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Review of the Top 20 TRID Implementation Issues
1. Pre-application Cost Estimates.
a. This topic references a “written estimate of costs or terms” or a “worksheet” often
provided by creditors to potential consumers regarding costs associated with a
particular loan transaction. The rule provides a place for these pre-application cost
estimate worksheets after TRID goes into effect; however, to reduce the consumer’s
potential confusion between a worksheet and an LE the rule requires (1) a conspicuous
disclosure at the top of these worksheets and (2) a type of formatting that does not
resemble the appearance of the Loan Estimate (LE). The required disclosure must be in a
font size that is no smaller than 12-point font and must state:
Your actual rate, payment, and costs could be higher. Get an official
Loan Estimate before choosing a loan.
b. The preamble to the rule (see, CFPB TRID Final Rule, pg. 313) states that creditors may
use the worksheets that they have already prepared for this purpose, the current
worksheets will just need to be updated and in use beginning August 1, 2015. If your
organization habitually uses these types of cost-estimate worksheets, then you should
be aware of the following:
i. Worksheet cannot be given after and LE has already been issued.
ii. The required disclosure cited above takes effect on August 1, 2015, regardless
of whether or not an application has been received by the borrower.
c. The above statement is NOT required when a document with estimated costs is based
solely on the following:
i. The written estimate is a preprinted list of closing costs common in the
consumer’s area, or
ii. The written estimate is a preprinted list of available rates for different loan
products, or
iii. Advertisements are also exempt from the requirement to state or include the
statement cited above.
Page 2 of 17
2. Revised definition of “application;” subtopics include: brokers and internet lead generators.
a. This hot topic relates to the six points of information, once obtained by the lender,
trigger a requirement to provide the applicant with a Loan Estimate within three
"general" business days. The six points of information include:
i. Consumer's name
ii. Consumer's income
iii. Consumer's SSN
iv. Property address
v. Property's estimated value; and
vi. Loan amount sought
b. A good way to remember these six items may be to think of the sought-after
information as the three things you want to know about every borrower and the three
things you want to know about every property.
c. The above items of information are similar to the current RESPA triggers to disclose the
GFE, with the exception that the RESPA rule included a seventh "catchall" trigger that
allowed lenders to hold off on disclosing the GFE until other items were gathered. For
the purposes of the Loan Estimate under the new rule, the "catchall" to delay disclosure
is gone.
d. The following advice comes from a member of the CFPB who spoke at the MBA's TRID
presentation in Dallas, TX, July 24, 2014, and will help lenders navigate some costly
errors that could be made when gathering consumer application information:
i. Do NOT gather all six items of information until after you've gathered the
additional information you need to know to generate an accurate loan estimate;
e.g., if your potential consumer is looking for a VA loan and you'd like to ask him
for information related to his veteran's status, hold off on asking for the SSN (or
some other Loan Estimate triggering piece of information) until after the
consumer has already provided that info.
ii. Do NOT ask the potential consumer for verifying documentation until after the
Loan Estimate has been given to the consumer and the consumer has
responded with an "intent to proceed" with the application.
iii. Do NOT ask the potential consumer for any type of payment (exception:
payment for pulling the consumers credit score) or payment info (e.g. check or
credit card #) until after the Loan Estimate has been given to the consumer and
the consumer has responded with an "intent to proceed" with the application.
See, 1026.19(e)(2) & comment 19(e)(2)(i)(A)-5.
3. Managing online application systems.
a. There has been some discussion throughout industry regarding management of Online
Application Systems. The discussion revolves around the stricter definition of application
and how companies will gather the information they need (or would really like to know)
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before triggering the requirement to provide a Loan Estimate. Just to recap, the stricter
definition of application brought on by the new rule drops a seventh “catch-all” option
that allowed lenders to define their own additional requirement beyond the remaining
six items* defined by the rule, which are as follows:
i. Consumer’s name
ii. Consumer’s income
iii. Consumer’s SSN
iv. Property address
v. Property’s estimated value; and
vi. Loan amount sought
b. The CFPB said in the rule (see, § 1026.2(a)(3), Official Interpretation 1(i) and (ii)) that
creditors may ask (but not require) other helpful items of information that will help to
provide an accurate Loan Estimate and the creditor may also sequence how it gathers
the six pieces of information. So, when it comes to managing online application systems,
the major concern seems to be finding a way to request information in the online
application without making it look like the information requested is required. Creditors
will have to carefully set this up. Creditors should sequence the questions so that
consumers are not asked (and probably do not even see) at least one of the six items of
an application until just before the consumer selects the online “Submit” button.
c. *For more about the six required points of an application, See topic, Revised definition
of “application;” subtopics include: brokers and internet lead generators.
4. Delivery rules; subtopics include: in-person vs. everything else.
a. TRID has new timing requirements surrounding the creation, delivery, and receipt of the
Loan Estimate (“LE”) and Closing Disclosure (“CD”), which are as follows:
i. LE – Requirement to deliver the LE within three business days of application.
