On July 7, 2017 the Consumer Financial Protection Bureau (“CFPB”) released an amendment (the “Amendment”) to its TILA/RESPA Integrated Disclosure Rule (“TRID Rule”). Among other things, the Amendment makes some specific changes to the TRID Rule’s Partial Exemption for certain down payment assistance loans (“DPA Loans”) offered by some HFAs.
Generally, the TRID Rule requires creditors to provide a borrower with a Loan Estimate (“LE”) which includes an estimate of the terms and costs of a mortgage, and a Closing Disclosure (“CD,” and together with LE, the “TRID Disclosures”) which discloses the final terms and costs of the mortgage. Prior to the Amendment, loans that met the following six criteria were exempt from the general rule requiring the use of the TRID Disclosures due to the TRID Rule’s Partial Exemption:
The loan is secured by a subordinate lien;
The loan is for down payment, closing costs or other similar homebuyer assistance, property rehabilitation assistance, energy efficiency assistance or foreclosure avoidance or prevention;
There is no interest charged on the loan;
The loan is forgivable or deferred until either the property is sold, the property is no longer the borrower’s principal residence, or at least 20 years from closing;
The only fees charged for the loan are (a) recording fees, (b) a bona fide and reasonable application fee, and (c) a bona fide and reasonable fee for housing counseling services, and the sum of those fees is no more than 1% of the principal amount of the loan; and
The creditor complies with all other applicable requirements under TILA, including providing the borrower with the TILA disclosures of the cost of credit required by 12 CFR 1026.18 (the “TILA Disclosure”).
The Amendment makes the following three changes to the Partial Exemption’s criteria. First, the Amendment adds transfer taxes to the list of allowable fees. In its Official Interpretation of the Final TRID Rule, the CFPB indicated that “recording fees are assessed based on the type of document to be recorded or its physical characteristics, such as the number of pages” while “transfer taxes . . . are State and local government fees on mortgages and home sales that are based on the loan amount or sales price.” See Comment 37(g)(1)-1 and Comment 37(g)(1)-3. This portion of the Amendment is intended to clarify that recording fees and transfer taxes are both allowable charges under the Partial Exemption.
Second, the Amendment removes recording fees and transfer taxes from the Partial Exemption’s 1% cap on fees. Several HFAs provided the CFPB with evidence that the recording fees associated with DPA Loans alone exceeded the 1% cap. To allow more HFAs to use the Partial Exemption, the 1% cap on fees has been loosened so that only the sum of the application fee and the fee for housing counseling services must be less than 1% of the principal amount of the DPA Loan.
Third, the Amendment gives HFAs the option to use either the TILA Disclosures or the TRID Disclosures for DPA Loans which meet the above criteria (as amended). Prior to the Amendment, most HFAs that offered 0%, non-amortizing forgivable or deferrable DPA Loans had two options—either satisfying the Partial Exemption’s criteria and providing the TILA Disclosures, or not using the Partial Exemption, which resulted in having to use RESPA’s Good Faith Estimate (“GFE”) and HUD-1 Settlement Statement (“HUD-1”). Both of these options have been administratively burdensome as most participating lenders’ software systems are no longer capable of producing these disclosures. The Amendment now allows lenders to use the TRID Disclosures to satisfy the Partial Exemption’s disclosure criteria. This new disclosure option will allow participating lenders to use their software systems to generate the automated TRID Disclosures for a DPA Loan which will alleviate the burden of having different loan disclosures for first mortgages and for DPA Loans.
The effective date of the Amendment is 60 days after it is published in the Federal Registrar (the “Effective Date”); however, compliance with the Amendment is mandatory only for loan applications received on and after October 1, 2018 (the “Mandatory Compliance Date”). Between the Effective Date and the Mandatory Compliance Date, creditors may opt to implement and comply with the Amendment if they wish.
This client alert was prepared by the attorneys of Kutak Rock listed below. Please address questions, comments or corrections to either of them.