On 6/9/2020, the CFPB released four new FAQs on three topics including:
Providing Closing Disclosures to consumers
Total of payments (2 questions)
Optional signature line
Specifically, the four new FAQs are as follows:
1. If separate Closing Disclosures are provided to the seller and the consumer, does the TRID Rule require that seller-paid Loan Costs and Other Costs be disclosed on page 2 of the consumer’s Closing Disclosure?
Yes, the TRID Rule requires seller-paid Loan Costs and Other Costs to be disclosed on page 2 of the consumer’s Closing Disclosure even if separate Closing Disclosures are provided to the seller and consumer. A creditor does not comply with the TRID Rule if it discloses seller-paid Loan Costs and Other Costs only on page 2 of the Closing Disclosure provided to the seller. 12 CFR § 1026.38(f) and (g); 1026.38(t)(5)(v) and (t)(5)(vi).
1. What is the Total of Payments disclosure on the Closing Disclosure?
The Total of Payments disclosure is the total, expressed as a dollar amount, of:
principal,
interest,
mortgage insurance, and
loan costs
that the consumer will have paid after making all payments related to the mortgage. The disclosure is the sum of the amounts paid through the end of the loan term and assumes that the consumer makes payments as scheduled and on time. 12 CFR § 1026.38(o)(1); Comments 38(o)(1)-1 and 37(l)(1)(i)-1.
The Total of Payments does not include payments of principal, interest, mortgage insurance, or loan costs that the seller or other party, such as the creditor, may agree to offset (in whole or in part) through a specific credit, for example through a specific seller or lender credit, because these amounts are not paid by the consumer. General credits (i.e., generalized payments from the creditor, seller, or other party to the consumer that do not pay for a particular fee) do not offset amounts for purposes of the Total of Payments calculation. Comment 38(o)(1)-1.
In calculating the Total of Payments:
Payments of principal are the total the consumer will pay towards principal on the loan through the end of the loan term. Comment 38(o)(1)-1.
Payments of interest are the total the consumer will pay towards interest on the loan through the end of the loan term and includes prepaid interest. For Adjustable Rate Mortgages, as defined in § 1026.37(a)(10)(i)(A), interest is calculated using the guidance provided in Comment 17(c)(1)-10. Comment 38(o)(1)-1; Comment 37(l)(1)(i)-1.
Payments of mortgage insurance are the total the consumer will pay towards mortgage insurance or any functional equivalent and includes amounts for prepaid or escrowed mortgage insurance. Comment 38(o)(1)-1; Comment 37(l)(1)(i)-1. This includes premiums or other charges for any guarantee providing coverage similar to mortgage insurance (such as a Department of Veterans Affairs or Department of Agriculture guarantee) even if not considered insurance under state or other applicable law. Comment 37(c)(1)(i)(C)-1.
Payments of loan costs are the total the consumer will pay towards the costs disclosed in the Loan Costs Table and designated as “Borrower-Paid” on the Closing Disclosure under § 1026.38(f). 12 CFR § 1026.38(f); Comments 38(o)(1)-1 and 37(l)(1)(i)-1.
2. Does a creditor account for negative prepaid interest in the Total of Payments disclosure and calculation?
Yes. Regulation Z, 12 CFR § 1026.38(o)(1) requires a creditor to calculate and disclose the total of payments expressed as a dollar amount. This disclosure is total the consumer will have paid after making all scheduled payments of principal, interest, mortgage insurance, and loan costs through the end of the loan term. For purposes of this calculation, interest is the total the consumer will pay towards interest on the loan and includes prepaid interest, sometimes referred to as “odd-days” or “per diem” interest.
Prepaid interest under § 1026.38(g)(2) is typically disclosed as a positive number when interest is due at consummation for the period of time before interest begins to accrue for the first scheduled periodic payment. Comments 38(g)(2)-1 and 37(g)(2)-1. Typically, mortgage interest is paid one month in arrears meaning that, for example, if the first scheduled periodic payment due is on November 1st, it will cover interest accrued in the preceding month of October. In that example, if the consumer consummates the mortgage loan on September 20th, interest starts to accrue on September 20th and at consummation the consumer will typically prepay interest for the 11-day period through the end of September, and that amount must be disclosed under § 1026.38(g)(2) as a positive number.
In some cases, a loan may have a negative amount for prepaid interest disclosed under § 1026.38(g)(2), sometimes referred to as a prepaid interest credit. Negative prepaid interest can result if consummation occurs after interest begins accruing for periodic payments. In the example above, if the consumer instead consummates the mortgage loan on October 4th but the first scheduled periodic payment is due on November 1st and will cover interest accrued in the preceding month of October, then at consummation the creditor will typically credit the consumer for the preceding 3 days in October to offset some of that first scheduled periodic payment. That amount must be disclosed under § 1026.38(g)(2) as a negative number.
When calculating the Total of Payments, if the loan includes negative prepaid interest, it is accounted for as a negative number. Comment 38(g)(2)-2. Using a negative number will offset the interest the consumer will have paid and therefore reduces the amount disclosed as the Total of Payments.
1. Can a creditor require a consumer to sign and return the Loan Estimate or Closing Disclosure?
It depends. While the TRID Rule does not require consumers to sign the Loan Estimate or Closing Disclosure, it provides creditors the option to include a line for consumer signatures to acknowledge receipt. 12 CFR §§ 1026.37(n), 38(s). A creditor may include the signature line and require the consumer to sign the disclosure, but only if the consumer receives the disclosure in a form that they may keep. 12 CFR §§ 1026.37(o)(1)(i), 38(t)(1)(i). The consumer must have the ability to retain a copy of the disclosure after returning the signed disclosure to the creditor.
For example, a creditor may require a consumer to return a signed copy of the Closing Disclosure; however, the creditor must ensure that the consumer receives at least one copy of the Closing Disclosure, in a form that the consumer may retain, no later than three business days before consummation. 12 CFR §§ 1026.38(s)(1), 19(f)(1)(ii)(A), and 38(t)(1)(i). If the consumer receives only one copy of the Closing Disclosure and the creditor requires the consumer to sign and return that copy, then the consumer has not received the Closing Disclosure in a form that the consumer may keep and the requirements of §1026.38(t)(1)(i) have not been met.
All TRID FAQs can be found here.