See, § 1026.19(e)(1)(iii)(A).
ii. LE – Requirement to deliver the LE seven days or more prior to
consummation. See, § 1026.19(e)(1)(iii)(B).
iii. CD – Requirement to make sure the consumer receives the CD at least three
days prior to consummation. See, § 1026.19(f)(1)(ii)(A).
b. Creditors should evaluate which forms of delivery will ensure compliance with these
time lines. The rule allows creditors to provide the disclosures (1) by handing them in
person, (2) by sending them via postal mail, or (3) by using electronic delivery methods
(see, Official Interpretations to the above citations). Electronic delivery is subject to
compliance with the consumer consent and other applicable provisions of the E-Sign Act
(15 U.S.C. 7001 et seq.). See, § 1026.38(t)(3)(iii).
c. The consumer is considered to have received the disclosures according to the following
conditions:
Page 4 of 17
i. In-Person – the same day the forms are handed to the consumer.
ii. Postal mail – three “specific” days (federal holidays and Sundays are not
counted) after they’re sent, unless the creditor has “evidence” the consumer
received the disclosures earlier than three business days. Creditors may rely on
evidence of early delivery to consider the forms as received on that earlier date.
iii. Electronic delivery – before this method of delivery can be used, the consumer
must consent in accordance with the E-Sign Act to receiving the disclosures
electronically. With consumer consent in-hand, the creditor can consider the
disclosures received three “specific” days (federal holidays and Sundays are not
counted) after they’re sent, unless the creditor has “evidence” the consumer
received the disclosures earlier than three business days. Creditors may rely on
evidence of early delivery to consider the forms as received on that earlier date.
d. See, § 1026.19(e)(1)(iv) and its Official Commentary; § 1026.19(f)(1)(iii). See
also, paragraph entitled “E-Sign” from topic “Creation and Issuance of the Closing
Disclosure.”
5. Creation and issuance of the Loan Estimate.
a. Predisclosure cost estimates. TRID allows creditors to provide customers with an
estimate of costs prior to delivering an LE; however, the estimate worksheet cannot
look like the LE and it must print the following in a 12-point conspicuous font: “Your
actual rate, payment, and costs could be higher. Get an official Loan Estimate before
choosing a loan.” See, § 1026.19(e)(2)(ii). See also, topic “Pre-application Cost
Estimates.”
b. Predisclosure fees restrictions. Creditors shall not impose a fee on a consumer in
connection with the consumer’s application for a mortgage transaction covered by TRID
before the creditor has issued and the consumer received the LE; however, a creditor
may charge a fee for obtaining a consumer’s credit report. See, § 1026.19(e)(2)(i).
See also, topic “Revised definition of “application;” subtopics include: brokers and
internet lead generators.”
c. Stricter application requirements. Loans subject to Regulation X, specifically,1024.2(b),
prior to August 1, 2015, followed a definition of application that has mostly been
adopted by TRID, with the exception of the following phrase: “…and any other
information deemed necessary by the loan originator,” which has been cut out.
Removing this catch-all phrase means that as soon as the other six elements are met
that a time frame for which the creditor has to produce an LE has been triggered.
See, § 1026.19(e)(1)(iii). See also, topic “Revised definition of “application;” subtopics
include: brokers and internet lead generators.”
d. Brokers. TRID states that “if a mortgage broker receives a consumer’s application, either
the creditor or the mortgage broker shall provide a consumer with [an LE].” Allowing
either the creditor or the mortgage broker to provide the LE seems like standard
practice; however, the new rule also states that “the creditor shall ensure that such
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disclosures are provided in accordance with all of the requirements [of the rule for
producing an LE].” See, § 1026.19(e)(1)(ii). This last phrase has had many creditors in the
industry looking into how to manage current broker relationships while also ensuring
compliance.
e. Creditor Liability. Combine the fact that creditors are required to “ensure that [LEs] are
provided in accordance with [TRID]” with the CFPB’s discussion of liability in the
preamble to the rule, which states, paraphrasing, that TRID is written into Regulation Z,
which provides for a private right-of-action for consumers (unlike Regulation X, which
doesn’t for the purposes of the GFE) and you have a situation where creditors may be
liable to consumers where prior to August 1, 2015, creditors were not. The CFPB has
cited in each part of the rule under which authority the disclosures are being made and
just about every section sites a part of Regulation Z. For questions of whether or not a
particular authoritative section of Regulation Z gives a consumer a private right of
action, creditors should consult an attorney. See, TRID Final Rule, Liability, pg. 100. To
sum this all up, the explicit responsibility to ensure that the LE is issued properly along
with the not-so-clear discussion of potential consumer law suits has been enough to
cause some concern among creditors as to how to manage creation and issuance of the
LE.
6. Creating and delivering the Written List of Providers.
a. The Written List of Providers is an interesting piece of the TRID puzzle. It’s the one
separate document (§ 1026.19(e)(1)(vi)(C)) from the actual LE and CD mandated by the
rule that has the same look and feel, by design, as the LE and CD. As one presenter from
an MBA conference put it, paraphrasing, “if the CFPB went to the trouble of creating a
model form for the service provider list that looks like the LE and CD, then you had
better use it.”
b. The meat of § 1026.19(e)(1)(vi) states:
i. If the consumer is permitted to shop for a settlement service, the creditor shall
provide the consumer with a written list identifying available providers of that
settlement service and stating that the consumer may choose a different
provider for that service.
c. It’s important to note that the timing requirement for the Written List of Providers is the
same as that of the LE.
d. While providing a list of service providers is not new, what seems to make this issue a
hot topic associated with the new TRID rule is that the Written List of Providers has
been brought to the forefront and better defined by the new rule; as opposed to just
being a comment in the Appendix section to Regulation X.
e. Another potential issue lenders should look out for when implementing the Written List
of Providers will be identifying at least one available service provider for each
settlement service and then making sure that the lender’s vendors can input those
providers and properly populate the new model documents.
