[Federal Register Volume 82, Number 154 (Friday, August 11, 2017)]
[Proposed Rules]
[Pages 37794-37804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15763]



  Federal Register / Vol. 82 , No. 154 / Friday, August 11, 2017 / 
Proposed Rules  

[[Page 37794]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2017-0018]
RIN 3170-AA61


Amendments to Federal Mortgage Disclosure Requirements Under the 
Truth in Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
proposing to amend Federal mortgage disclosure requirements under the 
Real Estate Settlement Procedures Act and the Truth in Lending Act that 
are implemented in Regulation Z. The proposed amendments relate to when 
a creditor may compare charges paid by or imposed on the consumer to 
amounts disclosed on a Closing Disclosure, instead of a Loan Estimate, 
to determine if an estimated closing cost was disclosed in good faith. 
Specifically, the proposed amendments would permit creditors to do so 
regardless of when the Closing Disclosure is provided relative to 
consummation.

DATES: Comments must be received on or before October 10, 2017.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2017-
0018 or RIN 3170-AA61, by any of the following methods:
     Email: [email protected]. Include Docket 
No. CFPB-2017-0018 or RIN 3170-AA61 in the subject line of the email.
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1275 First 
Street NE., Washington, DC 20002.
    Instructions: All submissions should include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. Because paper mail in the Washington, DC area and at the 
Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. In general, all comments received will be 
posted without change to http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1275 
First Street NE., Washington, DC 20002, on official business days 
between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an 
appointment to inspect the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or Social 
Security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Pedro De Oliveira, Counsel, and David 
Friend and Priscilla Walton-Fein, Senior Counsels, Office of 
Regulations, Consumer Financial Protection Bureau, 1700 G Street NW., 
Washington, DC 20552, at 202-435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of the Proposed Rule

    The TILA-RESPA Rule \1\ requires creditors to provide consumers 
with good faith estimates of the loan terms and closing costs required 
to be disclosed on a Loan Estimate. Under the rule, an estimated 
closing cost is disclosed in good faith if the charge paid by or 
imposed on the consumer does not exceed the amount originally 
disclosed, except as otherwise provided in Sec.  1026.19(e)(3)(ii) 
through (iv).\2\ Section 1026.19(e)(3)(ii) provides that, for certain 
types of third-party services and recording fees, estimates are 
considered to be disclosed in good faith if the total paid by or 
imposed on the consumer for those types of charges does not exceed the 
disclosed amount by more than 10 percent.\3\ Section 1026.19(e)(3)(iii) 
provides that estimates of certain other types of charges are in good 
faith if the estimate is consistent with the best information 
reasonably available to the creditor at the time it was disclosed.\4\
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    \1\ In November 2013, pursuant to sections 1098 and 1100A of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act), the Bureau issued the Integrated Mortgage Disclosures 
under the Real Estate Settlement Procedures Act (Regulation X) and 
the Truth in Lending Act (Regulation Z) (2013 TILA-RESPA Final 
Rule), combining certain disclosures that consumers receive in 
connection with applying for and closing on a mortgage loan into two 
new forms: A Loan Estimate and Closing Disclosure. 78 FR 79730 (Dec. 
31, 2013). The Bureau has since finalized amendments to the 2013 
TILA-RESPA Final Rule, including in January 2015 (see 80 FR 8767 
(Feb. 19, 2015) (January 2015 Amendments)) and in July 2015 (see 80 
FR 43911 (July 24, 2015) (July 2015 Amendments)). The 2013 TILA-
RESPA Final Rule and subsequent amendments to that rule are referred 
to collectively herein as the TILA-RESPA Rule.
    \2\ 12 CFR 1026.19(e)(3)(i).
    \3\ This section also requires that, for the 10 percent 
tolerance to apply, the charge for the third-party service must not 
be paid to the creditor or an affiliate of the creditor and the 
creditor must permit the consumer to shop for the third-party 
service, consistent with Sec.  1026.19(e)(1)(vi). See 12 CFR 
1026.19(e)(3)(ii)(B)-(C).
    \4\ Section 1026.19(e)(3)(iii) provides that an estimate of the 
following charges is in good faith if it is consistent with the best 
information reasonably available to the creditor at the time it is 
disclosed, regardless of whether the amount paid by the consumer 
exceeds the amount originally disclosed: (1) Prepaid interest; (2) 
property insurance premiums; (3) amounts placed into an escrow, 
impound, reserve, or similar account; (4) charges paid to third-
party service providers selected by the consumer consistent with 
Sec.  1026.19(e)(1)(vi)(A) that are not on the list provided 
pursuant to Sec.  1026.19(e)(1)(vi)(C); and (5) charges paid for 
third-party services not required by the creditor.
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    Section 1026.19(e)(3)(iv) permits creditors, in certain limited 
circumstances, to use revised estimates, instead of the estimate 
originally disclosed to the consumer, to compare to the charges 
actually paid by or imposed on the consumer for purposes of determining 
whether an estimated closing cost was disclosed in good faith. Section 
1026.19(e)(4) contains rules for the provision and receipt of those 
revised estimates, including a requirement that any revised estimates 
used to determine good faith must be provided to the consumer within 
three business days of the creditor receiving information sufficient to 
establish that the reason for revision applies. If the conditions for 
revising the estimates used to determine good faith are met, creditors 
generally may provide these revised estimates on revised Loan Estimates 
or, in certain circumstances, on Closing Disclosures. The creditor 
cannot provide revised estimates on a Loan Estimate on or after the 
date the Closing Disclosure is provided to the consumer and the 
consumer must receive any revised Loan Estimate no later than four 
business days prior to consummation.\5\ However, if there are less than 
four business days between the time the revised version of the 
disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) (i.e., within three business days of the time the 
creditor received information sufficient to establish the reason for 
revision) and consummation, the creditor may provide the revised 
estimate on a Closing Disclosure.\6\ This is referred to herein as the 
``four-business day limit.''
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    \5\ 12 CFR 1026.19(e)(4)(ii).
    \6\ Id. at comment 19(e)(4)(ii)-1.
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    On July 28, 2016, the Bureau proposed amendments to make additional 
clarifications and technical amendments to the TILA-RESPA Rule (2016 
Proposal).\7\ The proposal also

[[Page 37795]]

contained several limited substantive changes that the Bureau 
identified as potential solutions to specific implementation 
challenges. Among the clarifying changes in the 2016 Proposal was the 
proposed addition of comment 19(e)(4)(ii)-2. When issuing the 2016 
Proposal, the Bureau believed that stakeholders generally understood 
that, if certain conditions are met, creditors may use an initial 
Closing Disclosure to reflect changes in costs that will be used to 
determine if an estimated closing cost was disclosed in good faith. 
Proposed comment 19(e)(4)(ii)-2 was intended to clarify that, if the 
conditions for issuing a revised estimate are met, creditors may 
similarly use corrected Closing Disclosures under Sec.  
1026.19(f)(2)(i) or (ii) to reflect changes in costs that will be used 
to determine if an estimated closing cost was disclosed in good faith.
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    \7\ 81 FR 54317 (Aug. 15, 2016).
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    Despite the Bureau's limited intent regarding proposed comment 
19(e)(4)(ii)-2, numerous commenters interpreted it as change that would 
broaden creditors' ability to compare charges paid by or imposed on the 
consumer to amounts disclosed on a Closing Disclosure to determine if 
an estimated closing cost was disclosed in good faith. Although 
commenters were not uniform in their interpretations of proposed 
comment 19(e)(4)(ii)-2, many interpreted it as allowing creditors to 
use corrected Closing Disclosures to reflect changes in costs that will 
be used to determine if an estimated closing cost was disclosed in good 
faith, irrespective of when the corrected Closing Disclosure was 
provided relative to the timing of consummation. These commenters 
generally interpreted the proposal as retaining the four-business day 
limit for using initial Closing Disclosures to reflect changes in costs 
for purposes of determining if an estimated closing cost was disclosed 
in good faith. Commenters who interpreted the proposal to effectuate 
this substantive change were broadly supportive of it.
    Concurrent with issuing this proposal, the Bureau is issuing a 
final rule amending the TILA-RESPA Rule. The Bureau is not, however, 
finalizing comment 19(e)(4)(ii)-2 as it appeared in the 2016 Proposal 
and discussed above. Instead, the Bureau is issuing this proposal, as 
the Bureau now believes that it is appropriate to pose explicitly the 
question of whether to remove the current four-business day limit for 
resetting tolerances with both initial and corrected Closing 
Disclosures. The Bureau recognizes that some stakeholders may not have 
commented on proposed comment 19(e)(4)(ii)-2 in the 2016 Proposal 
because they understood it as a narrower change than the broader 
question posed here. As described below, under the current proposal, 
creditors could use either initial or corrected Closing Disclosures to 
reflect changes in costs for purposes of determining if an estimated 
closing cost was disclosed in good faith, regardless of when the 
Closing Disclosure is provided relative to consummation.

