Compliance Issues for Lending Professionals - Fall...In construction-perm setting, generally the purpose of the permanent loan is ... (40%) and purchase new vehicle (60%) ... • But

0 of 74 0 of 66 TRID Checkup

Carl Pry

June 24, 2016

TRID Update: 6 Months In,

Areas of

Concern and Uncertainty

Carl Pry

New Jersey Bankers Association

June 24, 2016

[email protected]


Carl Pry

June 24, 2016 Clarifications Coming

CFPB announced upcoming Proposed Rule in April 28, 2016 letter

to trade groups

“Hope to issue the NPRM in late July”

“We also believe that there are places in the regulation text and commentary

where adjustments would be useful for greater certainty and clarity”

Issues still remain

The regulation is incomplete in many areas

Lack of formal CFPB guidance

CFPB information guidance:

• Is not legally binding

• “does not represent legal interpretation, guidance or advice of the Bureau”

• “does not bind the Bureau and does not create any rights, benefits, or defenses,

substantive or procedural, that are enforceable by any party in any manner”


Carl Pry

June 24, 2016 High TRID Error Rates

The agencies have begun TRID testing in their exams (CFPB

started in June)

Post-TRID testing has shown errors of up to 90% in some banks

How should you deal with this?

Provide clear and consistent policies and procedures (good faith effort to

comply)

Extensive training and retraining, even now

TRID risk assessment?

Conduct pre- and post-closing reviews at appropriate times (30, 60 days after

close, for instance)

Concentrate on specific areas of concern and problems – risk-based testing


Carl Pry

June 24, 2016 Coverage Issues

Closed-end consumer credit transactions secured by real estate

Consumer purpose under Reg. Z and RESPA remain the same, except that trust

coverage was expanded

• Consumer-purpose trusts for estate or tax purposes essentially same as “consumer”

Reg. Z’s “real estate” definition followed, not RESPA definition (“residential real

estate”)

• RESPA exemptions gone now

Rules does apply to assumptions (Reg. Z standard)

• But not “successor in interest” – is not an assumption under Reg. Z

The rule does not apply to:

Chattel dwelling (e.g. mobile home) loans (existing Reg. Z disclosures)

HELOCs

Reverse mortgages

Loans made by a creditor who makes 5 or fewer mortgages in a year

Certain no-interest loans secured by subordinate liens made for the purpose of

downpayment or similar home buyer assistance, property rehabilitation, energy

efficiency, or foreclosure avoidance or prevention (Existing Reg. Z disclosures)


Carl Pry

June 24, 2016 Construction Loans

Construction-only loan challenges

CFPB webinar answered only some, not all, questions

Sales price

Transaction with a Seller: contract sales price of the property

No seller: estimated property value at time of LE

Make sure Loan Term and Product are correct

Loan Term is term of just the construction loan (not the Construction +

Perm period)

Loan Purpose:

Use construction only when purchase or refi don’t apply

In construction-perm setting, generally the purpose of the permanent loan is

a refi, but it could be a purchase (when does title transfer?)


Carl Pry

June 24, 2016 Construction Loans

Monthly Principal & Interest

Use half the commitment amount (from Reg. Z Appendix D) to calculate

the amount of interest due

Projected Payments table uses the same rules

• Don’t forget to forecast any post-consummation improvements

Disclose balloon payment properly

Monthly interest payment plus the balloon amount (principal)

Other Considerations:

Don’t include the New Construction statement on the construction-only

loan, which says, “You may receive a revised Loan Estimate at any time

prior to 60 days before consummation”


Carl Pry

June 24, 2016 TRID Loan Purpose Waterfall

Make sure this is correct – surprising how many errors

are here

Purchase

• Loan used to finance acquisition of the identified property (collateral

property)

Refinance

• Loan used to refinance an existing obligation secured by the identified

property (even if the creditor is NOT the holder or servicer of the

original obligation)

Construction

• Loan will finance the initial construction of a dwelling on the property

disclosed on the LE

Home Equity

• Loan to be used for any other purpose not listed above


Carl Pry

June 24, 2016 Waterfall: Strange Situations

Loan Purpose Collateral TRID Purpose

Purchase of vacation home Borrowers’ primary dwelling Home Equity

Refi of vacation home purchase and

collateral substitution Primary dwelling Home Equity

Permanent financing of initial

construction loan via new loan Same property constructed by first loan Refinance

Permanent financing of construction

via modification at same bank

Loan modification secured by same

note and property as initial loan

Not covered

(modification)

