Understanding Mortgage Disclosures Under Regulation Z §1026.19
Learn how Regulation Z §1026.19 shapes mortgage disclosures, timing rules, and consumer protections in home loan transactions.
Mortgage Disclosures Under Regulation Z §1026.19: A Practical Guide
Regulation Z, issued under the Truth in Lending Act (TILA), sets detailed rules for how creditors must disclose key terms of certain mortgage and variable-rate loans to consumers. Section 1026.19 focuses on timing, format, and accuracy requirements for these disclosures, with the goal of helping borrowers understand their loan costs before they are legally bound.
This guide explains the major disclosure obligations in 12 CFR §1026.19, how they apply to closed-end mortgage loans (including those secured by real property) and adjustable-rate mortgages (ARMs), and what they mean for both creditors and consumers.
Core Objectives of §1026.19
Section 1026.19 serves several interconnected objectives:
- Early transparency: Ensure that consumers receive accurate cost information early in the mortgage process, before paying most fees or committing to the transaction.
- Comparability: Standardize disclosures so consumers can compare different loan offers more easily.
- Accuracy at closing: Require final disclosures that reflect the actual terms of the loan at or before consummation.
- Protection against surprise changes: Limit how and when estimates can change, and when a revised disclosure is permitted or required.
- Special safeguards for ARMs: Mandate additional program disclosures for adjustable-rate and other variable-rate transactions.
Scope: Transactions Covered by §1026.19
The coverage of §1026.19 is defined by loan type and collateral. In broad terms, the rule applies to:
- Certain closed-end mortgage loans secured by real property or a cooperative unit, including most home purchase and refinance loans, for purposes of the integrated TILA-RESPA disclosures (Loan Estimate and Closing Disclosure).
- Closed-end variable-rate transactions that are secured by the consumer’s dwelling, which trigger the adjustable-rate program disclosures.
Open-end credit plans (such as traditional home equity lines of credit, or HELOCs) are governed by different provisions of Regulation Z and are not the primary focus of §1026.19.
Early Variable-Rate Program Disclosures (ARMs)
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For closed-end variable-rate loans secured by a dwelling, §1026.19(b) requires creditors to provide specific information about the loan program before consummation, usually when the consumer expresses interest in a particular ARM program.
Required ARM Program Information
Consumers must receive a program disclosure for each variable-rate program they consider. At a high level, this disclosure must describe:
- That the interest rate, payment, or term can change over time.
- The index or formula used to set the rate and where the consumer can find it.
- How the rate and payment are calculated, including any margin added to the index.
- Whether the interest rate is temporarily discounted or carries a premium at origination.
- The frequency of rate and payment adjustments.
- Rules related to rate caps, payment caps, negative amortization, and interest carryover.
- A payment example showing how the rate and payment could change under the program’s maximum adjustment assumptions.
- Whether the program includes a demand feature that allows the creditor to require early repayment.
- The type and timing of adjustment notices the consumer will receive.
These disclosures are intended to highlight the risks and variability of ARMs, including the potential for substantially higher payments if interest rates rise.
Booklet Requirement
For adjustable-rate mortgages, creditors must also provide a consumer information booklet, such as the Consumer Handbook on Adjustable Rate Mortgages or a suitable substitute, to help borrowers understand how ARMs work and the factors they should evaluate.
Electronic Program Disclosures
If a consumer accesses a loan application electronically, the ARM program disclosures and booklet may be provided in electronic form with or on the application, subject to applicable electronic delivery rules.