Page 6 of 17
7. Use of vendors.
a. Vendors can help manage many aspects of the TRID rule, including: data collection, data
and file transfer, document generation, fulfillment and eSign, data storage, timing
requirement audits, and more. In the loan origination process, there are many vendors
that may play a part in producing and completing the LE & CD, e.g., brokers, LOS
providers, document preparation providers, compliance review providers, settlement
service providers, advisors and others. Given the importance of vendors in assisting with
TRID, there is no doubt that creditors will rely on the expertise of vendors to do a
particular function; however, the rule gives creditors good reason to pay close attention
to their vendor management, especially in the case of brokers and settlement service
providers, as mentioned in the next two paragraphs:
i. § 1026.19(e)(1)(ii) provides that a mortgage broker may provide the LE on
behalf of the creditor; however, the rule states that “the creditor shall ensure
that such disclosures are provided in accordance with all requirements of [ the
rule for LE disclosure].” This verbiage squarely places responsibility for
compliance with requirements for the LE upon the shoulders of the creditor
even when a broker is providing it on the creditor’s behalf. The comment to this
section details this responsibility even further by stating “that the creditor must
ensure that [LE] disclosures provided by mortgage brokers comply with all
requirements of [LE disclosure], and that [LE] disclosures provided by mortgage
brokers that do comply with all such requirements satisfy the creditor’s
obligation [for LE disclosure]—the logical inference is that if the creditor does
NOT ensure that the disclosures provided by mortgage brokers do comply with
all such requirements then the creditor’s obligation is NOT satisfied and the
creditor is liable for any LE disclosure errors made by the broker.
ii. § 1026.19(f)(1)(v) provides that a settlement agent may provide the CD on
behalf of the creditor; however, the rule states that “the creditor shall ensure
that such [CD] disclosures are provided in accordance with all requirements of
[the rule for CD disclosure].” This verbiage squarely places responsibility for
compliance with the rule’s requirements for the CD upon the shoulders of the
creditor even when a settlement service agent is providing the CD on the
creditor’s behalf. The comment to this section further reads, “to ensure timely
and accurate compliance with the requirements of [the CD], the creditor and
settlement agent need to communicate effectively.”
8. Process for Intent to Proceed.
a. The TRID rule states, paraphrasing, that creditors and others are restricted from
imposing a fee on a consumer in connection with an application for a mortgage
transaction:
i. (a) unless the consumer has already received the Loan Estimates, and
ii. (b) the consumer has indicated an intent to proceed.
iii. See, § 1026.19(e)(2)(i)(A).
Page 7 of 17
b. The Official Interpretation to § 1026.19(e)(2)(i)(A) clarifies that no fees may be charged
to the consumer prior to (a) and (b) above, with the exception of a credit report fee.
Digging a little deeper into the Official Interpretation, if a “third-party,” presumably, a
broker, is shopping for a deal on behalf of the consumer and presents the application to
a lender who denies the transaction, (or, by the same token, the consumer withdraws
from the transaction with the lender to whom the broker originally presented the
consumer’s application) and then the broker presents the consumer’s application to
another lender, neither the broker nor the new lender can charge another credit report
fee.
c. The Official Interpretation to § 1026.19(e)(2)(i)(A) also points out with regards to an
“intent to proceed” that a lender cannot accept silence as an indication that the
consumer would like to proceed with that lender and then automatically start charging
the consumer for other fees after a certain period of time has elapsed.
d. The rule allows for an oral indication of an “intent to proceed” by the consumer;
however, the rule also requires that the lender document the consumer’s indication of
an “intent to proceed,” even if that indication was done orally. The rule also allows for
written communication via email or having the consumer sign a pre-printed form, so
long as all these types of indication by a consumer of an intent to proceed are done
some time after the consumer has already received the Loan Estimate. IDS Compliance
believes that this makes it important for Lenders to carefully keep track of the date the
consumer receives the Loan Estimate and the date when an indication by a consumer of
an “intent to proceed” occurs.
e. The rule allows lenders to set up an internal procedure that requires consumers indicate
an “intent to proceed” in a particular manner. IDS Compliance believes that having the
consumer sign a document would be the best way for the lender to keep track of a
consumer’s “intent to proceed.”
9. Up-front fee restriction.
a. The TRID rule imposes some up-front fee restrictions on Creditors.
See, § 1026.19(e)(2)(i)(A), (B). Here’s the CFPB’s discussion, directly from the preamble
to the TRID rule, as to why it chose to impose a restriction on charging consumers fees
until after a creditor receives some kind of affirmative action from the consumer:
i. Section 128(b)(2)(E) of TILA provides that the “consumer shall receive the
disclosures required under [TILA section 128(b)] before paying any fee to the
creditor or other person in connection with the consumer’s application for an
extension of credit that is secured by the dwelling of a consumer.” 15 U.S.C.
