Should Non-Purchasing Entities Sign the Closing Disclosure?

Per its normal procedures, the Consumer Financial Protection Bureau (“CFPB”) requested comments on its proposed amendments to Regulation Z, commonly referred to as the “TRID Amendments.” In response, we provided a comment letter regarding these amendments, not only since they will impact our clients and ourselves once implemented, but also to share our expertise – cultivated through 25 years of providing vendor services – with the CFPB.

After posting a blog about our comments, we’ve received requests for more specifics as to their content. To oblige these requests, we are posting excerpts from our letter.

The following excerpt is our comment on an issue regarding whether a non-purchasing entity (“NPE”) is considered a “consumer” for purposes of determining whether the NPE should sign the “Confirm Receipt” portion of the Closing Disclosure.

Comment - Background

It is widely known that consumers have the right of rescission in applicable transactions per 12 CFR Section 1026.23. In addition, Comment § 17(d)-2 says, in part:

“In rescindable transactions…separate disclosures must be given to each consumer who has the right to rescind under § 1026.23…”

It has not been clear to Lenders whether this instruction to give separate disclosures to each consumer implies that the consumer should sign the Closing Disclosure to acknowledge receipt. Comment 38(t)(5)-4 says:

“Section 1026.38(t) does not restrict the addition of signature lines to the disclosure required by § 1026.38, provided any signature lines for confirmations of receipt of the disclosure appear only under the ‘Confirm Receipt’ heading required by Section 1026.38(s) as illustrated by form H–25 of appendix H to this part.”

Form H-25 shows each signature labeled with the word “Applicant” or “Co-Applicant.” In reference to “Applicant,” Section 1026.37(a)(5) says:

“The name and mailing address of the consumer(s) applying for the credit, labeled ‘Applicants.’”

This instruction seems to imply that the “Applicants” on the model form are “consumer(s) applying for credit.”

Comment – Request for Clarification

Since non-purchasing entities are not applying for credit, there has been some question as to whether non-purchasing entities on a loan should sign the Closing Disclosure or not. Since 38(t) seems more permissive than prescriptive when discussing the addition of signature lines, most have assumed that this is up to the discretion of the Lender, as long as disclosures are given separately to each consumer on the loan in applicable transactions. “Consumer” is defined in Section 1026.2(a)(11):

“Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.”

Conclusion

Upon further research we found that the new amendment does not require non-purchasing entities to sign the closing disclosure; however, some specific loan programs or investors require the non-purchasing entities signatures for purposes of insuring or purchasing the loan. Some lenders also require them to sign closing disclosures to demonstrate that those who have an ownership interest in the property received the ”material disclosures” required under 12 CFR § 1026.23 for the “Right of Rescission” rules, which disclosures are contained in the Closing Disclosure. Each entity is handling the Closing Disclosure differently based on their current needs. We encouraged the CFPB to clarify the signing to streamline processes and documentation for lenders.

We will continue to keep you posted on new compliance regulations and share our expertise with regulators as the situation demands. We also welcome any comments or questions you may have.