii would provide instructions for thedisclosure of construction loan inspection and handling fees consistent withinformal guidance provided by the Bureau. The proposed comment explainsthat comment 4(a)-1.ii.A identifies inspection and handling fees for the stageddisbursement of construction loan proceeds as finance charges.

Appendix H—Closed-End Forms and Clauses

The Bureau notes that the Bureau understands that, because of the overbroad reference to “model forms” in comment app. H-30, uncertainty exists regarding whether creditors may rely on the integrated disclosure samples to demonstrate compliance with requirements of the regulation. The Bureau is proposing to revise comment app. H-30 to distinguish between the integrated disclosure model forms and the integrated disclosure samples. Thus, proposed comment app. H-30 would state that the integrated disclosure model forms are model forms for the disclosures required under §§ 1026.37 and 1026.38. Moreover, proposed comment app. H 30 would state that, under §§ 1026.37(o)(3) and 1026.38(t)(3), federally related mortgage loan form(s) H-24(A) (or, alternatively, H-24(G)) and H-25(A) (or, alternatively, H-25(H), (I) or (J))) are standard forms required to be used for the disclosures required under §§ 1026.37 and 1026.38, respectively.

The Bureau notes that the “integrated disclosure samples, unlike the integrated disclosure model forms, are not controlling authority for any purpose. Accordingly, they should not be read as changing or overriding the requirements of §§ 1026.37 and 1026.38, which are the controlling authorities regarding the disclosures’ content. Sample forms are provided by the Bureau purely for illustration and as an aid to compliance. Because any errors in the integrated disclosure samples have such limited legal consequences, the Bureau has not conducted a systematic review of their accuracy; should the Bureau undertake such a review in the future and identify errors, it will adopt appropriate revisions.”

Questions? Contact ABA’s Rod Alba for more information.

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