1638(b)(2)(E). This provision is implemented in § 1026.19(a)(1)(ii). Although
RESPA does not contain a similar provision, Regulation X does. See,
§ 1024.7(a)(4). However, unlike Regulation Z, Regulation X prohibits a consumer
from paying a fee until the consumer indicates an intent to proceed with the
transaction after receiving the disclosures. Id. As discussed below, both
Regulation Z and Regulation X provide an exception only for the cost of
Page 8 of 17
obtaining a credit history or credit report, respectively. Thus, Regulation X [and
TRID] require[s] consumers to take an additional affirmative step before new
fees may be charged. (Emphasis added.)
ii. See, TRID Final Rule, pg. 298; 19(e)(2)(i)(A) Fee Restriction.
10. Managing tighter tolerances (variances or “variations” in the rule).
a. Good faith. The Loan Estimate (LE), like the current GFE, requires that certain closing
costs be disclosed in “good faith.” The TRID rule states that an “estimated closing
cost…is in good faith if the charge imposed on the consumer does not exceed the
amount originally disclosed” on the LE. The TRID rule refers to “tolerances” as
“variations,” and many in the industry are referring to them as “variances;” although,
technically, “variances” is not a word that appears in the rule. See, § 1026.19(e)(3) and
§ 1026.19(e)(3)(iii).
b. Buckets. Under the current rule, there are some “tolerances” that categorize closing
costs as (1) fees that cannot increase, (2) fees that may increase by 10% in aggregate,
and (3) fees that may increase by any amount. The new disclosures continue to
categorize the amounts disclosed into these three categories; however, some fees have
shifted categories, which may mean that a particular fee now fits into a tighter tolerance
category.
c. Tighter tolerances. Some closing costs that currently fit into a less stringent “variation”
category but have been moved to a stricter category are (a) fees paid to an affiliate of
the creditor or mortgage broker and (b) fees paid to an unaffiliated third party if the
creditor did not permit the consumer to shop for a third party service provider for a
settlement service, which were moved from the ‘fees that cannot increase by 10%’
category to the ‘fees that cannot increase’ category. See, § 1026.19(e)(3)(i), and its
official interpretation.
d. Revised estimates. Further, the rule says that “a creditor may use a revised estimate of
a charge instead of the estimate of the charge originally disclosed…if the revision is due
to” one of the reasons outlined in § 1026.19(e)(3)(iv) the rule. The term “changed
circumstance” in relation to the 10% tolerance bucket is defined in 19(e)(3)(iv)(A) & (B),
which are the (A) “changed circumstances affecting settlement charges” and
(B) “changed circumstances affecting eligibility” sections. Most of the time, the creditor
is not allowed to update the baseline amount for the “fees that may increase by 10% in
aggregate” tolerance threshold unless a valid changed circumstance results in an
increase to the fees in this category by more than 10% of the original amount disclosed.
See, § 1026.19(e)(3)(iv). Here’s an example: The total aggregate of fees disclosed on the
original LE equals $1000, resulting in a tolerance threshold of $1,100. Subsequent to
disclosing the original LE, a valid changed circumstance increases the aggregate of fees
in this category to $1,099. This amount does not breach the original $1,100 threshold,
therefore, the tolerance level cannot be updated. Supposing then, that a non-valid
changed circumstance then increases the aggregate of fees in this category to $1,200,
the creditor would not be allowed to update the threshold and would be obligated to
Page 9 of 17
pay the consumer $100 to cure a good faith violation. On the other hand, supposing that
the second changed circumstance above were another valid changed circumstance
raising the aggregate of fees to $1,200, then the revised LE could re-baseline to reflect
$1,200 as the disclosed amount and $1,320 would be the new 10% threshold.
11. The “good faith” and “best information reasonably available” standards.
a. Even though the “Understanding which charges can change after settlement” section of
the Good Faith Estimate has been removed from the LE to the benefit of consumer
understanding of the disclosures, the rule still requires that creditors do a good faith
analysis.
b. 1026.19(e)(3) is the section of the new rule that references the “good faith
determination for estimates of closing costs” input on the Loan Estimate. Some aspects
of what is known today as “good faith” will change August 1, 2015, to a stricter
standard—the general rule becomes “an estimated closing cost disclosed pursuant to
[the LE] is in good faith if the charge paid by or imposed on the consumer does not
exceed the amount originally disclosed” unless there is an exception provided by the
rule.
c. In the section of the TRID rule titled “Limited increases permitted for certain charges,”
3rd party service or recording fee charges are in good faith as long as they do not
increase by more than 10%.
d. In the section of the TRID rule titled “Variations permitted for certain charges,” the rule
defines a list of items that remain in good faith, even if the charged amounts change, so
long as the creditor can show that it relied on “the best information reasonably
available to the creditor at the time it is disclosed;” this list includes: (1) prepaid
interest, (2) property insurance premiums, (3) amounts placed into an escrow, impound,
reserve, or similar account, (4) charges paid to third-party service providers selected by
the consumer consistent with [the rule] that are not on the list provided pursuant to
[the rule], and (5) charges paid for third-party services not required by the creditor.
