On July 7, 2017, the Consumer Financial Protection Agency (“CFPB”) announced final amendments to its “Know Before You Owe” (“KBYO”) mortgage disclosure rule to memorialize informal guidance regarding the rule, clarify certain aspects of the rule, and provide implementation guidance to industry. The CFPB also issued a proposed rule regarding when a creditor may compare charges paid or imposed upon a consumer to amounts on a Closing Disclosure, rather than on a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith.


Prior to implementation of the KBYO Rule in October 2015, lenders were required to issue overlapping disclosures to consumers applying for a mortgage. The KBYO Rule—established and implemented by the CFPB pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Real Estate Settlement Procedures Act (“RESPA” or Regulation X) and the Truth in Lending Act (“TILA” or Regulation Z)—requires the provision of streamlined, integrated mortgage disclosures to consumers. Key amendments in the revised rule include the following clarifications and technical corrections:

  1. Create Accuracy Tolerances for the Total of Payments: Prior to the implementation of the KBYO Rule, creditors were required to include in a Closing Disclosure the “total of payments,” which was calculated as and considered to be accurate if it reflected the sum of the amount financed and the finance charge. The KBYO Rule revised the “total of payments” disclosure so that it is accurate if it reflects the sum of principal, interest, mortgage insurance, and loan costs. In other words, the rule does not require the specific use of a finance charge as a component of the calculation in order for the disclosure to be considered accurate. To improve consumer understanding and facilitate compliance, the amendments apply the same tolerances for accuracy to the “total of payments” disclosure that already apply to the finance charge and other disclosures affected by the finance charge.
  2. Adjust a Partial Exemption Mainly Affecting Housing Finance Agencies: The KBYO Rule created a partial exemption from the integrated disclosure requirements for certain housing assistance loans to facilitate low cost lending. To qualify for the partial exemption, the total costs of the loan payable by the consumer at consummation, including transfer taxes and recording fees, could not exceed 1 percent of the total amount of credit extended. The applicability of the exemption had been limited, however, because increases in transfer taxes and recording fees, in combination with the low dollar figure of the loans, resulted in many of the loans exceeding the 1-percent threshold for upfront costs. The amendments expand the scope of the partial exemption by clarifying that transfer taxes charged in connection with those loans are permissible costs and that recording fees and transfer taxes do not count toward the 1-percent threshold.
  3. Provide a Uniform Rule Regarding Cooperative Units: Prior to the amendments, State law determined whether or not cooperative units were covered by the KBYO Rule. In the event State law classified a cooperative unit as personal property rather than real property, the KBYO Rule did not apply to loans for such personal property. The amendments require provision of the integrated disclosures in all transactions involving cooperative units, regardless of whether classified under State law as real or personal property. This revision simplifies application of the rule and ensures that more consumers receive the disclosures.
  4. Provide Guidance on Sharing Disclosures with Parties in the Mortgage Origination Process: In response to questions about, and privacy concerns regarding, the sharing of disclosures to consumers with third parties to the transaction, the amendments incorporate and expand upon previous CFPB guidance. For example, TILA requires creditors to use the Closing Disclosure to provide certain disclosures about the transaction to consumers, and requires the settlement agent to provide a copy of the Closing Disclosure to the seller. In addition, the creditor or settlement agent is permitted to provide a separate Closing Disclosure to the seller that contains limited consumer information. The amendments clarify that a creditor, at its discretion, may modify the Closing Disclosure form to accommodate the provision of separate Closing Disclosure forms to the consumer and the seller, and provides examples of when a creditor may provide the separate forms to the consumer and seller.

Proposed Rule and Request for Public Comment

Under TILA and RESPA, creditors must provide certain disclosures to consumers in two integrated forms, a Loan Estimate and a Closing Disclosure. Creditors must deliver or place in the mail the Loan Estimate no later than three business days after a consumer submits a loan application. A Closing Disclosure must be received by a consumer at least three business days prior to consummation.

Creditors must provide good faith estimates of loan terms and closing costs on the Loan Estimate. An estimated closing cost is disclosed in good faith pursuant to TILA if the charge paid by the consumer does not exceed the amount originally disclosed, with certain enumerated exceptions in 12 C.F.R. § 1026.19(e)(3)(ii) through (iv). In certain circumstances, a creditor is permitted to use revised estimates, as opposed to the estimate originally disclosed to the consumer, to compare to the charges actually paid by the consumer for purposes of determining whether an estimated closing charge was disclosed in good faith. The CFPB refers to this practice as “resetting tolerances.” If a creditor uses a revised estimate to reset tolerances, then the creditor must provide a Loan Estimate reflecting the revised estimate within three days of the creditor receiving information sufficient to constitute a permissible reason for the revised estimate. TILA imposes time restrictions on the provision of a revised Loan Estimate: (i) a consumer must receive any revised Loan Estimate no later than four business days prior to consummation; and (ii) the creditor cannot provide a revised Loan Estimate on or after the date the Closing Disclosure is provided to the consumer. However, if there are less than four days between the time the revised version of estimates is required to be disclosed (i.e., within three days of the creditor’s receipt of the qualifying information) and consummation, the creditor can provide the revised estimates to reset tolerances on the Closing Disclosure. The CFPB refers to this window for providing the revised estimates as the “four-business day limit.”

The CFPB’s proposal seeks to address confusion in the marketplace regarding these timing requirements and the use of Closing Disclosures for resetting tolerances. Accordingly, in the current proposal, the CFPB requests comment on whether to remove this four-business day limit for resetting tolerances and determining whether an estimated closing cost was disclosed in good faith. The CFPB proposes that creditors may use either initial or corrected Closing Disclosures to reflect changes in costs for purposes of determining whether an estimated closing cost was disclosed in good faith, regardless of how close to consummation the Closing Disclosure is provided.

Comments are due 60 days after the proposed rule’s publication in the Federal Register.