Compliance Corner

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Estimating mortgage fees under the RESPA-TILA disclosure rule

By Stephanie Kalahurka

During the past several months, community banks have been relentlessly working to bring policies, procedures and information technology up to speed before the January 2014 effective date of the Consumer Financial Protection Bureau’s new mortgage origination and servicing rules. Now that most community banks are prepared for compliance with those rules, it’s time to start looking ahead to the August 2015 effectiveness of the CFPB’s Final Rule on Simplified and Improved Mortgage Disclosures.

True to its name, the new consumer mortgage disclosure rule primarily deals with integrating and streamlining existing mortgage disclosures under the Real Estate Settlement and Procedures Act and the Truth in Lending Act. The rule provides that existing RESPA and TILA disclosures be replaced by two new forms: a Loan Estimate that must be provided to consumers within three business days after application, and a Closing Disclosure that must be delivered three business days before closing.

While compliance with the RESPA-TILA rule’s disclosure provisions will be fairly straightforward (the rule contains annotated model forms), some of the fee provisions may catch bankers unaware, especially when considered in connection with the rule’s timing triggers that are tied to a bank’s receipt of a mortgage loan application.

First, let’s consider the fee provisions.

Consistent with current law, the RESPA-TILA rule prohibits banks from charging fees (except for fees to obtain a credit report) until after the consumer has been given a Loan Estimate and the consumer has communicated their intent to proceed with the loan. Also similar to existing law, the rule restricts circumstances in which banks can collect fees that exceed those disclosed in the Loan Estimate.

Absent an exception, the bank cannot increase fees for the following types of services between the Loan Estimate and the Closing Disclosure:

(i) the bank’s or a mortgage broker’s own services,

(ii) services provided by an affiliate or a mortgage broker, and

(iii) services for which the consumer is not permitted to shop.
Fees for other services can increase, but generally not by more than 10 percent, unless

(i) the consumer asks for a change,

(ii) the consumer chooses a service provider that was not identified by the bank,

(iii) information provided at application is inaccurate, or

(iv) the Loan Estimate expires.

Now, let’s consider these fee restrictions in the context of the RESPA-TILA rule’s timing triggers for delivery of the Loan Estimate upon receipt of a mortgage loan application.

Under existing rules, pre-loan fee estimates were not triggered until the bank received an application including “any other information deemed necessary by the creditor.” So under the existing rules, a bank could delay its initial fee estimates until it had sufficient information to provide those estimates with a comfortable degree of accuracy. Under the new rule’s definition of “application,” however, delivery of the Loan Estimate will be triggered as soon as a lender comes into possession of the following six specific pieces of information: the applicant’s name, income, Social Security number, property address, property value estimate and desired loan amount.

Mortgage Rules Resource

ICBA’s Mortgage Rules Resource Center, an ICBA Web page, includes summaries and other accessible resources on various new mortgage rules issued by the Consumer Financial Protection Bureau. ICBA will continue to update the page, located under the Advocacy section of the association’s website, www.icba.org, as new information and resources become available.

Also, ICBA policy experts Ron Haynie (ron.haynie@icba.org) and Elizabeth Eurgubian (elizabeth.eurgubian@icba.org) are available to answer questions.

If a bank possesses those six pieces of information, it has an “application” and must provide the Loan Estimate within three business days, even if it has no other information about the borrower’s credit history, the type of loan requested or other information that would typically be needed in advance of the initial pricing disclosures. Although banks may provide revised Loan Estimates in some circumstances, those circumstances are limited and could result in undesirable delays. If a bank does not or cannot provide a revised Loan Estimate, the rule’s restrictions on fee increases could cause the bank to be stuck with its initial pricing estimates, even if it did not have all of the necessary information at the time of those estimates to ensure accuracy.

In light of the RESPA-TILA rule’s new disclosure triggers and related fee restrictions, banks should review mortgage loan application procedures and websites to ensure that they provide for receipt of all of the information needed to price a loan before or at the same time that the bank receives the six specific pieces of information constituting an “application.” In this manner, banks will be better able to provide accurate fee disclosures in Loan Estimates under the rule.


Stephanie Kalahurka (skalahurka@spencerfane.com) is an attorney with the law firm Spencer Fane in Kansas City, Mo.