II. Legal Authority

    The Bureau is issuing this proposal pursuant to its authority under 
TILA, RESPA, and the Dodd-Frank Act, including the authorities 
discussed below. In general, the provisions of Regulation Z that this 
proposal would amend were previously adopted by the Bureau in the TILA-
RESPA Rule, in reliance on one or more of the authorities discussed 
below. The Bureau is issuing this proposal in reliance on the same 
authority and for the same reasons relied on in adopting the relevant 
provisions of the TILA-RESPA Rule, which are described in detail in the 
Legal Authority and Section-by-Section Analysis parts of the 2013 TILA-
RESPA Final Rule and January 2015 Amendments, respectively.\8\
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    \8\ 78 FR 79730, 79753-56, 79834-37 (Dec. 31, 2013); 80 FR 8767, 
8768-70 (Feb. 19, 2015).
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A. The Integrated Disclosure Mandate

    Section 1032(f) of the Dodd-Frank Act required the Bureau to 
propose, for public comment, rules and model disclosures combining the 
disclosures required under TILA and sections 4 and 5 of RESPA into a 
single, integrated disclosure for mortgage loan transactions covered by 
those laws, unless the Bureau determined that any proposal issued by 
the Federal Reserve Board (Board) and the Department of Housing and 
Urban Development (HUD) carried out the same purpose.\9\ In addition, 
the Dodd-Frank Act amended section 105(b) of TILA and section 4(a) of 
RESPA to require the integration of the TILA disclosures and the 
disclosures required by sections 4 and 5 of RESPA.\10\ The Bureau 
provided additional discussion of this integrated disclosure mandate in 
the 2013 TILA-RESPA Final Rule.\11\
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    \9\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified at 
12 U.S.C. 5532(f)).
    \10\ Public Law 111-203, 124 Stat. 1376, 2108 (2010) (codified 
at 15 U.S.C. 1604(b)); Public Law 111-203, 124 Stat. 1376, 2103 
(2010) (codified at 12 U.S.C. 2603(a)).
    \11\ 78 FR 79730, 79753-54 (Dec. 31, 2013).
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B. Truth in Lending Act

    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a) \12\ directs the Bureau to prescribe regulations to carry out 
the purposes of TILA and provides that such regulations may contain 
additional requirements, classifications, differentiations, or other 
provisions and may further provide for such adjustments and exceptions 
for all or any class of transactions that the Bureau judges are 
necessary or proper to effectuate the purposes of TILA, to prevent 
circumvention or evasion thereof, or to facilitate compliance 
therewith. A purpose of TILA is to assure a meaningful disclosure of 
credit terms so that the consumer will be able to compare more readily 
the various available credit terms and avoid the uninformed use of 
credit.\13\ In enacting TILA, Congress found that economic 
stabilization would be enhanced and the competition among the various 
financial institutions and other firms engaged in the extension of 
consumer credit would be strengthened by the informed use of 
credit.\14\ Strengthened competition among financial institutions is a 
goal of TILA, achieved through the meaningful disclosure of credit 
terms.\15\ For the reasons discussed below, the Bureau proposes these 
amendments pursuant to its authority under TILA section 105(a). The 
Bureau believes the proposed amendments effectuate the purpose of TILA 
under TILA section 102(a) of meaningful disclosure of credit terms to 
consumers and facilitate compliance with the statute by clarifying when 
particular disclosures may be provided. The proposal would also further 
TILA's goals by ensuring more reliable estimates, which would foster 
competition among financial institutions. The proposal would also 
prevent circumvention or evasion of TILA.
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    \12\ 15 U.S.C. 1604(a).
    \13\ Id. at 1601(a).
    \14\ Id.
    \15\ The Bureau provided additional discussion of the history of 
TILA section 105(a) and its interaction with the provisions of TILA 
section 129 that apply to high-cost mortgages in the 2013 TILA-RESPA 
Final Rule. As the Bureau explained, the Bureau's authority under 
TILA section 105(a) to make adjustments and exceptions applies to 
all transactions subject to TILA, including high-cost mortgages, 
except with respect to the provisions of TILA section 129 that apply 
uniquely to such high-cost mortgages. 78 FR 79730, 79754 (Dec. 31, 
2013).
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    TILA section 129B(e). Dodd-Frank Act section 1405(a) amended TILA 
to add new section 129B(e).\16\ That section authorizes the Bureau to 
prohibit or condition terms, acts, or practices relating to residential 
mortgage loans that the Bureau finds to be abusive, unfair, deceptive, 
predatory, necessary, or proper to ensure that responsible,

[[Page 37796]]

affordable mortgage credit remains available to consumers in a manner 
consistent with the purposes of sections 129B and 129C of TILA, to 
prevent circumvention or evasion thereof, or to facilitate compliance 
with such sections, or are not in the interest of the borrower. In 
developing rules under TILA section 129B(e), the Bureau has considered 
whether the rules are in the interest of the borrower, as required by 
the statute. The Bureau is issuing this proposal pursuant to its 
authority under TILA section 129B(e). The Bureau believes the proposal 
is consistent with TILA section 129B(e).
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    \16\ Public Law 111-203, 124 Stat. 1376, 2141 (2010) (codified 
at 15 U.S.C. 1639B(e)).
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C. Real Estate Settlement Procedures Act Section 19(a)

    Section 19(a) of RESPA authorizes the Bureau to prescribe such 
rules and regulations and to make such interpretations and grant such 
reasonable exemptions for classes of transactions as may be necessary 
to achieve the purposes of RESPA.\17\ One purpose of RESPA is to effect 
certain changes in the settlement process for residential real estate 
that will result in more effective advance disclosure to home buyers 
and sellers of settlement costs.\18\ In addition, in enacting RESPA, 
Congress found that consumers are entitled to greater and more timely 
information on the nature and costs of the settlement process and to be 
protected from unnecessarily high settlement charges caused by certain 
abusive practices in some areas of the country.\19\
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    \17\ 12 U.S.C. 2617(a).
    \18\ Id. at 2601(b).
    \19\ Id. at 2601(a). In the past, RESPA section 19(a) has served 
as a broad source of authority to prescribe disclosures and 
substantive requirements to carry out the purposes of RESPA.
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    In developing rules under RESPA section 19(a), the Bureau has 
considered the purposes of RESPA, including to effect certain changes 
in the settlement process that will result in more effective advance 
disclosure of settlement costs. The Bureau proposes these amendments 
pursuant to its authority under RESPA section 19(a). For the reasons 
discussed below, the Bureau believes the proposal is consistent with 
those purposes by fostering more effective advance disclosure to home 
buyers and sellers of settlement costs.

