The Wait Is Over: S. 2155 Impact on Revised Closing Disclosures
By Reginald Watson, NAFCU Regulatory Compliance Counsel, NAFCU
The recent passage of S. 2155 reduces the regulatory burdens involved in mortgage lending and helps credit unions offer lower rates to members by granting special relief from the 3-day waiting period after providing a revised Closing Disclosure (CD) that is required under certain circumstances. Before diving into these changes, let's consider the current status quo:
Regulation Z requires the credit union to provide a Closing Disclosure at least three days before consummation of mortgage transactions. These disclosures are compared to the disclosures provided in the initial loan estimate for purposes of determining things like tolerances and good faith. Under the current TILA-RESPA integrated disclosure rule (TRID), credit unions are required to provide a revised CD when it becomes inaccurate. If the CD becomes inaccurate before consummation, the rule requires credit unions to provide "corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation." See, 12 C.F.R. §1026.19(f)(2). The rule also requires credit unions to permit the member to inspect the disclosures during this time.
For most revisions, the 3-day waiting period does not have to be adjusted. However, there are certain changes to the CD that would require a new three-day waiting period before consummation. See, 12 C.F.R. § 1026.19(f)(2)(ii). These changes include any changes to the loan product type (i.e. adjustable rate, tiered rate, fixed rate, etc.), the addition of a prepayment penalty (although FCUs are prohibited from this), or if the annual percentage rate (APR) "becomes inaccurate" as defined under section 1026.22. We previously discussed changes to the APR and when it would be considered inaccurate for purposes of the revised CD requirements in this NAFCU blog post. Under this framework, it could be difficult for credit union members to accept a lower APR in the days leading up to closing because of the challenges presented by an additional 3-day delay and the highly specific arrangements that may be in place with the various parties involved in the mortgage transaction, including the credit union. In other words, even though a lower APR benefits the consumer, a new 3 day waiting period could have negative implications such as with the sale agreement.
Section 109 of the recently passed S.2155 removes the three-day waiting period for the CD if the credit union extends to a member a second offer of credit with a lower APR prior to consummation. Here is an excerpt of the language from the statute that will be inserted into the Truth in Lending Act:
‘‘(3) NO WAIT FOR LOWER RATE.—If a creditor extends to a consumer a second offer of credit with a lower annual percentage rate, the transaction may be consummated without regard to the period specified in paragraph (1) with respect to the second offer.’’
Thus, members will now be able to take advantage of any lower rates offered by the credit union leading up to consummation without delays that may be unnecessary. Section 109 also states the "Sense of Congress" that the CFPB will endeavor to provide clearer authoritative guidance on the integrated TRID guidance specifically referring to issues such as mortgage assumption transactions, construction-to-permanent home loans, and the safe harbor of using CFPB's model forms in light of these recent changes. It is unclear when the CFPB or other regulators will follow-up the passage of S.2155 with further revisions to the rules and regulations, so stay tuned for possible implementing regulations, but for now, this seems like a welcomed relief for credit unions. For a summary of the changes presented by S.2155, take a look at a recent NAFCU blog from Brad Thaler, VP of Legislative Affairs.