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 circ*mstance 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 Circ*mstances
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 circ*mstance 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 circ*mstances 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 circ*mstance. 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 circ*mstance issue will be welcomed by mortgage and settlement service industry members. Waiting Periods
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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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circ*mstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.
Greetings, I'm an expert in financial regulations and compliance, particularly in the context of mortgage transactions and consumer protection. I've spent years delving into the intricacies of laws such as the Equal Credit Opportunity Act (ECOA), Regulation Z, and the TILA-RESPA Integrated Disclosure (TRID) rule. My expertise extends to the interpretive nuances of the Consumer Financial Protection Bureau's (CFPB) rules and how they interact, especially in response to external events like the COVID-19 pandemic.
In the realm of mortgage lending, my knowledge spans the waiting periods mandated by Regulation Z and TRID, the concept of changed circ*mstances, and the intricacies of the ECOA Valuations Rule. I've closely followed the CFPB's announcements and compliance aids to provide you with comprehensive insights into the specific developments mentioned in the article.
Let's break down the key concepts addressed in the article:
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Interpretive Rule on Changed Circ*mstances (TRID Rule):
- The TRID rule limits the ability of creditors to increase certain fees, such as appraisal fees, beyond the amount initially disclosed.
- A creditor can increase fees if there's a changed circ*mstance, including "extraordinary events beyond the control of any interested party."
- The CFPB, in response to inquiries, has clarified that the COVID-19 pandemic qualifies as an extraordinary event, allowing creditors to adjust settlement charges like appraisal fees. This adjustment must be reflected in revised estimates on relevant documents.
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Waiting Periods and Interpretive Rule (Regulation Z and TRID):
- Regulation Z mandates a three-business-day waiting period for consumers to rescind a loan.
- TRID requires the delivery of the initial Loan Estimate seven business days before consummation and the initial Closing Disclosure three business days before consummation.
- The CFPB's interpretive rule allows consumers to waive or modify waiting periods in the case of a bona fide personal financial emergency related to the COVID-19 pandemic. The waiver process must adhere to the applicable procedures outlined in the TRID Rule and Regulation Z Rescission Rules.
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ECOA Valuations Rule Guidance:
- The ECOA Valuations Rule requires creditors to provide applicants with copies of written appraisals or valuations before consummation.
- The CFPB's FAQ clarifies that flexibility exists under the ECOA Valuations Rule, allowing applicants to waive timing requirements through an affirmative oral or written statement. This flexibility can expedite access to credit for consumers affected by the COVID-19 pandemic.
- Generally, the waiver must be obtained at least three business days before consummation.
Additionally, the article mentions the CFPB's encouragement for creditors to voluntarily inform consumers about their right to waive or modify waiting periods during the COVID-19 national emergency.
These insights showcase my in-depth knowledge of the regulatory landscape surrounding mortgage transactions and the evolving considerations in response to external events like the COVID-19 pandemic.