D. Dodd-Frank Act

    Dodd-Frank Act section 1032. Section 1032(a) of the Dodd-Frank Act 
provides that the Bureau may prescribe rules to ensure that the 
features of any consumer financial product or service, both initially 
and over the term of the product or service, are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with the 
product or service, in light of the facts and circumstances.\20\ The 
authority granted to the Bureau in section 1032(a) is broad and 
empowers the Bureau to prescribe rules regarding the disclosure of the 
features of consumer financial products and services generally. 
Accordingly, the Bureau may prescribe rules containing disclosure 
requirements even if other Federal consumer financial laws do not 
specifically require disclosure of such features. Dodd-Frank Act 
section 1032(c) provides that, in prescribing rules pursuant to section 
1032, the Bureau shall consider available evidence about consumer 
awareness, understanding of, and responses to disclosures or 
communications about the risks, costs, and benefits of consumer 
financial products or services.\21\ Accordingly, in developing the 
TILA-RESPA Rule under Dodd-Frank Act section 1032(a), the Bureau 
considered available studies, reports, and other evidence about 
consumer awareness, understanding of, and responses to disclosures or 
communications about the risks, costs, and benefits of consumer 
financial products or services. Moreover, the Bureau has considered the 
evidence developed through its consumer testing of the integrated 
disclosures as well as prior testing done by the Board and HUD 
regarding TILA and RESPA disclosures. See part III of the 2013 TILA-
RESPA Final Rule for a discussion of the Bureau's consumer testing.\22\ 
The Bureau proposes these amendments pursuant to its authority under 
Dodd-Frank Act section 1032(a). For the reasons discussed below, the 
Bureau believes that the proposal is consistent with Dodd-Frank Act 
section 1032(a) by promoting full, accurate, and effective disclosure 
of the features of consumer credit transactions secured by real 
property in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.
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    \20\ Public Law 111-203, 124 Stat. 1376, 2006-07 (2010) 
(codified at 12 U.S.C. 5532(a)).
    \21\ Public Law 111-203, 124 Stat. 1376, 2007 (2010) (codified 
at 12 U.S.C. 5532(c)).
    \22\ 78 FR 79730, 79743-50 (Dec. 31, 2013).
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    Dodd-Frank Act section 1405(b). Section 1405(b) of the Dodd-Frank 
Act provides that, notwithstanding any other provision of title XIV of 
the Dodd-Frank Act, in order to improve consumer awareness and 
understanding of transactions involving residential mortgage loans 
through the use of disclosures, the Bureau may exempt from or modify 
disclosure requirements, in whole or in part, for any class of 
residential mortgage loans if the Bureau determines that such exemption 
or modification is in the interest of consumers and in the public 
interest.\23\ Section 1401 of the Dodd-Frank Act, which amends TILA 
section 103(cc)(5), generally defines a residential mortgage loan as 
any consumer credit transaction that is secured by a mortgage on a 
dwelling or on residential real property that includes a dwelling, 
other than an open-end credit plan or an extension of credit secured by 
a consumer's interest in a timeshare plan.\24\ Notably, the authority 
granted by section 1405(b) applies to disclosure requirements generally 
and is not limited to a specific statute or statutes. Accordingly, 
Dodd-Frank Act section 1405(b) is a broad source of authority to exempt 
from or modify the disclosure requirements of TILA and RESPA. In 
developing rules for residential mortgage loans under Dodd-Frank Act 
section 1405(b), the Bureau has considered the purposes of improving 
consumer awareness and understanding of transactions involving 
residential mortgage loans through the use of disclosures and the 
interests of consumers and the public. The Bureau proposes these 
amendments pursuant to its authority under Dodd-Frank Act section 
1405(b). For the reasons discussed below, the Bureau believes the 
proposal is in the interest of consumers and in the public interest, 
consistent with Dodd-Frank Act section 1405(b).
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    \23\ Public Law 111-203, 124 Stat. 1376, 2142 (2010) (codified 
at 15 U.S.C. 1601 note).
    \24\ Public Law 111-203, 124 Stat. 1376, 2138 (2010) (codified 
at 15 U.S.C. 1602(cc)(5)).
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III. Proposed Implementation Period

    The Bureau seeks comment on when the changes proposed should be 
effective. The Bureau believes that these changes should enable 
industry to comply with the TILA-RESPA Rule more cost-effectively and 
that industry should be able to implement these changes relatively 
quickly. At the same time, the Bureau recognizes that the proposed 
changes could involve changes to systems or procedures. The Bureau 
specifically requests that technology vendors, creditors, mortgage 
brokers, settlement agents, and other entities affected by the proposal 
provide details on any updates to software and systems and other 
measures that would be necessary to implement the proposed changes. The 
Bureau further seeks comment on whether there is a

[[Page 37797]]

particular day of the week, time of month, or time of year that would 
most facilitate implementation of the proposed changes.
    The Bureau proposes an effective date 30 days after publication in 
the Federal Register of any final rule based on this proposal and seeks 
comment on the same.

IV. Section-by-Section Analysis

Section 1026.19 Certain Mortgage and Variable-Rate Transactions

19(e) Mortgage Loans Secured By Real Property--Early Disclosures
19(e)(4) Provision and Receipt of Revised Disclosures
    The 2013 TILA-RESPA Final Rule combined certain disclosures that 
consumers receive in connection with applying for and closing on a 
mortgage loan into two new, integrated forms. The first new form, the 
Loan Estimate, replaced the RESPA Good Faith Estimate and the early 
Truth in Lending disclosure. The rule requires creditors to deliver or 
place in the mail the Loan Estimate no later than three business days 
after the consumer submits a loan application.\25\ The second form, the 
Closing Disclosure, replaced the HUD-1 Settlement Statement and the 
final Truth in Lending disclosure. The rule requires creditors to 
ensure that consumers receive the Closing Disclosure at least three 
business days before consummation.\26\
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    \25\ 12 CFR 1026.19(e)(1)(iii).
    \26\ Id. at Sec.  1026.19(f)(1)(ii).
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    Section 1026.19(e)(1)(i) requires creditors to provide consumers 
with good faith estimates of the disclosures required in Sec.  1026.37, 
which describes the loan terms and closing costs required to be 
disclosed on the Loan Estimate. Under Sec.  1026.19(e)(3)(i), an 
estimated closing cost is disclosed in good faith if the charge paid by 
or imposed on the consumer does not exceed the amount originally 
disclosed, except as otherwise provided in Sec.  1026.19(e)(3)(ii) 
through (iv). Section 1026.19(e)(3)(ii) further provides that estimates 
for certain third-party services and recording fees are in good faith 
if the sum of all such charges paid by or imposed on the consumer does 
not exceed the sum of all such charges disclosed on the Loan Estimate 
by more than 10 percent. Section 1026.19(e)(3)(iii) provides that 
certain other estimates are in good faith so long as they are 
consistent with the best information reasonably available to the 
creditor at the time they are disclosed, regardless of whether and by 
how much the amount paid by the consumer exceeds the disclosed 
estimate. The allowed variance between estimated closing costs and the 
actual amounts paid by or imposed on the consumer are referred to as 
``tolerances.''
    Section 1026.19(e)(3)(iv) permits creditors, in certain limited 
circumstances, to use revised estimates of charges, instead of the 
estimate of charges originally disclosed to the consumer, to compare to 
the charges actually paid by or imposed on the consumer for purposes of 
determining whether an estimated closing cost was disclosed in good 
faith pursuant to Sec.  1026.19(e)(3)(i) and (ii) (i.e., whether the 
actual charge exceeds the allowed tolerance). This is referred to as 
resetting tolerances. The circumstances under which creditors may reset 
tolerances are: (1) A defined set of changed circumstances that cause 
estimated charges to increase or, in the case of certain estimated 
charges, cause the aggregate amount of such charges to increase by more 
than 10 percent,\27\ (2) the consumer is ineligible for an estimated 
charge previously disclosed because of a changed circumstance that 
affects the consumer's creditworthiness or the value of the property 
securing the transaction, (3) the consumer requests revisions to the 
credit terms or the settlement that cause an estimated charge to 
increase, (4) points or lender credits change because the interest rate 
was not locked when the Loan Estimate was provided, (5) the consumer 
indicated an intent to proceed with the transaction more than 10 
business days after the Loan Estimate was provided to the consumer, and 
(6) the loan is a construction loan that is not expected to close until 
more than 60 days after the Loan Estimate has been provided to the 
consumer and the creditor clearly and conspicuously states that a 
revised disclosure may be issued.
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    \27\ ``Changed circumstance'' is defined to mean: (1) An 
extraordinary event beyond the control of any interested party or 
other unexpected event specific to the consumer or transaction; (2) 
information specific to the consumer or transaction that the 
creditor relied upon when providing the Loan Estimate and that was 
inaccurate or changed after the disclosures were provided; or (3) 
new information specific to the consumer or transaction that the 
creditor did not rely on when providing the original Loan Estimate. 
12 CFR 1026.19(e)(3)(iv)(A).
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    Section 1026.19(e)(4) contains rules for the provision and receipt 
of revised estimates used to reset tolerances. Section 1026.19(e)(4)(i) 
provides the general rule that, subject to the requirements of Sec.  
1026.19(e)(4)(ii), if a creditor uses a revised estimate to determine 
good faith (i.e., to reset tolerances), the creditor shall provide a 
Loan Estimate reflecting the revised estimate within three business 
days of receiving information sufficient to establish that a 
permissible reason for revision applies. Section 1026.19(e)(4)(ii) 
imposes timing restrictions on the provision of revised Loan Estimates. 
Specifically, Sec.  1026.19(e)(4)(ii) states that the creditor shall 
not provide a revised Loan Estimate on or after the date on which the 
creditor provides the Closing Disclosure. Section 1026.19(e)(4)(ii) 
also provides that the consumer must receive any revised Loan Estimate 
not later than four business days prior to consummation.
    Regulation Z therefore limits creditors' ability to provide revised 
Loan Estimates relative to the provision of the Closing Disclosure and 
to consummation. In issuing the 2013 TILA-RESPA Final Rule, the Bureau 
explained that it was aware of cases where creditors provided revised 
RESPA Good Faith Estimates at the real estate closing, along with the 
HUD-1 settlement statement.\28\ The Bureau was concerned that the 
practice of providing both good faith estimates of closing costs and an 
actual statement of closing costs at the same time could be confusing 
for consumers and diminish their awareness and understanding of the 
transaction. The Bureau was also concerned about consumers receiving 
seemingly duplicative disclosures that could contribute to information 
overload. For this reason, the Bureau adopted the provision of Sec.  
1026.19(e)(4)(ii) that prohibits creditors from providing revised Loan 
Estimates on or after the date the creditor provides the Closing 
Disclosure. The Bureau adopted the provision of Sec.  1026.19(e)(4)(ii) 
that requires that consumers receive the revised Loan Estimate not 
later than four business days prior to consummation to ensure that 
consumers did not receive a revised Loan Estimate on the same date as 
the Closing Disclosure in cases where the Loan Estimate is not provided 
to the consumer in person.
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    \28\ 78 FR at 79836.
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    Comment 19(e)(4)(ii)-1 clarifies when creditors may reset 
tolerances with a Closing Disclosure instead of with a revised Loan 
Estimate. Specifically, the comment explains that if there are less 
than four business days between the time the revised version of the 
disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) (i.e., within three business days of receiving 
information sufficient to establish a reason for revision) and 
consummation, creditors can reflect revised disclosures

