On April 26, 2018, the Bureau of Consumer Financial Protection (the “Bureau”) finalized an amendment to the “Know Before You Owe” mortgage disclosure rule (also known as the TILA-RESPA Rule), which it proposed in July 2017 and which we previously described in this blog. The amendment eliminates uncertainty regarding a timing restriction in the TILA-RESPA Rule, specifically whether and when a creditor may use a Closing Disclosure to communicate increased closing costs charged to consumers.
The TILA-RESPA Rule requires a creditor to provide a good faith estimate of loan terms and closing costs on a Loan Estimate, which must be delivered or placed in the mail to a consumer no later than three business days after the consumer submits a loan application. In certain circumstances, the creditor may use a revised estimate, as opposed to the estimate originally disclosed, as the good faith estimate. If the creditor uses a revised estimate, the creditor must provide the consumer with a new Loan Estimate reflecting the revised closing costs within three days of receiving information that prompts the revised estimate.
The existing TILA-RESPA Rule contained restrictions on the timing of providing a Loan Estimate: (i) the consumer must receive any revised Loan Estimate no later than four business days prior to consummation; and (ii) the creditor cannot provide a revised Loan Estimate on or after the date it provides the Closing Disclosure to the consumer, which must be at least three business days prior to consummation. However, if there were less than four days between the time the revised estimate is required to be disclosed and consummation, then the TILA-RESPA Rule provided that the creditor could include the revised closing cost estimates in the Closing Disclosure.
These restrictions created a “black hole” period during which a creditor could learn of closing costs not initially disclosed on a Loan Estimate that could be included in a revised estimate, but would be unable to provide a revised estimate on either a Loan Estimate or Closing Disclosure. For example, under the existing TILA-RESPA Rule, if a creditor provided the Closing Disclosure to the consumer and an event subsequently occurred that caused an increase in closing costs, the creditor could not disclose such costs on a revised Loan Estimate. Moreover, the existing TILA-RESPA Rule did not specify whether a creditor could revise the Closing Statement to reflect the newly incurred costs if there were more than four business days between the time the creditor was supposed to provide the revised version of the disclosures and consummation.
The Bureau’s April 26, 2018 final rule specifically provides that a creditor may use a Closing Disclosure, instead of a Loan Estimate, to reflect changes in closing costs for the purpose of determining whether an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation. The final rule is generally consistent with the July 2017 proposed rule.
The final rule will go into effect 30 days after publication in the Federal Register.