Integrated TILA–RESPA Disclosures: Loan Estimate & Closing Disclosure
Section 1026.19(e) and (f) codify the timing and content framework for the integrated Loan Estimate (LE) and Closing Disclosure (CD) for most closed-end mortgage loans secured by real property or a cooperative unit.
| Disclosure | Purpose | Key Timing Rule |
|---|---|---|
| Loan Estimate | Provides early, good-faith estimates of loan terms and closing costs. | Must be delivered or mailed no later than the third business day after receipt of an application, and at least seven business days before consummation in many cases. |
| Closing Disclosure | Shows the actual terms and costs of the transaction at closing. | Must generally be received by the consumer at least three business days before consummation. |
Good-Faith Estimates and Fee Restrictions
Under §1026.19(e), creditors must provide good-faith estimates of loan terms and closing costs on the Loan Estimate. A charge is considered in good faith if, among other tests, the amount the consumer actually pays does not exceed the amount disclosed, subject to tolerance categories established by Regulation Z.
Until the consumer receives the Loan Estimate, creditors and certain other parties are generally restricted from imposing fees, other than a bona fide and reasonable fee for a credit report in specified circumstances.
Intent to Proceed
After receiving the Loan Estimate, the consumer must indicate an intent to proceed with the transaction before the creditor can impose most fees other than the credit report fee. The consumer may convey intent by any method acceptable to the creditor, which must document this communication to satisfy recordkeeping obligations under §1026.25.
Revised Loan Estimates and Changed Circumstances
Section 1026.19 recognizes that some information may legitimately change after the initial Loan Estimate is provided. In limited situations, the creditor may issue a revised Loan Estimate and rely on those revised figures for purposes of the good-faith analysis.
What Counts as a Changed Circumstance?
Under §1026.19(e)(3)(iv), a changed circumstance can include:
- An extraordinary event beyond the control of any interested party (for example, natural disasters affecting property valuations or recording costs).
- Information specific to the consumer or transaction that was inaccurate or changed after the initial Loan Estimate was provided.
- New information specific to the consumer or transaction that the creditor did not rely on when issuing the original Loan Estimate.
There are additional triggers for revised estimates, such as changes that affect the consumer’s eligibility or interest-rate–dependent charges when the rate is not initially locked and is later locked.
Conditions for Using Revised Estimates
To rely on a revised estimate, the creditor must meet multiple conditions, including:
- The revision is tied to a permitted reason, such as a documented changed circumstance or consumer-requested change.
- The revised Loan Estimate is delivered or mailed within the time limits specified (often within three business days of learning of the event).
- No revised Loan Estimate is provided on or after the date the Closing Disclosure is issued, subject to limited exceptions.
Closing Disclosures and Corrections
Section 1026.19(f) governs the Closing Disclosure, which must reflect the actual terms and costs of the mortgage transaction at or before consummation.
Pre-Consummation Corrections
If the original Closing Disclosure becomes inaccurate before consummation and the inaccuracy triggers specified changes—for example, an inaccurate annual percentage rate (APR), a change in loan product, or the addition of a prepayment penalty—the creditor must issue a corrected Closing Disclosure.
When certain significant terms change, consummation must be delayed so that the consumer receives the corrected Closing Disclosure at least three business days before consummation.
Post-Consummation Corrections
After consummation, the options are more limited, but §1026.19(f)(2)(iii) still requires corrective action in some cases. If an event occurs within 30 days after consummation that makes the Closing Disclosure inaccurate and causes a change in the amount paid by the consumer, the creditor must deliver or mail a corrected Closing Disclosure within a specified period (generally no later than 30 days after learning of the event).
Average Charges and Tolerance Framework
Section 1026.19 allows creditors and settlement service providers, under defined conditions, to use average charges instead of the exact amount for a particular service in individual transactions. To use an average charge, among other requirements, the provider must:
- Ensure the average charge does not exceed the average amount actually paid for that service for the defined class of transactions.
- Define the class based on an appropriate period of time, geographic area, and type of loan.
- Apply the same average charge to every transaction in the class consistently.
This framework interacts with the broader tolerance rules for good-faith estimates, which limit how much certain categories of disclosed charges may increase at closing.
