On April 29, 2020, the Consumer Financial Protection Bureau (CFPB) announced an interpretive rule addressing the waiting periods under the Regulation Z right to rescind provisions and the TRID rule in view of COVID-19, and also whether increases in fees based on COVID-19 constitute a changed circumstance under the TRID rule. The interpretive rule will become effective upon publication in the Federal Register. The CFPB also issued a compliance aid in the form of a FAQ regarding the ability of a mortgage loan applicant to waive the timing requirement under Equal Credit Opportunity Act (ECOA) and Regulation B provisions that require creditors to provide the applicant with a copy of any written appraisal or other valuation developed in connection with the application (ECOA Valuations Rule).
Changed Circumstances. The TRID rule limits the ability of a creditor to increase various fees, such as appraisal fees, above the amount disclosed in the initial Loan Estimate. One situation in which an increase is permitted is if the increase is based on a changed circumstance that affects one or more settlement charges. For purposes of the TRID rule, a changed circumstance includes, among other situations, an “extraordinary event beyond the control of any interested party,” and the Commentary to the TRID rule indicates that a “war or natural disaster” is an example of such an extraordinary event.
The CFPB notes that it was contacted by stakeholders asking whether the COVID-19 national emergency constitutes an extraordinary event that rises to the level of a changed circumstance that would permit a creditor to increase a settlement charge, such as an appraisal fee. Creditors have noted a sharp increase in appraisal fees based on the circumstances created by the COVID-19 national emergency.
The interpretive rule provides that “[u]pon consideration of the interpretive issues, the Bureau concludes that, as with wars or natural disasters, the COVID-19 pandemic is an example of an extraordinary event beyond the control of any interested party, and thus is a changed circumstance. Accordingly, for purposes of determining good faith, creditors may use revised estimates of settlement charges that consumers would incur in connection with the mortgage transaction if the COVID-19 pandemic has affected the estimate of such settlement charges.” The CFPB notes that the revised fee amount must be reflected on a revised version of the Loan Estimate, on the Closing Disclosure, or on a corrected Closing Disclosure. The guidance on the changed circumstance issue will be welcomed by mortgage and settlement service industry members.
Waiting Periods. For loans subject to the right to rescind under Regulation Z, the consumer has a three business day waiting period after consummation to decide whether or not to rescind the loan. During this time, the creditor may not disburse the loan proceeds to the consumer. Under the TRID rule, the creditor must deliver or place in the mail the initial Loan Estimate at least seven business days before consummation, and the consumer must receive the initial Closing Disclosure at least three business days before consummation. After the consumer receives the applicable disclosures, he or she may waive or modify the waiting period if he or she determines that the credit needs to be extended before the end of the waiting period to meet a bona fide personal financial emergency. Historically, creditors rarely allow consumers to waive or modify a waiting period, as there is scant guidance on what circumstances constitute a bona fide personal financial emergency.
The interpretive rule provides:
“[T]he Bureau is clarifying that (1) if a consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency, (2) the consumer’s brief statement describing the emergency identifies a financial need that is due to the COVID-19 pandemic, and (3) the emergency necessitates consummating the credit transaction before the end of an applicable TRID Rule waiting period or must be met before the end of the Regulation Z Rescission Rules waiting period, then the consumer has a bona fide personal financial emergency that would permit the consumer to utilize the modification and waiver provisions, subject to the applicable procedures set forth in the TRID Rule and the Regulation Z Rescission Rules.”
The CFPB notes that both the Regulation Z rescission right provisions and the TRID rule prohibit the use of printed forms for consumers to agree to waive or modify the applicable waiting period, whether written or electronic. The CFPB also states that while creditors are not obligated to advise consumers of their right to waive or modify the waiting periods, it encourages creditors to consider voluntarily informing consumers during the COVID-19 national emergency of the ability do so.
ECOA Valuations Rule Guidance. The ECOA Valuations Rule requires that creditors provide an applicant for a first lien residential mortgage loan with a copy of written appraisals or valuations developed in connection with the application prior to consummation of the loan or account opening. The FAQ issued by the CFPB presents the question of whether there is flexibility under the ECOA Valuations Rule regarding when creditors must provide valuations to applicants. The CFPB’s answer is:
“Yes. The ECOA Valuations Rule already includes flexibility that allows an applicant to waive certain timing requirements of the Rule. For valuations developed in connection with an application that are subject to the ECOA Valuations Rule, creditors must generally provide applicants with copies of all valuations promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier. However, as noted in a September 14, 2018 Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by a Major Disaster or Emergency, the ECOA Valuations Rule permits an applicant to waive the timing requirement through an affirmative oral or written statement and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. This regulatory flexibility available under the ECOA Valuations Rule can expedite access to credit secured by a first lien on a dwelling for consumers affected by the COVID-19 pandemic.”
The CFPB notes that generally the waiver must be obtained at least three business days before consummation or account opening.
Previously the CFPB, along with other agencies, issued a joint statement addressing the requirement to provide the applicant with a copy of a written appraisal or other valuation before consummation in view of the federal banking agencies’ interim rule permitting an appraisal or valuation to be obtained up to 120 days after closing. The joint statement provides that the issuing agencies “will not take enforcement actions against institutions under the ECOA Valuations Rule for post-consummation valuations performed pursuant to the … interim final rule. Nevertheless, the agencies encourage institutions to provide borrowers with copies of such post-consummation valuations as promptly as practicable upon completion.”
The CFPB also issued two factsheets on the ECOA Valuations Rule that are general in nature and not specifically related to COVID-19 matters. One factsheet addresses the transactions that are covered by the rule, and the other factsheet addresses delivery and timing requirements of the rule.
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