Consumer Financial Protection Bureau Updates Mortgage Rule to Provide Better Clarity

The changes will make it easier for the mortgage industry to implement the rule

Consumer Financial Protection Bureau Updates Mortgage Rule to Provide Better Clarity
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July 10, 2017

The Consumer Financial Protection Bureau (CFPB) has finished updates for its "Know Before You Owe" mortgage disclosure rule in order to provide more clarity and certainty.

The changes will make it easier for the mortgage industry to implement the rule.

Adjustments and Clarifications

"A mortgage is one of the largest financial decisions a consumer will ever make, and CFPB's rules help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives," said CFPB Director Richard Cordray. "Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers."

The rule first went into effect on October 3, 2015, creating new, more streamlined forms for consumers to fill out when they apply for and close on a mortgage. The amendments now finalized by the Bureau make several adjustments, clarifications, and technical corrections. Among the changes are the following:

  1. Tolerances for payment totals
  2. Before the mortgage disclosure rule was implemented, the finance charge was used to help calculate the total of payments disclosure. The rule changed the calculation so that this charge was no longer specifically used. Now, the CFPB is finishing updates so that tolerance provisions for payment totals will be included. These provisions will parallel the tolerances for the finance charge and disclosures affected by the charge.

  3. Lending for Housing Assistance
  4. Currently, the mortgage disclosure rule provides a partial exemption for certain housing assistance loans from disclosure requirements. The update promotes lending for housing assistance by clarifying that recording fees as well as transfer taxes can be charged in connection with such lending transactions while staying eligible for the partial exemption. These fees and taxes will also be excluded from the exemption's cost limits. Finally, the update will qualify more housing assistance loans for the partial exemption, which should result in more such loans being made.

  5. Cooperatives
  6. Through the updates, all cooperative units will be covered by the rule, which currently covers only those transactions that are secured by real property as each state's law defines it. This difference in laws has led to cooperatives sometimes being treated as personal property and others as real property. Including all cooperatives will simplify compliance and make sure that more consumers benefit.

  7. Information Sharing and Privacy
  8. Under the current rule, creditors have to provide certain mortgage disclosures to the consumer. The CFPB has gotten several questions regarding sharing these disclosures with third parties to the transaction, such as the seller and real estate brokers. Knowing that it is usual, accepted, and appropriate for both creditors and settlement agents to give a Closing Disclosure to consumers, sellers, and their real estate brokers or other agents, the Bureau is finishing more commentary that will make it more clear how creditors can provide separate disclosure forms to consumer and seller.

Closing Cost Proposal

Finally, the Bureau is also issuing a proposal to address when credits can use a Closing Disclosure rather than a Loan Estimate to figure out if an estimated closing cost was disclosed within tolerance and in good faith. Comments must be received no later than 60 days after the proposal is published in the Federal Register. They will be given careful consideration before a final regulation is issued.