CFPB Final Rule Expands RESPA Disclosure Exemption and Allows for Increased Use of TRID Disclosures with HFA Loans
The Consumer Financial Protection Bureau (CFPB) late last week released a final rule that implements several NCSHA-requested changes to its TILA-RESPA Integrated Disclosure Rule (TRID), including two provisions that will make it easier for lenders to participate in HFA down payment assistance programs by exempting more such programs from onerous and complicated disclosure requirements.
The rule seeks to address a concern NCSHA first brought to CFPB’s attention as the TRID rule was being implemented. The TRID rule currently requires certain HFA programs that provide borrowers with down payment assistance or other housing assistance through non-amortizing, forgivable loans to provide borrowers with Good Faith Estimate and HUD-1 disclosures in connection with their second loans, as required by the Real Estate Settlement Procedures Act (RESPA), instead of the Loan Estimate and Closing Disclosure disclosures created by TRID. The reason for this requirement is that many such loans do not fall under the jurisdiction of the Truth-in-Lending Act (TILA), which means the new disclosures established by TRID do not apply.
Many originators are no longer able to generate the RESPA disclosures automatically after updating their systems to comply with TRID. This makes it substantially harder for them to participate in HFA down payment assistance programs. The TRID rule does contain a limited exemption from the RESPA requirements for HFA loans that meet certain criteria, including a one percent cap on borrower fees. However, many HFA down payment assistance loans do not qualify for the exemption because many HFAs are required to charge borrowers a variety of recording fees and taxes that are set by state and local governments and which HFAs do not control. These fees, which are often the only fees HFAs charge on these loans, can exceed the one percent cap on their own.
The final rule amends the RESPA exemption to clarify that any transfer taxes borrowers pay at closing are an allowable fee. The rule also exempts state and local recording fees and taxes from being counted toward the one-percent limit on fees. This will allow more HFA program loans to qualify for the exemption from the disclosure requirements. NCSHA expressed our strong support for these changes in our comment letter to CFPB on its proposed rule, which was published last August.
In addition, the final rule includes a new provision that will allow originators to provide borrowers with the TRID disclosures to meet their disclosure obligations for those loans that qualify for the RESPA exemption. Currently, if a loan is subject to TILA but meets the criteria for the partial exemption for RESPA, originators must provide borrowers the TILA disclosures. As with the RESPA forms, it can often be difficult for originators to produce the TILA forms now that the TRID rule has been implemented.
Originators would still be required to provide borrowers with the RESPA disclosures for those loans that do not meet that qualified exemption standards. In our comments on the proposed rule, NCSHA urged CFPB to allow HFAs to use the TRID disclosures on all their program loans, regardless of whether they qualify for the partial exemption from RESPA.
The final rule officially becomes effective October 1, 2018. CFPB will establish a voluntary compliance period beginning 60 days after the rule is published in the Federal Register (which is expected to be shortly). During this period, originators and other entities may, but are not required to, implement the new policies.