Finance child’s wedding & college 26 acres of farmland Home Equity

Finance expansion of business (40%)

and purchase new vehicle (60%) 50 acres of commercial property Home Equity

Purchase 50 acres for personal hunting

reserve The land purchased Purchase

Purchase 2 acres bare land The land purchased Purchase


Carl Pry

June 24, 2016 Application Issues

Submission of these 6 pieces of information constitute an application:

1. Consumer's name

2. Consumer's income

3. Consumer's SSN to obtain a credit report

4. Property address

5. Estimate of property value, and

6. Mortgage loan amount sought

No more “catch-all” category

RESPA: “Any other information deemed necessary for the originator”

CFPB concluded creditors can collect other information they deem necessary before obtaining

the 6 items above (such as obtaining SSN last) – sequencing or “strategic collection” of

information

• However, cannot artificially delay receipt of sixth item to delay delivery of the LE

• Can try to get the additional information within that 3 days, but HAVE to provide the LE within 3

business days after that 6th item is collected

Notice loan program is not an element!

• But don’t have to produce multiple LEs in that situation, or default to a specific one (such as a 30-yr

fixed loan)


Carl Pry

June 24, 2016 Application Issues

Key is submission from consumer wishing to apply

How is information collected?

Online systems – consumer inputs data and saves it, but

doesn’t “submit” it to credit yet – no application

Online – make sure systems don’t prevent consumers from

submitting the 6 items if they want to because additional

information must be submitted

Refis: creditor having information on file from a previous or

existing loan, or loan application, does not mean that a new

application has been submitted


Carl Pry

June 24, 2016 Pre-Disclosure

No fees may be imposed before the consumer has

received the LE and indicated an intent to proceed

(which is after LE is received)

Except a bona fide and reasonable fee for credit report

Can’t hold checks for later deposit or credit card numbers

Cannot require verifications before LE is delivered

Intent to proceed may be in any manner consumer chooses (but

not silence – no negative options) unless lender requires a

particular format – document this!


Carl Pry

June 24, 2016 Pre-Disclosure

If a consumer is provided with a written estimate of terms or costs

(worksheets) before receiving the LE:

Provided pursuant to prequalifications, for example

• Don’t ask for verifications, though

Top of first page must contain a statement that “Your actual rate, payment,

and costs could be higher. Get an official Loan Estimate before choosing a

loan”

• Must be in font size no smaller than 12-point

Estimate may not be made with headings, content, and format substantially

similar to LE

• Different content, headings, format

• Cannot be a substitute for the LE

May not require documents verifying information related to the

application before providing the LE


Carl Pry

June 24, 2016 Loan Estimate Issues

LE and CD forms are not template-based, are dynamic in

construction and content based upon loan program and other terms

and conditions of the transaction

Meaning if certain terms are not applicable to the loan, either the form must

follow specified rules regarding how the disclosure is made, or NOT appear

on the form (AP and AIR tables, for instance)

N/A should not be used where there is no value to be disclosed

• Either omit it or leave it blank

No required font sizes

Forms are standard mandated forms, not model forms

No particular required naming convention (or fee names) for

charges on the LE


Carl Pry

June 24, 2016 Alternative Loan Estimate

Alternative Loan Estimate may be used if the transaction

does not have a seller

Refis, for instance

Can also be used for simultaneous closed-end seconds by the

same lender (but not required to do so)

Checkboxes used to indicate if Cash to Close is being paid by

or to the consumer on Page 1

Alternative Calculating Cash to Close table used with fewer

entries on Page 2


Carl Pry

June 24, 2016 LE Contents: Pg. 1 General information related to applicants, property, loan, and rate lock status

For multiple borrowers, additional space or pages may be used

Applicant address must be physical address, not email address instead

Name of Creditor may not be a broker name, even if creditor has not yet been determined

• But if creditor has not yet been determined, broker does not have to assigned a unique loan ID# (left

blank)

• Would then add it once creditor has been identified

“Date Issued” is date lender delivered or mailed, not receipt date

“Property” is address of property securing the loan, not purchased (if different)