e. The rule further defines “changed circumstances” that would allow creditors to rely on a
revised estimate for determining good faith. The changed circumstances are quite
detailed, see topic Managing tighter tolerances (variances or “variations” in the rule).
f. 1026.19(f)(1)(i)-2 defines the “reasonably available” standard as when “the creditor,
acting in good faith, exercise[s] due diligence in obtaining the information.” (See,
1026.19(f)(i)-2 for examples).
g. 1026.19(f)(2)(v), the section related to closing documents, addresses required refunds
to borrowers for breaches of good faith from LE to CD. This section states that “if
amounts paid at closing exceed the amounts specified [on the LE], the creditor does not
violate [the "good faith" requirements of the LE] if the creditor refunds the excess to the
consumer no later than 60 days after consummation, and the creditor does not violate
[the CD requirements] if the creditor delivers or places in the mail disclosures corrected
to reflect the refund of such excess no later than 60 days after consummation.
Page 10 of 17
12. Fees with Limited Dedicated Lines on the Loan Estimate and Closing Disclosures.
a. § 1026.37 is the section of the TRID rule dedicated to preparing the Loan Estimate (LE).
37(f)(1) and (2) of the TRID rule refer to the subsections on the second page of the LE
titled "A. Origination Charges" and "B. Services You Cannot Shop For," respectively. Per
the second romanette in each of these sections, the total number of lines dedicated will
be a maximum of thirteen. § 1026.37(f)(6), entitled "Use of Addenda," limits itemization
for these sections to just the number of lines available, which means that no addenda
will be allowed even if a creditor has more than 13 items to list. For these two sections,
the itemization will be truncated at 12 lines, the 13th line will be labeled "Additional
Charges," and the 13th line will have an aggregate of all additional charges that could
not be listed due to space restrictions. The whole second column of page two of the LE
works the same way. Cf., 1026.37(g)(8).
b. § 1026.38 is the section of the TRID rule dedicated to preparing the Closing Disclosure
(CD). Official Interpretation to 38(j), comment 2 regarding addenda refers to the
sections of page 3 of the CD titled "Borrowers Transaction" and "Sellers Transaction."
This comment states that "additional pages may be attached to the Closing Disclosure to
add lines, as necessary, to accommodate the complete listing of all items required to be
shown [for these sections of] the Closing Disclosure."
c. In addition to the above cited locations that could potentially require the use of
addenda, if it is impossible to disclose all the borrower or sellers to the transaction in
the space allotted for such on each disclosure, then the commentary to 37(a)(5) and
38(a)(4) allow the use of an additional page to disclose these additional parties.
13. Expanded record keeping requirements.
a. Most lenders already recognize the importance of managing record retention policies;
however, little things like, ensuring that IT has the infrastructure to manage longer
retention periods, will be an important part of the TRID implementation process.
b. § 1026.25(c) states regarding records related to certain requirements for mortgage
loans:
i. A creditor shall retain evidence of compliance with the requirements of [the LE
and CD] for three years after the later of the date of consummation, the date
disclosures are required to be made, or the date the action is required to be
taken.
c. For Closing Disclosures when the loan consummates, the requirements are further
outlined, as follows:
i. A creditor shall retain each completed disclosure required [for the CD] and all
documents related to such disclosures, for five years after consummation,
notwithstanding [selling, transferring, or otherwise disposing of its interest in
the loan].
Page 11 of 17
d. The 3-year retention requirement, which is "evidence of compliance" with all aspects of
the TRID rule related to generating the LE and CD is invoked "the date the disclosures
are required to be made."
e. The 5-year retention requirement, which is "all documents related to [the CD]" is
invoked at consummation. This "all documents related to [the CD]" verbiage means that
it is likely that a copy of the LE will need to be retained with the CD for 5 years from the
moment of consummation.
14. Managing the 3-business-days before consummation waiting period requirement in which the
consumer must have received the Closing Disclosures.
a. TRID requires that the consumer receive the Closing Disclosure (CD) 3 business days
prior to consummation. The Official Interpretation to the rule states:
i. [The CD] must be received by the consumer no later than three business days
before consummation. For example, if consummation is scheduled for Thursday,
the creditor satisfies this requirement by hand delivering the disclosures on
Monday, assuming each weekday is a business day. For purposes of [this
section], the term “business day” means all calendar days except Sundays and
legal public holidays. See, 1026.19(f)(1)(ii).
b. This small piece of the TRID rule is charged with consequences. Creditors will likely make
a fundamental shift from what is standard practice with the HUD-1, today, completing
and delivering the CD to the consumer. For example, if a creditor would like to close on
Thursday in the example given from the Official Interpretation cited above, the creditor
will have to have the CD completely prepared for issuance to the borrower at least 7
calendar days in advance. Here's why, if a creditor relies on postal or electronic mail,
where there isn't any confirmation of receipt of the CD, then the "mailbox rule" states
that a creditor can "consider" the CD to be received by the borrower (for purposes of
compliance with this part of the rule) three specific "business days" after the CD is
mailed. In the example above, that would mean (accounting for Sunday as a Federal
holiday) that the CD would have to be mailed on the Thursday that is one week prior to
close. Now take into account the additional time that creditors, who have opted to
collaborate with settlement service providers, will be required to invest in preparing the
CD prior to issuance. Due to liability issues, many creditors have decided to prepare and
issue the CD themselves. See, 1026.19(e)(1)(ii), 1026.19(f)(1)(v), and their related
Official Interpretations.
