The CFPB has provided guidance that the word “acquisition” determines whether a transaction should be considered a “Purchase” or not:
“The Bureau believes that the general understanding of a “purchase” loan is one where the consumer does not already hold an interest in the property. Further, the Bureau believes that the proposed regulatory text is sufficient to convey such meaning, because it states that the disclosure applies to the “acquisition” of the property, and one cannot acquire what one already owns.” [78 FR 79914 37(a)(9)(i) Purchase]
In some circumstances, the borrower already owns the property, even when there is a Sales Price on the loan. Therefore, a condition will be added to the Loan Estimate and Closing Disclosure to only trigger “Purchase” for the Purpose if “Does Borrower Own Land?” (field 46301) is not set to “Yes”.
Only a portion of Loan Origination Systems send a Subject Property REO ID that can be compared to the Liability Real Estate Owned ID’s to check for payoffs, as discussed in our prior announcement. The “Refinance” triggering logic for those loans with a Subject Property REO ID sent from the LOS will be separated from those that do not. If the Subject Property REO ID is sent, it will still be compared against the Liability Real Estate Owned ID’s to determine if at least one existing obligation will be paid off in order to trigger “Refinance”. The current logic to trigger “Refinance” if: 1) the “Amount Existing Liens” for refinance loans is populated on the 1003 in Section II (field 27057), or 2) there is a mortgage unpaid principal balance (field 6133), or 3) the subject property does not have a negative unpaid balance (field 97718), will only be used if the Subject Property REO ID is NOT sent by the Loan Origination System.
If “Purchase” is not triggered for Purpose, and the TRID Home Equity Indicator (field 97657) is set to “Yes”, “Home Equity Loan” will still print for Purpose.
When the Integrated Disclosure Loan Product Description (field 91744) is not sent, loan data is used on the LE and CD to fill out the Product description. 12 CFR § 1026.37(a)(10)(i)(B) requires “Step Rate” to be included in the description of the loan product if “the interest rate will change after consummation, and the rates that will apply and the periods for which they will apply are known at consummation.” Accordingly, the label “Step Rate” will be used in the Product description of the LE and CD any time the rate increase(s) are known, including:
- Stepped Rate loans;
- Buydown loans with “Buydown Federal Disclosure Behavior” (field 51919) set to “Disclose Rate Increase and Payment Increase”; and
- Fixed rate Construction to Permanent loans with a lower construction period interest rate than the permanent period interest rate.
In addition, § 1026.37(a)(10)(ii)(C) requires “Step Payment” to be included in the description of the loan product if “scheduled variations in regular periodic payment amounts occur that are not caused by changes to the interest rate during the loan term.” As a consequence of this condition, Buydown loans with “Buydown Federal Disclosure Behavior” (field 51919) set to “Disclose Payment Increase Without Rate Increase” will be labeled as “Step Payment” for the term of the buydown period.
1026.37(a)(10)(ii)(B) requires “Interest Only” to be included in the description of the loan product if “one or more regular periodic payments may be applied only to interest accrued and not to the loan principal.” Consequently, the “Interest Only” term will now be disclosed for Construction Only and Construction to Perm loans, in addition to Interest Only loans. If the initial permanent loan payment on a Construction to Perm loan is also interest only, the sum total time of the interest only construction period and the interest only permanent period will print in the Product description.
Disclosure of Timing
37(b)(8) governs the disclosure of timing for adjustments after consummation. The Official Interpretation to 37(b)(8)-2 says that, for periods not in whole years that are less than 24 months, “see the guidance provided in comment 37(a)(10)-3. The Official Interpretation to 37(a)(10)-3(ii) states in part that:
“For product types and features that have introductory periods or adjustment periods that do not equate to a number of whole years, if the period is less than 24 months, § 1026.37(a)(10) requires disclosure of the number of months…”
Therefore, for terms less than twenty-four months that are not twelve months, the number of months will print in the “Can this amount increase after closing?” and the “Does this Loan have these Features?” sections of the Loan Terms segment of the Loan Estimate and Closing Disclosure, instead of years.
1026.37(b)(6) says that, for the Interest Rate row of the Loan Terms section, a “statement of whether the amount may increase after consummation” is required. If the answer is affirmative, § 1026.37(b)(6)(ii) requires the additional disclosure of “[t]he frequency of interest rate adjustments, the date when the interest rate may first adjust, the maximum interest rate, and the first date when the interest rate can reach the maximum interest rate, followed by a reference to the disclosure required by paragraph (j) of this section.” Based on this requirement, “Yes” will print under the applicable circumstances in the “Can this amount increase after closing?” column for Construction Only ARM loans. ConformX will use “Calculated Maximum Interest Rate” (field 43704) to determine if this disclosure and the attending disclosures required by § 1026.37(b)(6)(ii) are necessary. If the Calculated Maximum Interest Rate field is empty on a Construction Only ARM loan, the rate will be mapped from the “Lifetime Rate Adjustment Cap” (field 7068).
