CFPB Issues Guidance on Applicability of TRID Rule to Assumptions
The CFPB (Consumer Financial Protection Bureau) recently issued a factsheet addressing whether a Loan Estimate and Closing Disclosure are required in connection with the assumption of a residential mortgage loan.
As previously reported, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Growth Act) includes a sense of Congress provision that the CFPB should endeavor to provide clearer, authoritative guidance on the applicability of the TRID rule to mortgage loan assumptions. Based on the provision the CFPB engaged in industry outreach regarding the guidance sought, and the factsheet is likely the result of those efforts.
The CFPB advises that if a transaction meets the definition of an “assumption” in Regulation Z section 1026.20(b) and is otherwise subject to the TRID rule, then a Loan Estimate and Closing Disclosure are required. The CFPB also advises that the Loan Estimate and Closing Disclosure must be based on the remaining obligation, and provides the following specific examples:
The amount financed is the remaining principal balance plus any arrearages or other accrued charges from the original consumer credit transaction.
In determining the amount of the finance charge and annual percentage rate to be disclosed, the creditor should disregard any prepaid finance charges paid by the original obligor, but must include in the finance charge any prepaid finance charge imposed in connection with the assumption transaction. The CFPB notes that if the creditor requires the new consumer to pay any charges as a condition of the assumption, those charges are prepaid finance charges as to the new consumer, unless they are exempt from the finance charge under Regulation Z section 1026.4.
The CFPB adds that whether or not a Loan Estimate and Closing Disclosure are required when a new consumer is added to an existing obligation, the transaction remains a consumer credit transaction subject to Regulation Z. As a result, ongoing obligations, such as servicing related requirements, must be followed. Additionally, even if a Loan Estimate and Closing Disclosure are not triggered, other disclosures under the Truth in Lending Act (TILA) or Real Estate Settlement Procedures Act (RESPA) may be required. Note that if a transaction is an assumption for TILA and RESPA purposes, but the transaction is not subject to the TRID rule, then a TILA Disclosure Statement, Good Faith Estimate and HUD-1 Settlement Statement would be required.