[[Page 37798]]

to reset tolerances on the Closing Disclosure.
    The Bureau originally proposed commentary in 2012 that would have 
stated that creditors may reflect the revised disclosures on the 
Closing Disclosure, without regard to the timing of consummation.\29\ 
However, the 2013 TILA-RESPA Final Rule contained the four-business day 
limit. The Bureau understands from outreach through its implementation 
process, and through comments received in response to the 2016 
Proposal, that there is significant confusion in the market about the 
timing requirements related to issuing revised disclosures for purposes 
of resetting tolerances and, in particular, the use of Closing 
Disclosures for this purpose.
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    \29\ See proposed comment 19(e)(4)-2 at 77 FR 51116, 51426 (Aug. 
23, 2012) (``Creditors comply with the requirements of Sec.  
1026.19(e)(4) if the revised disclosures are reflected in the 
disclosures required by Sec.  1026.19(f)(1)(i).'').
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The 2016 Proposal
    In the 2016 Proposal, the Bureau proposed comment 19(e)(4)(ii)-2 to 
clarify one implementation issue related to the use of Closing 
Disclosures to reset tolerances. Specifically, the proposed comment was 
intended to clarify that creditors may use corrected Closing 
Disclosures provided under Sec.  1026.19(f)(2)(i) or (ii) (in addition 
to the initial Closing Disclosure) to reflect changes in costs that 
will be used to reset tolerances.\30\ As noted above, existing comment 
19(e)(4)(ii)-1 clarifies that creditors may reflect revised estimates 
on the Closing Disclosure to reset tolerances if there are less than 
four business days between the time the revised version of the 
disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) and consummation. Although comment 19(e)(4)(ii)-1 
expressly references only the Closing Disclosure required by Sec.  
1026.19(f)(1)(i), the Bureau has provided informal guidance that the 
provision also applies to corrected Closing Disclosures provided 
pursuant to Sec.  1026.19(f)(2)(i) or (ii). The Bureau proposed comment 
19(e)(4)(ii)-2 to clarify this point.
---------------------------------------------------------------------------

    \30\ See 81 FR 54317, 54334 (Aug. 15, 2016).
---------------------------------------------------------------------------

    A summary of the comments received on proposed comment 
19(e)(4)(ii)-2 can be found in the final rule associated with the 2016 
Proposal issued concurrently with this proposal. As explained in that 
comment summary, many commenters interpreted proposed comment 
19(e)(4)(ii)-2 as allowing creditors to use corrected Closing 
Disclosures to reset tolerances regardless of when consummation is 
expected to occur, as long as the creditor provides the corrected 
Closing Disclosure within three business days of receiving information 
sufficient to establish a reason for revision applies pursuant to Sec.  
1029.19(e)(4)(i). Specifically, under this interpretation, creditors 
could provide initial Closing Disclosures to reset tolerances only if 
there are less than four business days between the time the revised 
version of the disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) and consummation. But this interpretation would remove 
the four-business day limit for corrected Closing Disclosures provided 
pursuant to Sec.  1026.19(f)(2) and therefore allow creditors to 
provide corrected Closing Disclosures to reset tolerances regardless of 
when consummation is expected to occur. Commenters were not uniform in 
their interpretation of the proposal.
    Commenters who interpreted the proposal as removing the four-
business day limit as it applies to corrected Closing Disclosures were 
generally supportive, citing uncertainty about the proper 
interpretation of current rules and stating that current timing rules 
regarding resetting tolerances with a Closing Disclosure are 
unworkable. In particular, some of these commenters described a 
situation that could occur if the creditor has already provided the 
Closing Disclosure and an event occurs or a consumer requests a change 
that causes an increase in closing costs that would be a reason for 
revision under Sec.  1026.19(e)(3)(iv). In some circumstances, the 
creditor may be unable to provide a corrected Closing Disclosure to 
reset tolerances because there are four or more days between the time 
the revised disclosures would be required to be provided pursuant to 
Sec.  1026.19(e)(4)(i) and consummation. Commenters seemed to identify 
this as most likely to occur where there was also a delay in the 
scheduled consummation date after the initial Closing Disclosure is 
provided to the consumer.
    The Bureau understands that this situation can occur because of the 
intersection of current timing rules regarding the provision of revised 
estimates to reset tolerances. Section 1026.19(e)(4)(ii) prohibits 
creditors from providing Loan Estimates on or after the date on which 
the creditor provides the Closing Disclosure. In many cases, this 
limitation would not create issues for creditors because current 
comment 19(e)(4)(ii)-1 explains that creditors may reflect revised 
estimates on a Closing Disclosure to reset tolerances if there are less 
than four business days between the time the revised version of the 
disclosures is required to be provided pursuant to Sec.  
1026.19(e)(4)(i) and consummation. But there is no similar provision 
that explicitly provides that creditors may use a Closing Disclosure to 
reflect the revised disclosures if there are four or more days between 
the time the revised version of the disclosures is required to be 
provided pursuant to Sec.  1026.19(e)(4)(i) and consummation. 
Commenters stated that this can lead to circumstances where creditors 
are unable to provide either a revised Loan Estimate (because the 
Closing Disclosure has been provided) or a corrected Closing Disclosure 
(because there are four or more days prior to consummation) to reset 
tolerances. Commenters referred to this situation as a ``gap'' or 
``black hole'' in the rules.
    Many commenters perceived the proposal as resolving this issue 
because they interpreted it as allowing creditors to use corrected 
Closing Disclosures to reset tolerances even if there are four or more 
business days between the time the revised version of the disclosures 
is required to be provided pursuant to Sec.  1026.19(e)(4)(i) and 
consummation. Some commenters who interpreted the proposal in this way 
supported that perceived change, but also cautioned about unintended 
consequences. For example, some commenters stated that eliminating the 
four-business day limit for corrected Closing Disclosures might remove 
a disincentive that currently exists under the rule from providing the 
initial Closing Disclosure extremely early in the mortgage origination 
process, which these commenters stated would not be consistent with the 
Bureau's intent that the Closing Disclosure be a statement of actual 
costs.
The Current Proposal
    The Bureau understands from comments received in response to the 
2016 Proposal and from outreach that current timing rules regarding 
resetting tolerances with Closing Disclosures have led to uncertainty 
in the market and created implementation challenges that could have 
unintended consequences for both consumers and creditors. For this 
reason, the Bureau is issuing this proposal to amend Sec.  
1026.19(e)(4) and associated commentary to remove the four-business day 
limit for providing Closing Disclosures for purposes of resetting 
tolerances and determining if an estimated closing cost was disclosed 
in good faith. Consistent with current comment 19(e)(4)(ii)-1, the 
proposal would allow creditors to reset tolerances by providing a 
Closing Disclosure

[[Page 37799]]