15. Potential for revised Closing Disclosures that will require a new 3-business-day waiting period.
a. Overview. Revised Closing Disclosures are allowed to be given to consumers; however,
there are changes before consummation requiring a new waiting period and changes
before consummation NOT requiring a new waiting period. Whether a new waiting
period is required or not, the rule states that “the creditor shall provide corrected
disclosures reflecting any changed terms to the consumer so that the consumer receives
the corrected disclosures at or before consummation.” See, 1026.19(f)(2)(i).
Page 12 of 17
b. Three additional waiting period triggers. There are three situations that will require an
additional three day waiting period before consummation can take place, they are when
(1) the APR becomes inaccurate, (2) the loan product changes, and (3) a prepayment
penalty is added.
c. Inaccurate APR. A note of caution regarding the APR: a changed APR does not always
mean that the APR is “inaccurate” and requires redisclosure. The commentary to the
rule provides situations and definitions of what is a change to the APR that would
render it “inaccurate” for the purposes of this rule, and thus require a new 3-day waiting
period. The CFPB has also come out with additional guidance in a single page fact sheet
for consumers. See, Closing factsheet.
d. Product changes. The examples for loan product changes are quite specific in the rule.
Here’s a more general example: if a CD is disclosed with “Fixed Rate” as the product
type, but then prior to consummation a product change is made that adds a two year
negative amortization period, these circumstances would require a redisclosure of the
CD with the product now labeled “2 Year Negative Amortization, Fixed Rate” and a new
three day waiting period.
e. Prepayment penalties. If, after giving the CD, a prepayment penalty is added to the loan
between receipt of the CD and consummation, new disclosures and a new 3-day waiting
period are invoked. If, however, a pre-payment penalty is taken off the loan during the
same timeframe, redisclosure, but NOT a new 3-day waiting period, is required.
16. Ability of consumers to waive or modify waiting periods.
a. § 1026.19(e)(1)(iii)(B) requires the lender to deliver (or mail) the Loan Estimate at least
seven specific* business days prior to closing, written into the rule as a “waiting period.”
A separate rule, § 1026.19(f)(1)(ii)(A), states that the consumer must also receive the
Closing Disclosures for a specific* three-business-days prior to closing, also written into
the rule as a “waiting period.”
b. Separately, § 1026.19(e)(1)(v) and § 1026.19(f)(1)(iv), provide an option for a consumer
driven waiver of the waiting period required for each type of disclosure. However, the
following specifics about the similar waiver requirements should be highlighted:
i. The waiver cannot be received before the consumer has received the
corresponding disclosure.
ii. The consumer must have a bona fide personal financial emergency that
necessitates an earlier consummation.
iii. The consumer must provide the creditor with a dated written statement that
describes the emergency and requests waiver of the waiting period(s).
iv. The signature of all parties primarily liable on the legal obligation must sign the
waiver.
v. The waiver cannot be on printed forms created for this purpose.
c. Official Interpretation § 1026.19(e)(1)(v)-2 clarifies that if the Loan Estimate is
personally delivered on a Monday, and the consumer provides a waiver that same day,
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then the Closing Disclosure could be provided on Tuesday, then the transaction could
close either three days later or according to the requirements for another waiver.
d. The commentary uses as an example for a bona fide personal financial emergency
requiring a waiver the “imminent sale of the consumer’s home at foreclosure, where the
foreclosure sale will proceed unless loan proceeds are made available to the consumer
during the waiting period.” This sounds like a very exceptional circumstance: akin to a
consumer who needs to fund prior to a previously scheduled life-or-death surgery to
take place during the required waiting periods. The biggest take-away regarding the
waiver is that the CFPB has gone out of its way to make sure that it isn’t frequently used
by borrowers, or imposed upon them by creditors. Perhaps the biggest issue, which has
been stated many times by industry insiders, is that even if a consumer has a
legitimate waiver of a waiting period, it is likely that no investor will buy a loan where a
waiver has been used.
i. *Definitions:
1. Specific Business Day—all calendar days except Sundays and legal public
holidays referred to in § 1026.2(a)(6).
2. General Business Day—creditor’s offices are open to the public for
carrying out substantially all of its business functions, which, in general,
may or may not include Saturdays.
