Document Updates: RI Tangible Net Benefit (Cx11242)

Cx11242 is a duplicate of Form 3, “Rhode Island Home Loan Protection Act Disclosure – Tangible Net Benefit”, published by the Banking Division of the Rhode Island Department of Business Regulation on their website (http://www.dbr.ri.gov/divisions/banking/bank-licenseeinfo.php), and is required by law under R.I. Gen. Laws §§ 34-25.2-1 through 34-25.2-15 and 230-40 R.I. Code R. § 10-3.5.

The first page of this form contains the following disclosure after the selection statement “Receipt of Cash in Excess of the Costs and Fees”:

“Funds are being provided to you or on your behalf in the amount of $_________ representing funds in excess of costs and fees when the borrower receives funds beyond the amount of existing previous loan(s) plus all fees and costs associated with the home loan.” (emphasis removed from original)

The “instructions” for this part of Form 3 state the following:

“. . . The Creditor is required to confirm a tangible net benefit” [sic] as defined in R.I. Gen. Laws § 34-25.2-4(q)(1) through (6): . . .

(3) Borrower Receives Cash in Excess of Costs and Fess. The Borrower receives cash in excess of the costs and fees as disclosed on the Closing Disclosure Form as part of the refinancing. A borrower receives cash in excess of costs and fees when the borrower receives funds and/or proceeds beyond the amount required to payoff existing Previous Loan(s) plus all fees and costs associated with the Home Loan.” (230-40 R.I. Code R. § 10-3.5[B][2][a])

“Previous Loan” is defined (in part) as meaning “the outstanding Home Loan to be refinanced through the proceeds of the new Home Loan made to the same borrower.” (Ibid. § 10-3.4[A][20]) Thus, the calculation for determining whether the borrower is receiving “cash in excess of costs and fees” only includes payoffs of existing “Home Loans” secured by the subject property and excludes other types of payoffs (e.g. unsecured credit card debts, automobile loans, etc.).

Also, while the calculations rely heavily upon information disclosed on the Closing Disclosure required by Federal Regulation Z, the net tangible benefit requirements apply (in part) to a “Home Loan” which refinances a “Previous Loan”. A “Home Loan” is defined (also in part) as “including an open-end credit plan” (Ibid. § 10-3.4[A][15]) and other types of loans which are exempt from Regulation Z’s Closing Disclosure requirements (see 12 C.F.R. §§ 1026.3[h] and 1026.19[e][1][i] & [f][1][i]). This creates uncertainty as to what “costs and fees as disclosed on the Closing Disclosure Form”  should be used in the calculation when no Closing Disclosure exists.

To better meet these requirements (as well as to take a conservative approach for loans where a Closing Disclosure will not exist), we will be making the following changes to Cx11242:

• We will be modifying the logic behind the checkbox for the aforementioned selection statement, so that it will be checked under either of the following two conditions:
  • When both:
    • “Integrated Disclosure Loan Indicator” (FI 82233) is “No”; and
    • New “Loan Amount Minus Subject Property Liabilities Paid Off Minus HUD-1 Settlement Charges” (FI 137047) is greater than “0”; or
  • Or when both:
    • “Integrated Disclosure Loan Indicator” (FI 82233) is “Yes”; and
    • New “Loan Amount Minus Subject Property Liabilities Paid Off Minus Loan & Other Costs” (FI 137046) is greater than “0”.

• We will be modifying the logic for disclosing the dollar amount in the aforementioned disclosure on the form as follows:
  • The amount in new “Loan Amount Minus Subject Property Liabilities Paid Off Minus HUD-1 Settlement Charges” (FI 137047) will be disclosed, when both:
    • “Integrated Disclosure Loan Indicator” (FI 82233) is “No”; and
    • “Loan Amount Minus Subject Property Liabilities Paid Off Minus HUD-1 Settlement Charges” (FI 137047) is greater than “0”.
  • The amount in new “Loan Amount Minus Subject Property Liabilities Paid Off Minus Loan & Other Costs” (FI 137046) will be disclosed, when both:
    • “Integrated Disclosure Loan Indicator” (FI 82233) is “Yes”; and
    • “Loan Amount Minus Subject Property Liabilities Paid Off Minus Loan & Other Costs” (FI 137046) is greater than “0”.
  • “N/A” will be disclosed if none of the above conditions are met (i.e. the borrower will not be receiving any cash back in the refinance transaction).

These changes will take effect on October 30, 2019. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.

DR 302364