(including any corrected disclosures provided under Sec.  
1026.19(f)(2)(i) or (ii)) within three business days of receiving 
information sufficient to establish that a reason for revision applies. 
Unlike current comment 19(e)(4)(ii)-1, however, the proposal would not 
restrict the creditor's ability to reset tolerances with a Closing 
Disclosure (either with the initial Closing Disclosure or any corrected 
Closing Disclosures provided pursuant to Sec.  1026.19(f)(2)(i) or 
(ii)) to the period of less than four business days between the time 
the revised version of the disclosures is required to be provided 
pursuant to Sec.  1026.19(e)(4)(i) and consummation.
    The Bureau believes that in most cases in which a creditor learns 
about cost increases that are a permissible reason to reset tolerances 
the creditor will not have already provided a Closing Disclosure to the 
consumer. To the extent any increases in closing costs occur, the 
Bureau expects that creditors will typically provide a revised Loan 
Estimate (and not a Closing Disclosure) for the purpose of resetting 
tolerances and that these Loan Estimates will be used in determining 
good faith under Sec.  1026.19(e)(3)(i) and (ii). At the same time, the 
Bureau understands that events that can affect closing costs may occur 
close to the time of consummation, even after the initial Closing 
Disclosure has been provided to the consumer. The Bureau also 
understands that events may result in consummation being delayed past 
the time that was expected when the creditor provided the Closing 
Disclosure to the consumer. Some events can both affect closing costs 
and lead to a delay in consummation. These events may be outside the 
control of the creditor or, in some cases, requested by the consumer. 
Possible examples include weather related events that delay closing and 
lead to additional appraisal or inspection costs or illness by a buyer 
or seller that could delay closing and lead to the imposition of 
additional costs, such as a rate lock extension fee. The Bureau 
understands that if creditors cannot pass these increased costs to 
consumers in the specific transactions where they arise, creditors may 
spread the costs across all consumers by pricing their loan products 
with a margin. The Bureau also understands from outreach and from 
comments received in response to the 2016 Proposal that creditors may 
seek other ways of avoiding absorbing these unexpected costs, such as 
rejecting applications from consumers, even after providing the 
consumer a Closing Disclosure.
    The Bureau is therefore proposing to allow creditors to reset 
tolerances using a Closing Disclosure, without regard to the current 
four-business day limit. Under the proposal, there would be no four-
business day limit for resetting tolerances with initial Closing 
Disclosures nor for any corrected Closing Disclosures provided pursuant 
to Sec.  1026.19(f)(2)(i) or (ii). Under the proposal, as under the 
current rule, to reset tolerances with a Closing Disclosure, creditors 
would be required to provide the Closing Disclosure to the consumer 
within three business days of receiving information sufficient to 
establish a reason for revision. Further, as under the current rule, 
creditors would be allowed to reset tolerances only under the limited 
circumstances described in Sec.  1026.19(e)(3)(iv).
    The Bureau believes it may be appropriate to remove the four-
business day limit for resetting tolerances with both initial and 
corrected Closing Disclosures. First, the Bureau is concerned that 
applying the four-business day limit to initial Closing Disclosures but 
not corrected Closing Disclosures could incentivize creditors to 
provide consumers with initial Closing Disclosures very early in the 
lending process, which in some circumstances might be inconsistent with 
the description of the Closing Disclosure as a ``statement of the final 
loan terms and closing costs,'' \31\ and the requirement under Sec.  
1026.19(f)(1)(i) that the disclosures on the Closing Disclosure are to 
be a statement of ``the actual terms of the transaction.'' Second, the 
Bureau believes that applying the four-business day limit to initial 
Closing Disclosures but not corrected Closing Disclosures could create 
operational challenges and burden for creditors.
---------------------------------------------------------------------------

    \31\ See 12 CFR 1026.38(a)(2).
---------------------------------------------------------------------------

    Accordingly, the Bureau is proposing to amend Sec.  
1026.19(e)(4)(i) to provide that, subject to the requirements of Sec.  
1026.19(e)(4)(ii), if a creditor uses a revised estimate pursuant to 
Sec.  1026.19(e)(3)(iv) for the purpose of determining good faith under 
Sec.  1026.19(e)(3)(i) and (ii), the creditor shall provide a revised 
version of the disclosures required under Sec.  1026.19(e)(1)(i) or the 
disclosures required under Sec.  1026.19(f)(1)(i) (including any 
corrected disclosures provided under Sec.  1026.19(f)(2)(i) or (ii)) 
reflecting the revised estimate within three business days of receiving 
information sufficient to establish that one of the reasons for 
revision applies.
    At the same time, the Bureau proposes to amend current comment 
19(e)(4)(ii)-1 to remove the reference to the current four-business day 
limit, for consistency with the proposed amendments to Sec.  
1026.19(e)(4)(i). The comment would also be amended to provide two 
additional examples, to further clarify how creditors may provide 
revised estimates on Closing Disclosures in lieu of Loan Estimates for 
purposes of determining good faith. Like the current comment, proposed 
comment 19(e)(4)(ii)-1 would explain that Sec.  1026.19(e)(4)(ii) 
prohibits a creditor from providing a revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) on or after the date 
on which the creditor provides the disclosures required under Sec.  
1026.19(f)(1)(i). And, like the current comment, proposed comment 
19(e)(4)(ii)-1 would further explain that Sec.  1026.19(e)(4)(ii) also 
requires that the consumer must receive any revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) no later than four 
business days prior to consummation, and provides that if the revised 
version of the disclosures are not provided to the consumer in person, 
the consumer is considered to have received them three business days 
after the creditor delivers or places them in the mail. Unlike the 
current comment, proposed comment 19(e)(4)(ii)-1 would then provide 
that Sec.  1026.19(e)(4)(i) permits the creditor to provide the revised 
estimate in the disclosures required under Sec.  1026.19(f)(1)(i) 
(including any corrected disclosures provided under Sec.  
1026.19(f)(2)(i) or (ii)). The proposed comment would also add the 
following illustrative examples:
     The proposed example in comment 19(e)(4)(ii)-1.iii would 
assume that consummation is scheduled for Thursday. The proposed 
example would provide that the creditor hand delivers the disclosures 
required by Sec.  1026.19(f)(1)(i) on Monday and, on Tuesday, the 
consumer requests a change to the loan that would result in a revised 
disclosure pursuant to Sec.  1026.19(e)(3)(iv)(C) but would not require 
a new waiting period pursuant to Sec.  1026.19(f)(2)(ii). The proposed 
example would clarify that the creditor complies with the requirements 
of Sec.  1026.19(e)(4) by hand delivering the disclosures required by 
Sec.  1026.19(f)(2)(i) reflecting the consumer-requested changes on 
Thursday.
     The proposed example in comment 19(e)(4)(ii)-1.iv would 
assume that consummation is originally scheduled for Wednesday. The 
proposed example would provide that the creditor hand delivers the 
disclosures required by

[[Page 37800]]

Sec.  1026.19(f)(1)(i) on the Friday before the scheduled consummation 
date and the APR becomes inaccurate on the Monday before the scheduled 
consummation date, such that the creditor is required to delay 
consummation and provide corrected disclosures, including any other 
changed terms, so that the consumer receives them at least three 
business days before consummation under Sec.  1026.19(f)(2)(ii). 
Consummation is rescheduled for Friday. The proposed comment would 
clarify that the creditor complies with the requirements of Sec.  
1026.19(e)(4) by hand delivering the disclosures required by Sec.  
1026.19(f)(2)(ii) reflecting the revised APR and any other changed 
terms to the consumer on Tuesday. The proposed comment would refer to 
Sec.  1026.19(f)(2)(ii) and associated commentary regarding changes 
before consummation requiring a new waiting period and to comment 
19(e)(4)(i)-1 for further guidance on when sufficient information has 
been received to establish an event has occurred.
    The proposal would also make conforming amendments to the heading 
of Sec.  1026.19(e)(4)(ii) and to comments 19(e)(1)(ii)-1 and 
19(e)(4)(i)-1 in light of these proposed amendments.
    Finally, the proposal would make several changes to Sec.  
1026.19(e)(4) and its commentary to reflect amendments to the rule made 
by the January 2015 Amendments regarding interest rate dependent 
charges. Section 1026.19(e)(3)(iv)(D), as adopted by the 2013 TILA-
RESPA Final Rule, previously required creditors to provide the consumer 
with a revised disclosure with the revised interest rate, the points 
disclosed pursuant to Sec.  1026.37(f)(1), lender credits, and any 
other interest rate dependent charges and terms on the date the 
interest rate is locked. The January 2015 Amendments changed Sec.  
1026.19(e)(3)(iv)(D) to provide creditors with more time (three 
business days) to provide the revised disclosure. This amendment 
harmonized the timing requirement in Sec.  1026.19(e)(3)(iv)(D) with 
other timing requirements for redisclosure adopted in the 2013 TILA-
RESPA Final Rule and addressed operational challenges associated with 
the prior requirement that gave creditors less time to provide revised 
disclosures regarding interest rate dependent charges. To implement 
this change, the Bureau revised Sec.  1026.19(e)(3)(iv)(D) to state 
that, no later than three business days after the date the interest 
rate is locked, the creditor shall provide a revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) to the consumer with 
the revised interest rate, the points disclosed pursuant to Sec.  
1026.37(f)(1), lender credits, and any other interest rate dependent 
charges and terms. In the January 2015 Amendments, the Bureau also 
adopted modified versions of proposed comments 19(e)(3)(iv)(D)-1 and 
19(e)(4)(i)-2 to reflect that change. To further reflect the changes 
made by the January 2015 Amendments to Sec.  1026.19(e)(3)(iv)(D), the 
Bureau is proposing to amend Sec.  1026.19(e)(4)(i) and comment 
19(e)(4)(i)-1. The Bureau also proposes to remove existing comment 
19(e)(4)(i)-2, regarding the relationship to Sec.  
1026.19(e)(3)(iv)(D), which the Bureau believes may no longer be 
necessary.
    The Bureau solicits comment on the proposed changes. In particular, 
the Bureau requests information on the extent to which the current 
four-business day limit has caused situations where creditors cannot 
provide either a revised Loan Estimate or Closing Disclosure to reset 
tolerances even if a reason for revision under Sec.  1026.19(e)(3)(iv) 
would otherwise permit the creditor to reset tolerances. The Bureau 
requests information on the frequency and the cause of such 
occurrences, specifically including whether the event that would have 
otherwise permitted the creditor to reset tolerances occurred after the 
Closing Disclosure had been provided to the consumer and whether there 
was a delay to the expected consummation date after the creditor 
provided the Closing Disclosure. The Bureau also requests comment on 
the average costs and the nature of such costs (i.e., rate lock 
extension fees, additional appraisal or inspections fees, or other 
fees) associated with such occurrences.
    The Bureau also requests additional information that would assist 
the Bureau in evaluating potential consequences of the proposal. For 
example, some commenters in response to the 2016 Proposal expressed 
concern that removal of the four-business day limit could result in 
some creditors providing Closing Disclosures very early in the lending 
process. These commenters suggested that, to the extent that occurs, it 
could have negative effects on some consumers. Although the Closing 
Disclosure is a statement of final loan terms and closing costs, the 
Bureau understands from comments received in response to the 2016 
Proposal and from outreach that some creditors currently provide the 
Closing Disclosure to consumers so early in the process that the terms 
and costs are nearly certain to be revised. To the extent that is 
currently true for some creditors, commenters noted that eliminating 
the current four-business day limit for resetting tolerances with a 
Closing Disclosure could remove a disincentive that currently exists to 
provide Closing Disclosures before final terms and costs are reliably 
available (i.e., under the current rule, waiting to provide the Closing 
Disclosure until close to the time of consummation decreases, to some 
extent, the likelihood of a timing issue arising with respect to 
resetting tolerances with corrected Closing Disclosures).
    Accordingly, the Bureau requests comment on the extent to which 
creditors are currently providing Closing Disclosures to consumers so 
that they are received substantially before the required three business 
days prior to consummation with terms and costs that are nearly certain 
to be revised. To the extent this is occurring, the Bureau requests 
comment on the number of business days before consummation consumers 
are receiving the Closing Disclosure. The Bureau also requests comment 
on whether creditors, in those instances, are issuing revised Closing 
Disclosures pursuant to Sec.  1026.19(f)(2). In addition, the Bureau 
requests comment on the extent to which creditors might change their 
current practices regarding provision of the Closing Disclosure if the 
proposal to remove the four-business day limit is adopted. The Bureau 
also requests comment on potential harms to consumers where creditors 
provide Closing Disclosures to consumers so that they are received more 
than the required three business days prior to consummation with terms 
and costs that are nearly certain to be revised. The Bureau 
additionally requests comment on whether it should consider adopting 
measures to prevent such harms in a future rulemaking.
    The Bureau is also concerned about other potential consequences 
that might result from removing the four-business day limit that 
currently applies to resetting tolerances with a Closing Disclosure. 
For example, compared to current rules, the proposed changes could 
allow creditors to pass more costs on to consumers. The Bureau solicits 
comment on whether the circumstances for resetting tolerances in Sec.  
1026.19(e)(3)(iv) provide sufficient protection against potential 
consumer harm or whether additional limitations are appropriate for 
resetting tolerances after the issuance of a Closing Disclosure. For 
example, the Bureau requests comment on whether it would be appropriate 
to allow creditors to reset tolerances with a corrected Closing 
Disclosure in circumstances that are more limited than those described 
in

[[Page 37801]]

Sec.  1026.19(e)(3)(iv) (for example, only when the increased costs 
result from a consumer request or unforeseeable event, such as a 
natural disaster). Similarly, the Bureau requests comment on whether 
the rule should be more restrictive with respect to resetting 
tolerances with a corrected Closing Disclosure for certain third-party 
costs (such as appraisal fees) and creditor fees (such as interest rate 
lock extension fees) and the types of costs and fees that might be 
subject to any more restrictive rules. The Bureau also requests comment 
on whether removing the four-business day limit might result in 
confusion or information overload to the consumer as a result of 
receiving more corrected Closing Disclosures. The Bureau requests 
comment on additional consumer protections that might be appropriate to 
promote the purposes of the disclosures or prevent circumvention or 
evasion and additional potential consumer harms the Bureau has not 
identified.

V. Dodd-Frank Act Section 1022(b)(2) Analysis

A. Overview

    In developing the proposed rule, the Bureau has considered the 
potential benefits, costs, and impacts.\32\ The Bureau requests comment 
on the preliminary analysis presented below as well as submissions of 
additional data that could inform the Bureau's analysis of the 
benefits, costs, and impacts. The Bureau has consulted, or offered to 
consult with, the prudential regulators, the Securities and Exchange 
Commission, the Department of Housing and Urban Development, the 
Federal Housing Finance Agency, the Federal Trade Commission, the U.S. 
Department of Veterans Affairs, the U.S. Department of Agriculture, and 
the Department of the Treasury, including regarding consistency with 
any prudential, market, or systemic objectives administered by such 
agencies.
---------------------------------------------------------------------------

    \32\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
calls for the Bureau to consider the potential benefits and costs of 
a regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products or services; the impact on depository institutions and 
credit unions with $10 billion or less in total assets as described 
in section 1026 of the Dodd-Frank Act; and the impact on consumers 
in rural areas.
---------------------------------------------------------------------------

    This proposal would make a substantive change to the current TILA-
RESPA Rule, by allowing creditors to reset tolerances with a Closing 
Disclosure (both initial and corrected), irrespective of the date of 
consummation. This new provision is restricted to circumstances where 
the rule currently allows creditors to reset tolerances, such as: 
Change in costs; new information regarding eligibility of the borrower; 
and borrower-requested change (for instance, rate lock extension). The 
potential benefits and costs of the provisions contained in the 
proposed rule are evaluated relative to the baseline where the current 
provisions of the TILA-RESPA Rule remain in place. Under the current 
rule, there is no specific provision that allows creditors to use a 
Closing Disclosure to reset tolerances if there are four or more days 
between the time the revised version of the disclosures is required to 
be provided pursuant to Sec.  1026.19(e)(4)(i) and consummation. This 
can lead to circumstances where a creditor is not allowed to reset 
tolerances if it has already provided the Closing Disclosure to the 
consumer when it learns about the increase in cost. In such cases, some 
creditors, faced with the prospect of absorbing cost increases, may 
choose to reject the application.
    The Bureau seeks comment on data that would help to quantify costs 
and benefits and any associated burden with the proposed changes. 
Specifically, the Bureau is seeking information on the frequency and 
timing of unexpected changes that occur after the Closing Disclosure 
was issued.

B. Potential Benefits and Costs to Consumers and Covered Persons

    The Bureau believes the proposed change will benefit creditors by 
providing them with an option of resetting tolerances in situations 
where they currently do not have that option. The Bureau does not 
believe there would be any increased costs to creditors from the 
proposed change compared to the baseline where the current provisions 
of the TILA-RESPA Rule remain in place, as the proposed change is less 
restrictive for creditors than the current provisions.
    The Bureau believes consumers will generally benefit from the 
proposed change, although several concerns remain; the Bureau is 
requesting comment on the merits of these concerns. It is helpful to 
consider benefits and costs to consumers separately in the following 
scenarios.
    First, there may be cases where an initial Closing Disclosure has 
been provided to the consumer well in advance of consummation where the 
creditor subsequently learns about a change in cost that would be a 
cause to reset tolerances. The creditor may be unable to reset 
tolerances currently due to the four-business day limit, and may choose 
to absorb extra costs rather than reject the application. In these 
cases the proposed change will create costs for consumers because now 
any changes in costs due to unexpected events would be passed on to 
consumers. However, in some situations, such as cost increases due to a 
borrower-requested change, these extra costs might be avoidable. To the 
extent that creditors are currently pricing in the risk of having to 
absorb unexpected cost increases, the proposed change would remove this 
extra layer of risk adjustment and create a benefit to consumers in the 
form of lower cost of credit. The Bureau is requesting comment on the 
incidence of cases where creditors have to absorb the extra cost 
increases, and the extent to which such possibility is currently priced 
into loan costs.
    Second, there may be cases where an initial Closing Disclosure has 
been provided to the consumer well in advance of consummation, where 
the creditor subsequently learns about a change in cost that would be a 
cause to reset tolerances. The creditor may be unable to reset 
tolerances currently due to the four-business day limit and may choose 
to reject the application for this reason. In such cases the proposed 
change would benefit borrowers by giving them an option of paying extra 
costs instead of having their applications rejected; the Bureau 
believes that some borrowers may prefer to pay extra costs rather than 
have their applications rejected. The Bureau is requesting comment on 
the incidence of cases where an application is rejected for the 
inability of a creditor to pass on the unexpected cost increases.
    Third, there are hypothetically situations where a creditor would 
prefer to provide the initial Closing Disclosure well in advance of 
consummation, but is deterred from doing so by the risk of not being 
able to reset tolerances in case an unexpected change occurs. In such 
cases, the proposed change may result in more situations where the 
initial Closing Disclosure is provided well in advance of consummation; 
this may affect the accuracy of the disclosure if unexpected cost 
changes occur between the issuance and the consummation. The Bureau 
believes creditors themselves may generally prefer to provide the 
initial Closing Disclosure not too far before the consummation date, to 
preserve the Closing Disclosure's role as the statement of actual costs 
and because it is a good customer service. However, the Bureau has 
received feedback from industry participants indicating that some 
creditors may prefer to provide the initial Closing Disclosure earlier 
than is their current practice; for these

[[Page 37802]]

creditors, the proposed change will provide a benefit in the form of 
additional flexibility as to the issuance of the Closing Disclosure. As 
noted previously, the Bureau is requesting comment on the extent to 
which creditors currently are providing Closing Disclosures 
substantially before the required three business days before 
consummation and, to the extent this is occurring, on the number of 
business days before consummation consumers are receiving the Closing 
Disclosure. The Bureau also is requesting comment on the extent to 
which creditors might change their current practices regarding of the 
timing of provision of the Closing Disclosures, if the proposal to 
remove the four-business day limit is adopted.

C. Impact on Covered Persons With No More Than $10 Billion in Assets

    As discussed previously, the Bureau believes the proposed change 
would not create costs for creditors, including those with no more than 
$10 billion in assets.

D. Impact on Access to Credit

    The Bureau does not believe the proposed change will have a 
negative effect on access to credit. On the contrary, the Bureau 
believes the proposed change may have a beneficial effect on access to 
credit. This may occur to the extent that the current restrictions on 
resetting tolerances using a Closing Disclosure are reflected in credit 
pricing, and to the extent that removing such restrictions would result 
in creditors reducing prices accordingly.

E. Impact on Rural Areas

    The Bureau does not believe that the proposed changes will have an 
adverse impact on consumers in rural areas.

VI. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (the RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small nonprofit organizations. The RFA defines a ``small business'' as 
a business that meets the size standard developed by the Small Business 
Administration pursuant to the Small Business Act.
    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis (FRFA) of any rule subject to notice-and-comment 
rulemaking requirements, unless the agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities. The Bureau also is subject to certain additional procedures 
under the RFA involving the convening of a panel to consult with small 
business representatives prior to proposing a rule for which an IRFA is 
required.
    The Bureau believes that the proposed change will not create a 
significant economic impact on a substantial number of small entities. 
As described above, the proposed rule would reduce burden in a specific 
set of circumstances that an individual small entity would not 
frequently encounter. Therefore, an IRFA is not required for this 
proposal.
    Accordingly, the undersigned certifies that this proposal, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities. The Bureau requests comment on the analysis 
above and requests any relevant data.

VII. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et 
seq.), Federal agencies are generally required to seek the Office of 
Management and Budget (OMB) approval for information collection 
requirements prior to implementation. The collections of information 
related to Regulations Z and X have been previously reviewed and 
approved by OMB in accordance with the PRA and assigned OMB Control 
Number 3170-0015 (Regulation Z) and 3170-0016 (Regulation X). Under the 
PRA, the Bureau may not conduct or sponsor, and, notwithstanding any 
other provision of law, a person is not required to respond to an 
information collection unless the information collection displays a 
valid control number assigned by OMB.
    The Bureau has determined that this proposed rule does not contain 
any information collection requirements as defined by the PRA. The 
Bureau welcomes comments on this determination, which may be submitted 
to the Bureau at the Consumer Financial Protection Bureau (Attention: 
PRA Office), 1700 G Street NW., Washington, DC 20552, or by email to 
[email protected].

List of Subjects in 12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance

    For the reasons set forth above, the Bureau proposes to amend 
Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 1026 continues to read as follows:

    Authority:  12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.
* * * * *

Subpart C--Closed-End Credit

0
2. Section 1026.19 is amended by revising paragraphs (e)(4)(i) and (ii) 
to read as follows:


Sec.  1026.19  Certain mortgage and variable-rate transactions.

* * * * *
    (e) * * *
    (4) * * *
    (i) General rule. Subject to the requirements of paragraph 
(e)(4)(ii) of this section, if a creditor uses a revised estimate 
pursuant to paragraph (e)(3)(iv) of this section for the purpose of 
determining good faith under paragraphs (e)(3)(i) and (ii) of this 
section, the creditor shall provide a revised version of the 
disclosures required under paragraph (e)(1)(i) of this section or the 
disclosures required under paragraph (f)(1)(i) of this section 
(including any corrected disclosures provided under paragraph (f)(2)(i) 
or (ii) of this section) reflecting the revised estimate within three 
business days of receiving information sufficient to establish that one 
of the reasons for revision provided under paragraphs (e)(3)(iv)(A) 
through (F) of this section applies.
    (ii) Relationship between revised Loan Estimates and Closing 
Disclosures. The creditor shall not provide a revised version of the 
disclosures required under paragraph (e)(1)(i) of this section on or 
after the date on which the creditor provides the disclosures required 
under paragraph (f)(1)(i) of this section. The consumer must receive 
any revised version of the disclosures required under paragraph 
(e)(1)(i) of this section not later than four business days prior to 
consummation. If the revised version of the disclosures required under 
paragraph (e)(1)(i) of this section is not provided to the consumer in 
person, the consumer is considered to have received such version three 
business days after the creditor delivers or places such version in the 
mail.
* * * * *
0
3. In Supplement I to Part 1026--Official Interpretations, under 
Section 1026.19--Certain Mortgage and Variable-Rate Transactions, under 
19(e) Mortgage loans secured by real property--Early disclosures:

[[Page 37803]]

0
a. Under 19(e)(1)(ii) Mortgage broker, paragraph 1 is revised.
0
b. 19(e)(4)(i) General rule is revised.
0
c. 19(e)(4)(ii) Relationship to disclosures required under Sec.  
1026.19(f)(1)(i) is revised.
    The revisions and additions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.19--Certain Mortgage and Variable-Rate Transactions