17. Creation and issuance of the Closing Disclosure.
a. Creation and issuance of the Closing Disclosure (“CD”) is probably the piece of the TRID
puzzle effecting the greatest change to industry. The following are some challenges
Creditors should keep on their radar:
i. 3-day Waiting Period. TRID requires that the consumer receive the CD three
specific business days prior to consummation. This small timing requirement
could affect everything in the loan generation process from (a) real estate
contract dates to (b) internal work-flow and quality assurance processes to
(c) coordination efforts with settlement service providers. See, 1026.19(f)(1)(ii).
ii. Revised disclosures. It is the current understanding of IDS Compliance that it
was the regulatory intent of the CFPB to make the LE and CD similar in their
appearance yet different in their defined roles. This role delineation stands out
when looking at the rules surrounding “receipt of revised disclosures” and the
official interpretation in the rule related to it. See, 1026.19(e)(4)(i)-
(ii). Paraphrasing, this section states that no more revised LEs shall be given
once a CD has been issued. That said, if there are changes to the information
disclosed on the CD (e.g., a last minute walk-through changes a disclosed cost;
see, 1026.19(f)(2)(i)-1(i)), the creditor shall redisclose the CD to reflect those
changes up to and including the date of consummation. See, 1026.19(f)(2)(i).
Note well, however, that there are three changes that if made after the CD has
already been issued will require redisclosure of the CD and a reset of the 3-day
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waiting period prior to consummation; the three “CD waiting period reset”
changes are (1) changing the product type, (2) adding a prepayment penalty,
and (3) changing the APR enough that it is “inaccurate” by regulatory definition.
See, 1026.19(f)(2)(ii).
iii. Creditor Liability. The LE and CD were written into Regulation Z (12 CFR § 1026),
which may provide consumers with a private right of action that Regulation X
(12 CFR § 1024) did not. Further, although certain third parties (e.g., brokers and
settlement service agents) are allowed to prepare or help prepare the new
documents, the rule places responsibility for accuracy of the forms on the
creditors. See, 1026.19(e)(1)(ii), 1026.19(f)(1)(v), and their related Official
Interpretations. Combine the possibility of a private right-of-action with the
rule-driven responsibility for disclosure accuracy placed on creditors and the
situation is that several creditors are opting to prepare and generate the LE and
CD while continuing to rely heavily on third parties for information necessary to
complete the forms.
iv. Settlement Service Providers. Title agents and others (e.g., closing attorneys)
who provide settlement services are an important part of the closing process.
Without having any statistical or empirical evidence to rely on, it’s probably not
a stretch to say that the industry standard prior to August 1, 2015, has been to
have the settlement service provider prepare the HUD-1 and any final
redisclosed TIL. For the reasons mentioned in “3. Creditor Liability” above,
several creditors may begin preparing all or part of the CD. The rule provides
just enough flexibility to complicate this piece of the workflow, stating “to
ensure timely and accurate compliance with the requirements of
1026.19(f)(1)(v), the creditor and settlement agent need to communicate
effectively.” Industry has been talking for several months now about the use of
technology to facilitate data exchange between creditors and settlement service
providers while preparing the CD; however, coming up with a technology
solution that will work all the time for everybody will probably take more time
than is remaining prior to the 1 August 2015 implementation date (although,
there are several technology providers working on it). This is a piece of the
puzzle where there may not be one perfect solution beginning August 1, 2015,
but creditors can have internal policies and procedures in place and in practice
that will facilitate the process—saving creditors who have a game plan: time,
money, and unnecessary hassles.
v. E-Sign. It’s interesting to note that the five page CD is the only industry
disclosure required by the rule to be received by the consumer 3 specific
business days prior to consummation. Besides in-person delivery (instant
receipt) and postal mail (presumptive 3-day receipt, unless evidence of receipt
proves that delivery took place sooner), the rule allows the CD to be delivered
by electronic means if its delivery meets the requirements of the E-Sign Act.
See, 1026.19(f)(1)(iii)-2. Using the E-Sign process in conjunction with the CD has
the potential to reduce the time to close by up to 3 specific business days. The
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rule treats E-Sign similarly to postal mail. In practice, the differences E-Sign and
postal mail relate mostly to reliable tracking and speed. For tracking, E-Sign
systems that follow the strict validation process of the E-Sign Act can provide
creditors with proof and peace-of-mind that the intended consumer receives
the disclosures. For speed, an E-Sign system should also keep time stamped
information of (1) when the consumer consents to receive disclosures
electronically and (2) when the disclosures are viewed/received by the
consumer. Also for speed, E-Sign systems can provide notices to the creditor via
email as soon as disclosures are received by the consumer. IDS will use its extant
E-Sign system to give clients the option of using E-Sign to manage the CD
delivery process.
18. Varying Time Periods for Correcting CDs and Refunding Money Post-Closing.
a. “30-30, 60, 60″—these numbers represent the mnemonic that IDS Compliance came up
with to help remember the timing requirements for LE/CD-related fixes required post
consummation. Tip: if you say “30-30, 60, 60″ fast enough in a discussion with
colleagues surrounding the topic Varying Time Periods for Correcting CDs and Refunding
Money Post-Closing, you’ll always sound precocious. Here’s a breakdown of “30-30, 60,
60.”
b. 30-30 represents the “Events” rule, which states that when the following criteria are
true within the first 30 days after consummation:
i. event in connection with the settlement of the transaction occurs, and
ii. causes the CD to become inaccurate, and
iii. the inaccuracy changes the amount actually paid by consumer comparative to
the CD,
then the creditor must deliver corrected disclosures within 30 days of receiving
information sufficient to establish that such event has occurred. For examples, read
the official interpretation to 19(f)(2)(iii).
c. 60 represents the “Clerical Error” rule, which states that when the following criteria are
true, then the creditor must deliver corrected disclosures within 60 days of
consummation:
i. CD provided at consummation had an error, but it is one that does NOT affect a
numerical disclosure, and
ii. CD provided at consummation had an error, but it is one that does NOT affect
requirements imposed by the LE or CD.
