Reg Z – How should the Product field be completed on the Loan Estimate?

Compliance > Regulation Z - TILA / TRID Specific > Loan Estimates
Q:  How should the Product field be completed on the Loan Estimate?
 
A:  Regulation Z has technical requirements for the completion of the Product field.  While creditors should review regulatory conditions and commentary, a general description of the requirement is as follows: 
 
The Product description requirements has two components:  a product type and a description of applicable features
  • The product type will be one of the following:  adjustable rate, stepped rate or fixed rate.
  • As applicable, the disclosure would include (the regulation provides these in a specific hierarchical order) one of any applicable features that may change the periodic payment, such as negativeamortization, interest only, step payment, balloon payment, and seasonal payment, including the length of the introductory period.
 
The CFPB has provided a variety of loan estimate samples, which are included in Appendix H of Regulation Z.  Therein, readers can see examples of product descriptions as follows: 
 
  • Fixed Rate
  • 5 Year Interest Only, 5/3 Adjustable Rate
  • Year 7 Balloon Payment, Fixed Rate
  • Year 5 Negative Amortization, 1/1 Adjustable Rate
 
However, for additional illustrative purposes, the following excerpt from the CFPB’s guide to forms is most helpful as it provides other samples and also addresses the disclosure of time periods that are not in whole years:
 
“The following are examples of Product with both pieces of information included:
  • Year 7 Balloon Payment, 3/1 Step Rate:  a step rate with an introductory interest rate that lasts for three years and adjusts each year thereafter until a balloon payment is due in the seventh year of the loan term.
  • 2 Year Negative Amortization, Fixed Rate: a fixed rate product with a step-payment feature for the first two years of the legal obligation that may negatively amortize.
     
    When the time periods disclosed in Product are not in whole years, for time periods of 24 months or more, disclose the applicable fraction of a year by use of decimals rounded to two places. For time periods of 24 months or less, disclose the number of months with the abbreviation “mo.” (Comment 37(a)(10)-3) For example:
     
  • An Adjustable Rate Product with an introductory interest rate for 31 months that adjusts every year thereafter is a 2.58/1 Adjustable Rate.
  • An Adjustable Rate Product with an introductory interest rate for 18 months that adjusts every 18 months thereafter is an 18 mo./18 mo. Adjustable Rate.”
     
     
ADDITIONAL INFORMATION – The regulatory citation for addressing this topic can be found in 12 CFR 1026.37(a)(10). 
This was also addressed in the CFPB's “Guide to the Loan Estimate and Closing Disclosure forms”, which may be found here - http://www.consumerfinance.gov/regulatory-implementation/tila-respa/
 

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