Pub. 2 2014 Issue 3

www.uba.org 8 COMPLIANCE CORNER RESPA/TILA Reform - Through Mortgage Disclosure Integration By Darlia Fogarty, Director of Compliance and Dimitris Rousseas, Association General Counsel In response to the plea for help from banks across the Commonwealth and the Nation, Compliance Alli- ance was formed to increase the effectiveness of banks’ compliance programs and to facilitate broad industry initiatives directedat address- ing a variety of compliance functions for member banks and concerns of common interest. The primary goal of Compliance Alliance is to provide quality compliance services and allow more hours for the bank’s com- pliance personnel to focus on strategic bank-specific functions. In each edition, Utah Bank- er will provide a short article from the Compliance Al- liance. R emember back in 2012 when the CFPB proposed the “Integrated Mortgage Disclosures?” This rule requiring the Know-before–you-Owe disclosures was tout- ed by many as the perfect marriage of TILA and RESPA. Before we buy into that de- scription, let’s take a deeper dive into exactly what changes are found buried within the 1,888 pages of explanations, requirements and model disclosures. The CFPB received over 3,000 comments when the rule was first proposed. The CFPB expected this type of reaction because of the significant changes. The new require- ments not only affect two major regulations, they also affect the entire residential real estate industry. The CFPB responded to the comments by adding over 750 pages to the regulation, bringing the total to 1,888 pages for this amendment alone. Of course the agency is justifying these changes by stating that the actual regulatory changes only accounts for 70 pages, bringing the total to 279 pages in length. By any standard, that is a lot of information to digest and implement. Ah, I digress. Let’s put these facts out of our mind and move on to what this actually means to us as bankers. The purpose of the rule is to improve the way consumers get loan information whey they apply for and close on a mortgage loan. The majority of the requirements are about the two required disclosure documents, which are the Loan Estimate (replaces the current GFE, Appraisal Notice, Servicing Disclosure, ECOA notice and the Early Truth-in-Lending) and the Closing Disclosure (replaces the cur- rent HUD and the Final Truth-in-Lending). The rule also contains some key provisions about the timing of these disclosures. The pur- pose of reducing the number of the disclosures to only two is not only to reduce the burden on the lenders and other loan personnel who prepare these forms, but to also simplify the forms so that they may be easily understood by the consumer. Before we go into the requirements of the new forms we would be remiss if we did not also note that the proposed integrated mort- gage disclosure rule added some language to the official interpretation of Regulation Z which is seemingly unrelated to integrated disclosures. The CFPB slipped in a fairly big change that may broaden the scope of Regu- lation Z to expressly include loans to trusts. Section 1026.3(a)(2) of Reg Z specifically exempts extensions of credit “to other than a natural person.” Many compliance special- ists often argued that because trusts, are not defined as “natural persons,” a loan to such an entity would be exempt from the regu- lation. While there has been debate to the contrary, and even some case law suggesting that revocable trusts are still subject to the rule, there was no definitive guidance — until now. The integrated disclosure rule now amends the commentary to section 1026.3(a)(2) and provides, in part that, “Credit extended for consumer purposes to certain trusts is considered to be credit extended to a nat- ural person rather than credit extended to an organization.” (Commentary to 12 CFR 1026.3(a)). The commentary further explains: “Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended.” If a loan to a trust is for a consumer purpose, then Regulation Z, and all its glory, will apply. Now for the agencies’ stated purpose of the rule, let’s break the requirements of the final rule into five sections: