Compliance Essentials/CMCP

TRID Compliance Basics

Sunday, September 17

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CLE Credits

This session is intended to satisfy CLE

credits upon approval by applicable state

bar licensing entities. Please submit your

BAR number using the computer station

at the MBA CLE desk near Registration.

Moderator:

Jerra Holford Ryan, Senior Vice President, Compliance, First Choice Loan Services Inc.

Panelists:

Richard (Andy) Arculin, Partner, Venable LLP

Suzanne Garwood, Associate General Counsel, Chase

Used with permission. © Randy Glasbergen..

Background

Pre-Application/Application Activities

Providing the Loan Estimate

Providing the Closing Disclosure

TRID Updates & Other Compliance Issues

Background

The Know Before You Owe Rule (“KBYO”) , also known as the TILA-RESPA

Integrated Disclosure (“TRID”).

The Consumer Financial Protection Bureau (“CFPB”) combined the two federal

mortgage disclosure regimes under the Truth in Lending Act (“TILA”) and the

Real Estate Settlement Procedures Act (“RESPA”).

The CFPB’s goals through the TRID Rule were to:

• simplify mortgage disclosures and use language that is easy to understand

• limit pre-disclosure fees charged to homebuyers

• prevent unexpected issues at closings

TILA/RESPA Integrated Disclosure Rule (“TRID”) consolidates four disclosures under TILA and RESPA for closed-end mortgage loans into two forms; replaces Initial and Final TIL, GFE and HUD-1 with Loan Estimate and Closing Disclosure.

Applies to most closed-end consumer mortgage loans.

Applies to cooperatives (included in recent TRID updates)

Does not apply to:

• Home equity lines of credit

• Reverse mortgage loans

• Mobile homes and dwellings not secured to real property

• Creditors making five or fewer mortgage loans per year

• Certain no-interest second mortgage loans made for the purpose of downpayment assistance, property rehabilitation, energy efficiency or foreclosure avoidance

TRID Covered. If a loan is covered by TRID, the creditor MUST use the TRID

disclosure.

TRID Exempt Loans (but subject to other disclosure rules under TILA

and/or RESPA). Creditors MUST use the otherwise applicable disclosure

(e.g., reverse mortgage, HELOC) (updated in 2017 Final Rule)

TILA Exempt Loans. If a loan is not covered by TILA or RESPA disclosure

rules (e.g., investment properties), creditors MAY use TRID but are not required

to.

General Requirement: 3 years from later of:

• Date of Consummation

• Date Disclosure Required to be Made

• Date Action Required to be Taken

LE: 3 years for disclosure and evidence of compliance (initial LE and revisions).

Broker must comply with Creditor duties if provides LE.

CD and related documents: 5 years from consummation. If Creditor sells loan

servicing released, Creditor must give a copy of CD and related documents to new

owner or servicer. New owner or servicer must retain for remainder of 5 year period.

Pre-Application/Application Activities

An application means the submission of a consumer’s financial information for the purposes of obtaining an extension of credit, specifically, six data points:

• the consumer’s name,

• the consumer’s income,

• the consumer’s social security number to obtain a credit report,

• the property address,

• an estimate of the value of the property, and

• the mortgage loan amount sought.

“Submission” does not include information the creditor has on record about the consumer.

Creditors can provide pre-qualification estimates and pre-approvals without obtaining all six pieces of information that defines an application.

Verifying information can be shared voluntarily by the consumer for a pre-qualifications and pre-approvals.

Pre-qualifications and pre-approvals are governed by Regulation B.

Competition among creditors for consumers will continue to be an incentive to provide pre-qualifications and pre-approvals.

Disclosure:

• Top, Front of Page: “Your actual rate, payment, and costs could be higher.

Get an official Loan Estimate before choosing the loan.” (H-26 of Appendix H).

• Font must be 12 Point or higher.

• Do not use “headings, content, and format substantially similar” to LE or CD.

Fees. Lenders can’t impose fees other than for a credit report. Impose

includes taking payment information (i.e., credit card, ACH, check, etc.).

Require Verification. Lenders cannot require that consumers submit

“verification” information prior to receiving an LE. For example, you can ask the

sale price of the home, but not require that the consumer submit the purchase

and sale agreement.

Providing the Loan Estimate

“Good Faith Estimate” – Based on best information reasonably available

Forms – Use of the forms is mandatory

• H-24

• Page 1 – General information, loan terms, projected payments and costs at closing

• Page 2 – Closing cost details

• Page 3 – Additional information about the loan

“Alternative” Form for Refinances

• Forms must match – if you start with an alternative form, you have to end with it.

• If you need to “switch” forms, you will need to cure

Creditor or Broker – A Broker may provide the LE, but the Creditor remains legally obligated and must communicate with the broker to ensure compliance.

• Creditor cannot duplicate or correct Broker LE

• Creditor’s on the hook even if Broker provided LE without

Creditor’s authorization

• Broker to make good faith effort to identify Creditor on LE

Creditor must deliver the LE within three (3) business days after receiving an application and not less than seven (7) business days from consummation

• “Business Day” – two definitions

– “General” – day on which the creditor’s offices are open to the public for carrying out substantially all business functions.

– “Specific” – All calendar days except: Sundays, New Year’s Day, Martin Luther King Jr. Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day

– Use the General definition to measure time from the day of application and changes in circumstance, use the specific definition to measure time from consummation and for the “Delivery Rule” (assume delivered in three (3) business days unless evidence of earlier delivery)

• Electronic documents

– Same timing/evidence of receipt rules

– E-sign requirements

• Consumer consent

• Notice of right to get disclosures in paper

• Notice of software compatibility information

• Notice of procedures to withdraw consent

Whether an LE was provided in “good faith” is determined by whether the charges disclosed exceed an applicable tolerance:

• Zero Tolerance: Cannot increase– Creditor’s charges; Affiliate charges; Consumer cannot shop; Transfer taxes

• 10% Aggregate Tolerance: Certain third-party services and recording fees cannot increase in the aggregate by more than 10%– Third-party service providers not shopped; Recording fees

• No Tolerance: Can increase by any amount, but must still be disclosed based on best information reasonably available– Prepaid interest, Property insurance premiums, Amounts placed in escrow/impound,

Third-party service providers shopped, Services not required

Creditors must provide a separate list of services for which the borrower may shop and identify at least one available provider for each service no later than the third business day after receiving the application

• Must include sufficient information to allow the borrower to contact the provider

• Must state that the borrower may choose a different provider for that service

Use the model form, and make sure your vendor’s form(s) meet the requirements (§ 1026.19(e)(1)(vi)(C) and (H-27 (A) & (B) of Appendix H). (2017 Final Rule clarifies modifications permitted)

Make sure you track “can shop” vs. “did shop”

Lender credits disclosed in LE are actual lender credits, whether for specific charges or non-specific (i.e., general credit).

• Total of specific and non-specific disclosed as negative number in Total Closing Costs section.

• Current approach of lender payment to broker being disclosed as credit from lender to borrower is abandoned.

Decrease in lender credit, whether generic or specific, viewed as increase in a charge for good faith purposes.

In the CD, separate disclosure of lender credits for specific charges and non-specific lender credit.

Creditors are generally bound to the LE and may not revise technical errors, miscalculations or underestimations. (2017 Rule Clarifies “Informational” LEs Permitted)

Required revisions: Creditors must provide a revised LE within three (3) business days after a floating rate is locked, even if the terms and charges disclosed are the same.

Revisions permitted for:

• Changed Circumstances that affect eligibility or charges (extraordinary event, information becomes inaccurate, new information);

• Consumer requested changes;

• Interest rate dependent changes;

• Expired loan estimate; and

• New construction (with required disclosure).

• Provide within three (3) (general) business days of learning of the change and not less than four (4) (specific) business days before consummation

• Cannot provide Revised LE after providing CD; Cannot provide Revised LE and CD on same day

Providing the Closing Disclosure

Must provide “accurate” disclosures

Best Information Reasonably Available: Closing disclosure must be completed to the best information reasonably available, which often requires due diligence

• Must try contacting provider

• Use of available calculation tool

Forms – Use of the forms is mandatory

• H-25

• Page 1 – General information, loan terms, projected payments and costs at closing

• Page 2 – Loan Costs and Other Costs

• Page 3 – Calculating cash to close, summaries of transactions, and alternatives for transactions without a seller

• Page 4 – Additional information about this loan

• Page 5 – Loan calculations, other disclosures and contact information

Alternative forms must match

Creditor or Settlement Agent – A Settlement Agent may provide the CD, but the Creditor remains legally obligated and must communicate with the settlement agent to ensure compliance.

Consummation: “the time that a consumer becomes contractually obligated on a credit transaction.”

• State contract law controls

• When is the borrower legally obligated to accept the loan?

• Signing of note?

• Funding?

• Commitment letter?

• Focus is on borrowers obligations not lenders.

Closing/Settlement: “the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan.”

• Different in each state

• In a closing table state, these two dates are likely to be the same. But consider impact of remote closers, mobile notaries, signing services

Creditor must deliver the CD within three (3) (specific) business days

from consummation

• If provided in any method other than face-to-face, Delivery Rule applies, so

must be provided six (6) business days from consummation to rely on

presumption of receipt

• For a rescindable loan, CD must be provided to each consumer with right

to rescind

• Consumers may waive the three (3) day waiting period for a bona fide

personal financial emergency – preprinted waivers prohibited

Potential methods of delivery:

• Hand delivery

• Courier/Express Mail

• Electronic – must comply with consumer consent and other applicable E-Sign provisions

• Postal Service

Evidence of delivery:

• Optional confirm receipt line on CD

• Mailbox Rule - Presumption of receipt three (3) business days after they are delivered or placed in the mail

• Evidence of actual receipt

• Audit trail

Pre-Consummation Changes

• Creditor may redisclose at consummation except the following require a new three (3) business day waiting period:

– APR changes outside of tolerance (1/8 of 1 percent for regular loans, 1/4 of 1 percent for irregular loans;

– Change in loan product (fixed to variable)

– Addition of prepayment fee

• The Black Hole currently affects changes to reset tolerances when the time between the disclosure and consummation is more than four (4) days

Post-Consummation Changes

• “Cure” If consumer pays amount in excess of tolerance, refund and provide corrected CD not more than 60 days from consummation

• Post- Consummation Charge – If an event happens within 30 days after closing (i.e., recording fees or transfer taxes increase), provide correction within 30 days of consummation.

• Clerical - Non-numeric correction within 60 days of consummation

TRID Updates & Other Compliance Issues

Updates and Clarifications:

• Expansion of the partial exemption for certain down payment and homeowner assistance programs

• Cooperatives added as expressly covered by TRID in addition to “real estate”

• Clarifications on construction loans

• Clarifications on shopping for services, fee tolerance categories

• Inclusion of tolerance provisions for the total of payments that parallel the tolerances for the finance charge and disclosures affected by the finance charge

• Information sharing/privacy clarifications

CFPB also issued a proposal under TRID addressing when a creditor may use the CD, instead of the LE, to determine if an estimated closing cost was disclosed in good faith and within tolerance (i.e., the Black Hole)

CFPB did not address major policy issues in rulemaking, including liability, cures, and simultaneous issuance of title insurance

Final rule codifies and expands upon guidance on disclosure of construction loans previously given by CFPB staff

Allocation of costs with construction-to-permanent loans that are disclosed as multiple transactions

• Finance charges under 1026.4 and points and fees under 1026.32(b)(1) must be allocated to construction transaction if they would not be imposed but for construction financing

• Other fees and charges may be allocated as creditor chooses

May be permanently financed concept: CFPB proposed that if creditor generally provides both construction and permanent financing, when consumer applied for construction loan, creditor would have to provide disclosures for both construction and permanent loans unless consumer expressly stated he/she would not obtain permanent financing from the creditor

• Final rule declined to adopt this approach; instead gives lenders flexibility based on when applications are submitted for the two phases.

May use CD to rebaseline if less than four (4) business days between date revision required to be provided and consummation.

– May use initial CD, but consider confirmed receipt to control timing

– Corrected CD provided at/before consummation: may use if deadline for redisclosure falls within this window (but check investor restrictions)

– If closing delayed after provision of the CD, the redisclosure deadline could fall outside this window (see scenario 1). In that event, may not reset tolerance

– If closing delayed but redisclosure deadline still falls within this window, then may redisclose

Black Hole: The Black Hole occurs when the lender is unable to use the CD to reset fee tolerances because there are four (4) or more days between the time the revised version of the disclosures is required to be provided under the TRID Rules and consummation of the loan (e.g., delayed closing).

• The CFPB issued a proposal on August 11, 2017 regarding a fix for the Black Hole

Revised LE: Must send revised LE within three (3) business days of receiving information sufficient to establish triggering event.

– But, must make sure revised LE is received by consumer no later than four (4) business days prior to consummation and not sent after CD is delivered or placed in mail.

CD: May use CD to rebaseline if less than four (4) business days between date revision required to be provided and consummation.

– May use initial CD, but consider confirmed receipt to control timing

– Corrected CD provided at/before consummation: may use if deadline for redisclosure falls within this window (but check investor restrictions)

– If closing delayed after provision of the CD, the redisclosure deadline could fall outside this window (see scenario 1). In that event, may not reset tolerance

– If closing delayed but redisclosure deadline still falls within this window, then may redisclose

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Proposed Rule:

• Commentary allowing the use of the CD to reset tolerances would remain in place

• Adds new commentary that would remove the current four (4) business day limit for resetting tolerances with a corrected CD

• Lenders could reset tolerances by providing an initial or corrected CD within three (3) business days of receiving information establishing a valid reason for revision without regard to the current four (4) business day limit

Requests for comment:

• Information on how the four (4) business day rule has caused situations where neither a LE or CD could be used to reset tolerances even with a valid reason for revision

• Potential negatives effects of removing the four (4) business days limit

Comment deadline: October 10, 2017

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Scope of Liability: TRID rules combined Regulation Z rules and TILA statutory civil liability, which is broader than RESPA civil liability

• Administrative enforcement

• Assignee liability

– Assignee liability under normal TILA rules for violations apparent “on the face of the disclosure”

• Actual damages

• Statutory damages

• Private right of action (individual and class):

– Rulemaking under both RESPA and TILA authorities, but implemented in Regulation Z (TILA)

– TILA provisions generally carry private right of action; RESPA does not

– Unclear which provisions carry private liability, but seems likely most do

• 3 Year Right to Rescind – Errors on any of the Regulation Z “Material Disclosures” – APR, Finance Charge, Payment Schedule, Section 32 Loan disclosure, and Prepayment Penalties

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