We are pleased to announce that we have completed our new disclosure for fulfilling the requirements of 12 CFR § 1026.32(c) in connection with closed-end high-cost loans (HCLs), as described in more detail in our article entitled “The January 2014 CFPB Regulations” (available at http://www.docutechcorp.com/the-january-2014-cfpb-regulations). This document will be replacing our current form used for this requirement (Cx2790).
Closed-end High-Cost Loans
The new Cx17901 will still largely resemble the Model H-16 Form located in 12 CFR Pt. 1026, App. H. Unfortunately, the CFPB did not revise this model form to better match the new requirements found in 12 CFR § 1026.32(c), accompanying Official Staff Commentary, and analysis, so modifications have been necessary to make the document comply better with Regulation Z’s provisions.
The first three paragraphs of Model H-16 will continue to print on the document. The following paragraphs will be numbered and differ from Model H-16 in the following ways:
1. The first disclosure of the dollar amount being borrowed will no longer contain the disclosure concerning whether optional credit insurance will or will not be included in this amount.
This has been removed due to the fact that under Ibid. § 1026.34(a)(10), most points and fees are prohibited from being financed by a HCL, including optional credit insurance (see 78 FR 6920  for details). As a result, the requirement for this disclosure (Supra § 1026.32[c][i]) has been revised to require that “where the amount borrowed includes financed charges that are not prohibited under § 1026.34(a)(10), that fact shall be stated, grouped together with the disclosure of the amount borrowed.”
Under Supra § 1026.34(a)(10), charges which are not prohibited from being financed are bona fide third-party charges which are not considered “points and fees,” such as charges by a third-party counselor in connection with housing counseling as required under Regulation Z.
Due to this new provision, the following information will print in Section 1 of Cx17901, after disclosure of the amount borrowed, if new Field 67270 (Section 32 Financed Third Party Fees) has a value:
“(certain financed charged, such as bona fide third-part charges, are included in this amount)”
2. Due to expansions to the requirements concerning disclosure of the regular periodic payments of the loan under 12 CFR § 1026.32(c)(3), including accompanying Official Staff Commentaries, as well as requirements concerning disclosures of the periodic payments for each “payment level” of a loan, it is now necessary to provide a more comprehensive disclosure of the periodic payments, rather than the simple disclosure set forth in the Model H-16 Form.
We will, therefore, be disclosing the payments in Section 3 of Cx17901 by use of a payment table similar to the one used in the pre-2011 TIL Disclosures. This table consists of three columns, with one column listing the monthly payments, another one listing the corresponding number of such payments, and another one listing when such payments will begin being due and how often (e.g. monthly, biweekly, etc.)
Disclosing the periodic payment in this manner is compliant, according to 12 CFR Pt. 1026, Supp. I, Paragraph 32(c)(3)(i), which states that “in disclosing the regular payment, creditors may rely on the rules set forth in § 1026.18(g),” which is the regulation allowing for this payment table. The periodic payments will include principal, interest, and mortgage insurance premiums, due to Ibid. Paragraph 18(g) – (5), which states that “the payment schedule should reflect the consumer’s mortgage insurance payments until the date on which the creditor must automatically terminate coverage under applicable law . . .”
3. 12 CFR Pt. 1026, Paragraph 32(c)(3)(i) – (1)(i) “requires” that if the loan has more than one payment level, then the regular payment for each payment level should be disclosed. This “requirement” will be satisfied by disclosing the payments in the payment table, as described above. However, Ibid. Paragraph 32(c)(3)(i) – (1)(i)(C) allows for the inclusion of additional text (a sample of which is included in the Commentary) in connection with discounted or premium variable-rate transactions.
We will be adding this additional text for such loans, which will print as Section 3a when Field 22832 “Adjustable Rate Pricing Type” equals either “Discount” or “Premium.” The text will be as follows:
“Your regular monthly payment will be $[Field 45821] for [Field 18204] months. After [Field 18204] months your regular monthly payment will be based on an index and margin, which currently would make your payment $[either Field 69572 or 41981]. Your actual payment at that time may be higher or lower.”
4. Due to additional rules concerning balloon payments, we will also be including a new Section 3b (which may actually appear as Section 3a on Cx17901, depending on whether the disclosure concerning discounted or premium variable-rate transactions prints), which will print in lieu of the balloon payment notice in the Model H-16 Form. It will print for loans with a balloon payment and will state the following:
“At the end of your loan, you will still owe us: $[Field 51890]
If applicable and if your credit contract provides for it, your periodic payments may drastically vary based upon your seasonal or irregular income. Under such circumstance, you may pay several balloon payments, which are defined as a scheduled payment that is more than twice as large as the average of regular periodic payments. These payments are disclosed in the payment schedule set forth in Paragraph 3.”
5. We will continue to print Section 4 from Cx2790, which discloses that the loan has a variable interest rate (and which is near identical to the same disclosure in the Model H-16 Form). The section will only print for variable interest rate loans. The only change to this section is that “is to” will be switched to “to is,” for grammatical reasons:
“Your interest rate may increase. Increases in the interest rate could increase your payment. The highest amount your payment could increase to is $[Field 42962].”
6. The acknowledgment section from Cx2790 will continue to print on the document, but it will not be numbered.
Cx17901 will print under the same conditions as Cx2790 is doing now, with the exception that it will only print when new Application Taken On or After 01/10/2014 (Field 67280) equals “Yes.” One copy of the form will print per transaction, unless the transaction is subject to the Right to Rescind provisions of 12 CFR § 1026.23, in which case a copy per entity will print (Cx17902), since this document is considered a “material disclosure” under Subsection (c) of such Section and a copy must be given to each individual who has an interest in the subject property.
Open-end High-Cost Loans
The most significant change to Section 32 of Regulation Z is that open-end loans may now be considered HCLs. As such, the disclosures required under 12 CFR § 1026.32(c) will need to be made in connection with such loans. The items required to be disclosed are of such a nature that it is necessary to provide a separate document for them, which we are planning to do in the future.
However, such creation will require a good deal of our time and resources to create, due to the items which need to be disclosed. Since we currently do not have any HCLs being sent through our system (and it is very unlikely that any open-end HCLs will be sent in the near future), coupled with the fact that we wish to focus our time and resources on more pressing disclosures, we will be postponing the creation of this document. A data integrity error message will be added to ConformX so should an open-end HCL be sent, a “hard stop” will display informing the user that such loans are not supported currently. If this will cause any issues for any clients, we ask that they contact us immediately about them.
Cx17901 and Cx17902 may be may be tested in our Stage environment in ConformX right now. Clients must ensure that they enter and set fields properly in order to have the document and its various textual parts print – particularly the Application Date.
These documents will print for high cost loan applications taken on or after January 10, 2014, and will be available to test in the ConformX Production environment December 24, 2013. If you have any questions or concerns about these new documents, please contact Client Support at 1.800.497.3584.
December 23, 2013
The text of the data integrity error message users will receive in Initial Disclosure, TILA Redisclosure, and Closing packages for HELOC HCLs in ConformX is as follows:
“ConformX does not support the disclosure required under 12 CFR § 1026.32(c) for Open-End/HELOC Federal High Cost Loans.”
December 26, 2013