The Official Interpretation to §1026.37(b)(6)(ii) says, in part:
A creditor complies with the requirement under § 1026.37(b)(6)(ii) to disclose additional information indicating the maximum interest rate, and the first date when the interest rate can reach the maximum interest rate using the phrase “Can go as high as” and then indicating the date at the end of that phrase or for a scheduled maximum interest rate under a step rate loan, “Goes as high as.”
For loans where the interest rate changes are known (see “Step Rate” in the above Product portion of the announcement), the text “Goes as high as…” will print in place of “Can go as high as…” for the second bullet under the “Can this amount increase after closing?” column.
Monthly Principal & Interest
For Construction Only and Construction to Perm loans, the estimated construction interest monthly payment amount will print for the Monthly Principal & Interest, instead of the first permanent payment amount. If the loan is not Adjustable rate, the increase in payment from the construction term to the permanent term will be labeled “Goes as high as” instead of “Can go as high as”, as called for in Official Interpretation to §1026.37(b)(6)(iii) – 1.
“Yes” will print in the “Can this amount increase after closing?” column for Construction Only ARM loans. As part of this change, if the “Frequency of Periodic Payment Adjustments (Months)” (field 97629) is empty on a Construction Only ARM loan, it will be mapped to one month.
“No” will print in the “Can this amount increase after closing?” column in the Monthly Principal & Interest row for loans that have interest only payments until the final payment, including Construction Only Fixed Rate loans, instead of counting the final balloon payment as an increase in the periodic payment of principal and interest.
Interest Only and Construction:
“Yes” will print for “Can this amount increase after closing?” in the Balloon Payment row for loans that have interest only payments until the final payment, including Construction Only loans.
The Official Interpretation to Appendix D to Part 1026 – 7 states in part:
“i. If a creditor…elects…to disclose the construction and permanent phases as separate transactions, the…creditor must disclose the construction phase transaction as a product with a balloon payment feature, pursuant to §§ 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), in addition to reflecting the balloon payment in the projected payments table.”
For loans that have interest only payments until the last payment, the Loan Estimate and Closing Disclosure contain a “Final Payment” column with the balloon payment. Per the Official Interpretation above, Construction Only loans will now also have a balloon payment column.
The instruction for the Late Payment disclosure is given in 12 CFR § 1026.37(m)(4), which requires:
“A statement detailing any charge that may be imposed for a late payment, stated as a dollar amount or percentage charge of the late payment amount, and the number of days that a payment must be late to trigger the late payment fee, labeled ‘Late Payment.’”
While silent on rounding for late payment information, the CFPB examples do show the truncation of zeros for the late charge percentage. Since there are no CFPB examples with Late Payments in dollar amounts, we have chosen to follow the model form examples for late charge percentages and will now truncate the cents for late charge dollar amounts expressed in whole dollar amounts. Late charges with non-zero cent amounts will continue to print with the cents disclosed.
Adjustable Payment (AP) table
According to § 1026.37(i), the “Adjustable Payment (AP) Table” must print “[i]f the periodic principal and interest payment may change after consummation but not based on an adjustment to the interest rate.”
The AP table will be suppressed for Construction Only loans, but it will print for Construction to Permanent loans, since the periodic payment will rise with the first permanent principal and interest loan payment.
The AP table will be suppressed for loans that have interest only payments until the final payment, since the periodic payment will not rise. The last balloon payment is disclosed in the Loan Terms section instead.
Adjustable Interest Rate (AIR) table
Pursuant to § 1026.37(j), the “Adjustable Interest Rate (AIR) Table” should be triggered for all loans where “the interest rate may increase after consummation.”
For Construction Only ARM loans, if “Subsequent Rate Change Limit” (field 97637) is not set, “Variable Rate Cap Minus Floor” (field 22002) will print for the Subsequent Changes percent under “Limits on Interest Rate Changes” on the AIR table. “Variable Rate Cap Minus Floor” is the Life Cap (field 17) minus the “Minimum Interest Rate for The Term of The Loan” (field 18).
These changes will be in effect on January 23, 2016. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
Update: Under some circumstances, Lenders charge fees of less than 50 cents on the Loan Estimate, which means the fee is rounded down to zero. This was preventing the fee from showing on the Loan Estimate. We modified the document to now display the fee even if it rounds down to $0. This change is effective immediately.