CFPB’s Reg Z change increases flexibility

A change in Regulation Z that actually improves creditors’ lives. A rare event.

The Consumer Financial Protection Bureau (or, the Bureau of Consumer Financial Protection, as Acting Director Mulvaney prefers) finalized such an amendment to Regulation Z.

The change was published in the Federal Register on May 2. The amendment allows creditors to reset tolerances in closed-end mortgage loans with either a revised Closing Disclosure or a revised Loan Estimate, regardless of the number of days prior to loan consummation. It eliminates the four-day limitation on the use of the revised Closing Disclosure for resetting tolerances.

How this shifts rules

Under the previous rule, a creditor could issue a revised Closing Disclosure, and thereby reset the tolerances, within four business days prior to loan consummation. Prior to that time period, a revised Loan Estimate was required for any allowable changes that needed to be disclosed to the consumer.

In a typical mortgage loan, there may be several Loan Estimates issued to the applicants throughout the loan process as the rate is locked or the loan amount is changed or other changes are requested by the applicant. If there is any change that occurs close to loan consummation (within four business days), a revised Loan Estimate is prohibited, under the current rules.

The amendment will change that. Effective June 1, 2018, a creditor may use a revised Loan Estimate or a revised Closing Disclosure for the purpose of determining good faith disclosures. In either case, the revised disclosure must be provided within three business days of receiving information sufficient to establish that a valid reason for revision exists (e.g., a valid changed circumstance).

Will this change procedures?

I don’t think there is going to be a massive rush to stop using revised Loan Estimates in favor of revised Closing Disclosures for most disclosure change situations.

Most loans will probably not be impacted. The proposal describing this change that started the discussion cited unanticipated events such as weather-related events, illness of buyer or seller, or additional inspection costs that could lead to last-minute additional costs, including rate lock extension fees. In most cases, a revised Loan Estimate would be used to reset tolerances when changes occur after the initial disclosure is provided.

However, there is some concern on the part of CFPB that lenders may shift away from revised Loan Estimates to Closing Disclosures that are provided earlier in the loan process, potentially confusing the borrower. If CFPB becomes aware of such a trend it could change course and reverse this position in the future.

June 1 is the date the change becomes effective. Note that even if the application was taken prior to that date and is in process of disclosure, the new rule is applicable.

How is this change going to affect you? Does it significantly impact your institution? Or is it a non-event? Check it out before June 1.