In other words, clerical errors represent lesser offenses (so a numerical error or an error
affecting the requirements of the LE or CD are major offenses). Clerical-type errors
simply require a corrected disclosure be delivered to the consumer within 60 days of
consummation. For examples, read the Official Interpretation to 19(f)(2)(iv).
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d. 60 also represents the “Good Faith Refund” rule, which states that when the following
criteria are true, then the creditor must deliver a refund & corrected disclosures
within 60 days of consummation:
i. Actual amount paid by consumer at consummation exceeded the limitations
permitted by the “good faith determination” located in § 1026.19(e)(3)(i)&(ii).
e. The 30-30 “Events” rule also applies to the Seller’s Transaction version of the CD
provided by settlement agents. See, § 1026.19(f)(4)(ii).
f. Tip: the CFPB published a great TRID Timeline Example that reviews some of the above
scenarios using a calendar where you can actually eyeball these varying post-closing
time periods.
19. Transitional period when HUD-1 and Closing Disclosures will both be in use.
a. The TILA-RESPA Integrated Disclosure (TRID) rule is very firm about its implementation
date of August 1, 2015. As a part of the implementation date, the rule specifies that
lenders are neither allowed to begin using the disclosures early nor allowed to use the
new disclosures on loans where the creditor received an application before August 1,
2015. The preamble to the TRID Final Rule states:
i. Not only shall the current early disclosures (i.e., the early TILA disclosure and
the RESPA GFE) be provided for the transaction, but the current final disclosures
(i.e., the final TILA disclosure and the RESPA settlement disclosure) shall also be
provided for that transaction, even when consummation of the transaction will
occur, and thus the final disclosures will be provided, after August 1, 2015. For
example, if a creditor receives an application for a mortgage loan subject [to
TRID] on July 31, 2015, the current rules will apply for that transaction from
application through consummation and thereafter. Accordingly, the creditor
would provide the current early disclosures within the timeframes required
under the current rules. In addition, even if settlement occurred 60 days later,
after August 1, 2015, the current final disclosures would be provided to the
consumer. Further, the creditor and other parties, as applicable, would also
have to comply with any other rules that apply under the current regulatory
regime with respect to the transaction… .
b. Due to the nature of this part of the rule, there will be a period (a sometimes lengthy
period, depending on how long the loan origination process is on particular loans)
where both types of disclosures will need to be originated for the same types of loans.
This will be the case until those loans with an application date before August 1, 2015,
have all been processed. See, TRID Final Rule, VI. Effective Date, (C) The Effective Date,
pg. 1243.
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c. To manage the dual production of pre- and post-TRID disclosures for the same types of
loans, lenders should consider some of the following things:
i. Do you have a set of policies and procedures in place for how your loan
processors will handle juggling multiple disclosure requirements for the same
types of loans with a variation based only on application date?
ii. Have you consulted with your LOS and Doc Prep Provider to find out what
technological tools they plan on implementing to help manage this situation?
iii. Does your current process include a team that manages the initial disclosures
and a separate team that manages the closing disclosures; if so, how will they
communicate with each other regarding which disclosures have already been
applied?
iv. Does your current process include generating your initial documents with one
LOS or Doc Prep Provider and then generating your closing disclosures with a
separate LOS or Doc Prep Provider and how will you manage communication of
which type of disclosure needs to be originated?
d. A separate, but related, issue is that some types of mortgages will be exempt from the
new TRID disclosures, e.g., HELOCs and Reverse Mortgages—these types of mortgages
will continue to require the disclosures currently provided. The idsDoc System will have
dual capacity, so for any loans that require the old GFE/HUD-1 or TIL disclosures, it will
be as easy to generate them as clicking a checkbox.
20. Ongoing need for GFE/HUD-1 for certain types of transactions.
a. After TRID takes effect, August 1, 2015, will the GFE and HUD-1 Become Obsolete? The
short answer is “No.” Here’s why: RESPA itself does not go away just because certain
transactions are now covered by the TILA-RESPA Integrated Disclosures (TRID). As for
the GFE and HUD-1, there are certain transactions, like reverse mortgages, that are NOT
covered by TRID but are still covered by RESPA. To illustrate, if a creditor would like to
originate a reverse mortgage, then the creditor would need to provide a GFE and a
HUD-1, even if the creditor chooses to furnish an LE and CD to the consumer for that
transaction. Page 20 of the CFPB’s Small Entity Compliance Guide provides the following
further clarification:
i. Creditors are not prohibited from using the Integrated Disclosure forms on loans
that are not covered by TILA or RESPA (e.g., mortgages associated with housing
assistance loan programs for low- and moderate-income consumers). (See
§ 1026.3(h) and § 1024.5(d)(2)). However, a creditor cannot use the new
Integrated Disclosure forms instead of the GFE, HUD-1, and Truth-in-Lending
forms for transactions that are covered by TILA or RESPA that require those
disclosures (e.g., reverse mortgages).
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