* * * * *
    19(e) Mortgage loans secured by real property--Early disclosures.
* * * * *
    19(e)(1) Provision of disclosures.
* * * * *
    19(e)(1)(ii) Mortgage broker.
    1. Mortgage broker responsibilities. Section 1026.19(e)(1)(ii)(A) 
provides that if a mortgage broker receives a consumer's application, 
either the creditor or the mortgage broker must provide the consumer 
with the disclosures required under Sec.  1026.19(e)(1)(i) in 
accordance with Sec.  1026.19(e)(1)(iii). Section 1026.19(e)(1)(ii)(A) 
also provides that if the mortgage broker provides the required 
disclosures, it must comply with all relevant requirements of Sec.  
1026.19(e). This means that ``mortgage broker'' should be read in the 
place of ``creditor'' for all provisions of Sec.  1026.19(e), except to 
the extent that such a reading would create responsibility for mortgage 
brokers under Sec.  1026.19(f). To illustrate, Sec.  1026.19(e)(4)(ii) 
states that if a creditor uses a revised estimate pursuant to Sec.  
1026.19(e)(3)(iv) for the purpose of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii), the creditor shall provide a revised version 
of the disclosures required under Sec.  1026.19(e)(1)(i) or the 
disclosures required under Sec.  1026.19(f)(1)(i) (including any 
corrected disclosures provided under Sec.  1026.19(f)(2)(i) or (ii)) 
reflecting the revised estimate. ``Mortgage broker'' could not be read 
in place of ``creditor'' in reference to the disclosures required under 
Sec.  1026.19(f)(1)(i), (f)(2)(i), or (f)(2)(ii) because mortgage 
brokers are not responsible for the disclosures required under Sec.  
1026.19(f)(1)(i), (f)(2)(i), or (f)(2)(ii). In addition, Sec.  
1026.19(e)(1)(ii)(A) provides that the creditor must ensure that 
disclosures provided by mortgage brokers comply with all requirements 
of Sec.  1026.19(e), and that disclosures provided by mortgage brokers 
that do comply with all such requirements satisfy the creditor's 
obligation under Sec.  1026.19(e). The term ``mortgage broker,'' as 
used in Sec.  1026.19(e)(1)(ii), has the same meaning as in Sec.  
1026.36(a)(2). See also comment 36(a)-2. Section 1026.19(e)(1)(ii)(B) 
provides that if a mortgage broker provides any disclosure required 
under Sec.  1026.19(e), the mortgage broker must also comply with the 
requirements of Sec.  1026.25(c). For example, if a mortgage broker 
provides the disclosures required under Sec.  1026.19(e)(1)(i), it must 
maintain records for three years, in compliance with Sec.  
1026.25(c)(1)(i).
* * * * *
    19(e)(4) Provision and receipt of revised disclosures.
    19(e)(4)(i) General rule.
    1. Three-business-day requirement. Section 1026.19(e)(4)(i) 
provides that, subject to the requirements of Sec.  1026.19(e)(4)(ii), 
if a creditor uses a revised estimate pursuant to Sec.  
1026.19(e)(3)(iv) for the purpose of determining good faith under Sec.  
1026.19(e)(3)(i) and (ii), the creditor shall provide a revised version 
of the disclosures required under Sec.  1026.19(e)(1)(i) or the 
disclosures required under Sec.  1026.19(f)(1)(i) (including any 
corrected disclosures provided under Sec.  1026.19(f)(2)(i) or (ii)) 
reflecting the revised estimate within three business days of receiving 
information sufficient to establish that one of the reasons for 
revision provided under Sec.  1026.19(e)(3)(iv)(A) through (F) has 
occurred. The following examples illustrate these requirements:
    i. Assume a creditor requires a pest inspection. The unaffiliated 
pest inspection company informs the creditor on Monday that the subject 
property contains evidence of termite damage, requiring a further 
inspection, the cost of which will cause an increase in estimated 
settlement charges subject to Sec.  1026.19(e)(3)(ii) by more than 10 
percent. The creditor must provide revised disclosures by Thursday to 
comply with Sec.  1026.19(e)(4)(i).
    ii. Assume a creditor receives information on Monday that, because 
of a changed circumstance under Sec.  1026.19(e)(3)(iv)(A), the title 
fees will increase by an amount totaling six percent of the originally 
estimated settlement charges subject to Sec.  1026.19(e)(3)(ii). The 
creditor had received information three weeks before that, because of a 
changed circumstance under Sec.  1026.19(e)(3)(iv)(A), the pest 
inspection fees increased by an amount totaling five percent of the 
originally estimated settlement charges subject to Sec.  
1026.19(e)(3)(ii). Thus, on Monday, the creditor has received 
sufficient information to establish a valid reason for revision and 
must provide revised disclosures reflecting the 11 percent increase by 
Thursday to comply with Sec.  1026.19(e)(4)(i).
    iii. Assume a creditor requires an appraisal. The creditor receives 
the appraisal report, which indicates that the value of the home is 
significantly lower than expected. However, the creditor has reason to 
doubt the validity of the appraisal report. A reason for revision has 
not been established because the creditor reasonably believes that the 
appraisal report is incorrect. The creditor then chooses to send a 
different appraiser for a second opinion, but the second appraiser 
returns a similar report. At this point, the creditor has received 
information sufficient to establish that a reason for revision has, in 
fact, occurred, and must provide corrected disclosures within three 
business days of receiving the second appraisal report. In this 
example, in order to comply with Sec. Sec.  1026.19(e)(3)(iv) and 
1026.25, the creditor must maintain records documenting the creditor's 
doubts regarding the validity of the appraisal to demonstrate that the 
reason for revision did not occur upon receipt of the first appraisal 
report.
    19(e)(4)(ii) Relationship between revised Loan Estimates and 
Closing Disclosures.
    1. Revised Loan Estimate may not be delivered at the same time as 
the Closing Disclosure. Section 1026.19(e)(4)(ii) prohibits a creditor 
from providing a revised version of the disclosures required under 
Sec.  1026.19(e)(1)(i) on or after the date on which the creditor 
provides the disclosures required under Sec.  1026.19(f)(1)(i). Section 
1026.19(e)(4)(ii) also requires that the consumer must receive any 
revised version of the disclosures required under Sec.  
1026.19(e)(1)(i) no later than four business days prior to 
consummation, and provides that if the revised version of the 
disclosures are not provided to the consumer in person, the consumer is 
considered to have received the revised version of the disclosures 
three business days after the creditor delivers or places in the mail 
the revised version of the disclosures. See also comments 19(e)(1)(iv)-
1 and -2. However, Sec.  1026.19(e)(4)(i) permits the creditor to 
provide the revised estimate in the disclosures required under Sec.  
1026.19(f)(1)(i) (including any corrected disclosures provided under 
Sec.  1026.19(f)(2)(i) or (ii)). See below for illustrative examples:

[[Page 37804]]

    i. If the creditor is scheduled to meet with the consumer and 
provide the disclosures required by Sec.  1026.19(f)(1)(i) on 
Wednesday, and the APR becomes inaccurate on Tuesday, the creditor 
complies with the requirements of Sec.  1026.19(e)(4) by providing the 
disclosures required under Sec.  1026.19(f)(1)(i) reflecting the 
revised APR on Wednesday. However, the creditor does not comply with 
the requirements of Sec.  1026.19(e)(4) if it provided both a revised 
version of the disclosures required under Sec.  1026.19(e)(1)(i) 
reflecting the revised APR on Wednesday, and also provides the 
disclosures required under Sec.  1026.19(f)(1)(i) on Wednesday.
    ii. If the creditor is scheduled to email the disclosures required 
under Sec.  1026.19(f)(1)(i) to the consumer on Wednesday, and the 
consumer requests a change to the loan that would result in revised 
disclosures pursuant to Sec.  1026.19(e)(3)(iv)(C) on Tuesday, the 
creditor complies with the requirements of Sec.  1026.19(e)(4) by 
providing the disclosures required under Sec.  1026.19(f)(1)(i) 
reflecting the consumer-requested changes on Wednesday. However, the 
creditor does not comply if it provides both the revised version of the 
disclosures required under Sec.  1026.19(e)(1)(i) reflecting consumer 
requested changes, and also the disclosures required under Sec.  
1026.19(f)(1)(i) on Wednesday.
    iii. Consummation is scheduled for Thursday. The creditor hand 
delivers the disclosures required by Sec.  1026.19(f)(1)(i) on Monday, 
and, on Tuesday, the consumer requests a change to the loan that would 
result in a revised disclosure pursuant to Sec.  1026.19(e)(3)(iv)(C) 
but would not require a new waiting period pursuant to Sec.  
1026.19(f)(2)(ii). The creditor complies with the requirements of Sec.  
1026.19(e)(4) by hand delivering the disclosures required by Sec.  
1026.19(f)(2)(i) reflecting the consumer-requested changes on Thursday.
    iv. Consummation is originally scheduled for Wednesday. The 
creditor hand delivers the disclosures required by Sec.  
1026.19(f)(1)(i) on the Friday before the scheduled consummation date 
and the APR becomes inaccurate on the Monday before the scheduled 
consummation date, such that the creditor is required to delay 
consummation and provide corrected disclosures, including any other 
changed terms, so that the consumer receives them at least three 
business days before consummation under Sec.  1026.19(f)(2)(ii). 
Consummation is rescheduled for Friday. The creditor complies with the 
requirements of Sec.  1026.19(e)(4) by hand delivering the disclosures 
required by Sec.  1026.19(f)(2)(ii) reflecting the revised APR and any 
other changed terms to the consumer on Tuesday. See Sec.  
1026.19(f)(2)(ii) and associated commentary regarding changes before 
consummation requiring a new waiting period. See comment 19(e)(4)(i)-1 
for further guidance on when sufficient information has been received 
to establish an event has occurred.
* * * * *

    Dated: July 6, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-15763 Filed 8-10-17; 8:45 am]
 BILLING CODE 4810-AM-P