Consumer Choices: Shopping for Settlement Services
Section 1026.19(e) recognizes that consumers may be allowed or encouraged to shop for certain settlement services (for example, title services or pest inspections). A creditor is deemed to permit shopping if it allows the consumer to select the provider of that service, subject to any reasonable requirements.
The Loan Estimate must indicate which services the consumer can shop for and may include a written list of providers. Whether the consumer chooses a provider listed by the creditor or an unaffiliated provider can affect which tolerance category applies to that charge when assessing good-faith compliance.
Recordkeeping and Compliance Considerations
Creditors must maintain sufficient records to demonstrate compliance with §1026.19, including evidence of:
- Timely delivery of Loan Estimates and Closing Disclosures.
- Consumer’s documented intent to proceed.
- Basis and documentation for any changed circumstances leading to revised estimates.
- Use and calculation of any average charges.
Regulators such as the Consumer Financial Protection Bureau (CFPB) and prudential banking regulators routinely examine institutions for adherence to these requirements as part of TILA and RESPA compliance reviews.
Frequently Asked Questions (FAQs)
Q1: When must a creditor provide the Loan Estimate?
A creditor must deliver or mail the Loan Estimate no later than three business days after receiving a consumer’s application for a covered mortgage, and generally at least seven business days before consummation.
Q2: Can a creditor charge any fees before the consumer receives the Loan Estimate?
In most cases, no. Before the consumer receives the Loan Estimate and indicates an intent to proceed, the creditor and other parties may not impose fees, except for a bona fide and reasonable fee for obtaining the consumer’s credit report under the conditions allowed by §1026.19(e).
Q3: How can a consumer show intent to proceed with the transaction?
A consumer may express intent to proceed in any manner accepted by the creditor—such as by email, phone, or in writing—unless the creditor requires a specific method. The creditor must document this communication to meet the recordkeeping requirements of §1026.25.
Q4: What events justify issuing a revised Loan Estimate?
Permissible reasons include certain changed circumstances (such as new or corrected information about the consumer or property), consumer-requested changes, changes in eligibility, and rate-lock–related adjustments. The creditor must issue the revised estimate within specified time frames and only for reasons allowed under §1026.19(e)(3)(iv) and related provisions.
Q5: When is a corrected Closing Disclosure required after consummation?
If, within 30 days after consummation, the creditor becomes aware of an event that makes the Closing Disclosure inaccurate and changes the amount the consumer actually paid, the creditor must deliver or mail a corrected Closing Disclosure within the required timeframe, typically no later than 30 days after discovering the event.
References
- 12 CFR § 1026.19 – Certain mortgage and variable-rate transactions — Consumer Financial Protection Bureau / eCFR (Office of the Federal Register). 2024-01-01. https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-C/section-1026.19
- 12 CFR § 1026.19 – Certain mortgage and variable-rate transactions — Legal Information Institute, Cornell Law School. 2024-01-01. https://www.law.cornell.edu/cfr/text/12/1026.19
- Federal Mortgage Disclosure Requirements Under the Truth in Lending Act (Regulation Z) — Bureau of Consumer Financial Protection, Federal Register. 2018-05-02. https://www.federalregister.gov/documents/2018/05/02/2018-09243/federal-mortgage-disclosure-requirements-under-the-truth-in-lending-act-regulation-z
- Search Regulations: 1026.19 — Consumer Financial Protection Bureau. 2023-11-01. https://www.consumerfinance.gov/rules-policy/regulations/search-regulations/results/?q=1026.19
- Summary: Proposed Amendments to Federal Mortgage Disclosure Requirements Under Truth in Lending (Regulation Z) — National Association of State Credit Union Supervisors (NASCUS). 2017-08-01. https://www.nascus.org/cfpb-summaries__trashed/summary-proposed-amendments-to-federal-mortgage-disclosure-requirements-under-truth-in-lending-regulation-z-august-2017/
- Revised Closing Disclosures — America’s Credit Unions. 2020-04-15. https://www.americascreditunions.org/blogs/compliance/revised-closing-disclosures
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