One of the new CFPB amendments to Regulation Z includes a small, yet significant, revision to 12 CFR § 1026.23(a)(3)(ii) regarding the Right to Rescind rules (see 78 FR 60440). Under Subsection 23(a)(2)(i), a consumer:
“. . . may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures, whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first.” (emphasis added)
The amendment modifies the definition of “material disclosures” as follows:
“For purposes of this paragraph (a)(3), the term ‘material disclosures’ means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in §§ 1026.32(c) and (d) and 1026.43(g).”
Previously, “material disclosures” included all of these items, except for the disclosures required under Subsection 43(g) (which replaced the limitations of prepayment penalties in connection with higher-priced mortgage loans [HPMLs] under Section 35[e]).
Subsection 43(g) of Regulation Z is a new subsection made in connection with the new ATR/QM rules. It prohibits a prepayment penalty from being imposed in connection with a covered transaction (as defined under Subsection 43[b]), except under certain conditions (which will be described further), and if the creditor offers the consumer another covered transaction without a prepayment penalty, which contains certain conditions.
Due to the new amendments, this alternative offer must be made in order for the Right to Rescind period to end within a reasonable amount of time (approximately three days after closing), rather than for a protracted period (e.g. three years after closing).
While DocuTech is not able to support an actual alternative offer document, since loan origination systems do not pass the information necessary for completing such a form to us (and manually entering the information into ConformX would be extremely burdensome and time consuming for loan officers, since the offers will vary on a client-per-client, borrower-per-borrower basis), we will be providing a certification in which the borrower certifies that he was presented such an offer, so that our clients have documentation that the offer was extended.
Contents of Document
Cx17949 provides information to the borrower necessary for him to identify the alternative offer (as well as providing information to loan officers, who can be apprised that they need to extend such offers). It also informs the borrower that the offer may have been extended by another entity on behalf of the creditor (such as the mortgage broker), or it may be offered by the client on behalf of another entity (such as the assignee of the loan).
The alternative offer which must be extended must include at least one alternative covered transaction, which does not contain a prepayment penalty, and which has all of the following features:
1. Has an APR which does not increase after consummation and has the same type of interest rate as the covered transaction which has the prepayment penalty (i.e. has a fixed- or stepped-interest rate);
2. Has the same loan term as the loan with the prepayment penalty;
3. Satisfies the periodic payment conditions applicable to Qualified Mortgages (QMs);
4. Satisfies the points and fees conditions applicable to QMs; and
5. Is one in which the creditor has a good faith belief that the consumer likely qualifies for.
Print Conditions of Document
A prepayment penalty cannot be imposed in connection with a covered transaction, unless such is permitted by law and may not exceed certain limits. It also may not be imposed unless the covered transaction:
1. Has an APR that cannot increase after consummation;
2. Is a QM; and
3. Is not a HPML.
To trigger Cx17949 to print under the right conditions, we have created a new “Yes/No” field entitled “Print Prepayment Penalty Alternative Offer Certification” (Field 70795). The new field will map to “Yes” when:
1. “Loan Has a Prepayment Penalty” is “Yes”;
2. “Amortization Type” is “Fixed”;
3. “Qualified Mortgage Indicator” is “Yes,” or not set; and
4. “HPML – Federal” is either “False” or not set.
When “Print Prepayment Penalty Alternative Offer Certification” is “Yes,” Cx17949 will print in Conventional Fixed Rate Closing packages when “Application Taken On or After 01/10/2014” is “Yes” and “Loan Has Prepayment Penalty” is “Yes.”
A test copy of Cx17949 may be printed from our Stage environment in ConformX right now. Clients will need to ensure that proper information is included in order for the new document to print, particularly the Application Date.
The new disclosure text will print for loan applications taken on or after January 10, 2014, due to the effective date of the CFPB changes, and will be available to test in the ConformX Production environment January 5, 2014. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.
January 4, 2014