“Sale Price” – for refis or other transactions without a seller, is estimated property value (but still call it

“Sale Price”

“Purpose” is a list of list of options: purchase, refinance, construction, and home equity (catch-all)

“Product Type” is adjustable, step rate, or fixed – use only one, even if hybrid product

“Loan Type” is Conventional, FHA, VA, or Other


Carl Pry

June 24, 2016 LE Contents: Pg. 1

Loan Terms

“Interest Rate” – for an ARM, if interest rate at consummation is not

known, rate disclosed is fully indexed rate

Where initial interest rate is calculated using a different formula than for

subsequent rate adjustments, disclose the initial interest rate


Carl Pry


Projected Payments

If payments will remain constant over life of the loan (such as a fixed rate, fixed payment

loan with no MI) disclose a single column

Additional columns (maximum of 4):

• Change to the periodic principal and interest payments

• Scheduled balloon payment

• Automatic termination of MI under PMI law (HPA)

Amount disclosed for estimated taxes, insurance and assessments can be for a time period

other than monthly (list time period)

“Estimated Escrow” must be there even if there is no escrow – put $0 here


Carl Pry


Costs at Closing

Including the total estimated closing costs and the estimated cash to

close

Alternative Costs at Closing table used for transactions without a seller,

i.e. refinance (optional)

• Shows a check box to indicate whether the consumer will be expected to

bring cash, or will receive cash at consummation for the estimated cash to

close amount


Carl Pry


Loan Costs

The term “Points” can only be used for charges

paid to reduce the interest rate – cannot be other

origination fees

If LLPA is assessed through the rate, but not

charging the consumer directly up-front, would

not have to disclose that as an origination charge

Cannot change the number of lines for each

category of costs – charges in excess of that

number are totaled into one charge and described

as additional charges


Carl Pry


Other Costs

Recording Fees and Other Taxes does not

include taxes on separate services, such as title

insurance

Calculating Cash to Close

Deposit or down payment is not subtracted as

part of the calculation of closing costs financed

Calculation of the closing costs financed line

item is not affected by a seller credit. Seller

credits are disclosed as a separate line item in

the Calculating Cash to Close table

For down payment/funds from borrower line

item, existing debt being satisfied includes any

type of debt


Carl Pry


Adjustable Interest Rate (AIR) and Adjustable Payment

(AP) tables

Used ONLY when applicable; otherwise leave them out

If no such features in the legal obligations, tables are not disclosed at all


Carl Pry


Additional Information About This Loan

In a loan with a mortgage broker, both creditor’s loan officer and mortgage broker’s

loan officer must be listed (if available)

Same NMLSR ID identified on the note and other documents

Comparisons

APR is not rounded, should be disclosed up to 3 decimal places

If APR is a whole number, truncated at the decimal point (i.e. 7, not 7.000; 7.25, not

7.250)


Carl Pry


Other Considerations

Must disclose transfer

servicing will at some point

later during the life of the

loan take place if that is the

intent at the time the LE is

issued

Even if servicing transfer is

to affiliate or subsidiary

Appraisal disclosure: for

loans subject to both Regs B

and Z, satisfy both

requirements here

Confirm Receipt (signature, is

optional)


Carl Pry


Lack of consistency of naming conventions between the LE and CD

Failure to disclose all known fees on initial LE

Can’t disclose them later…

Would a COC that affects that fee change this?

Title charges missing “Title…”

Loan Purpose

If purpose of the loan is for anything other than purchase, refi, or construction, it is

to be disclosed as a “Home Equity Loan”; sometimes shown as a refi even though

no prior debt was being refinanced

Product

Guidance is very specific as to what should be listed for product information,

including using the term “Adjustable” rather than “Variable”

Bank product name used for marketing purposes being added to the description of a

fixed rate product rather than just stating “Fixed Rate” as prescribed by the

regulation


Carl Pry


Rate lock

If rate is locked, the date and time (including the time zone) must be shown

Increasing payment loans

Under both interest rate and monthly P&I payments, increases are to be shown as

“can go as high as ____ in Year __”; not “can go as high as ____ in ____ years”

Cash to Close

Errors in the way Lender Credits are shown, resulting in significant underquoting of

the costs at closing

• E.g. lender Credits applied to reduce Total Closing Costs and then again applied under

Adjustments and Other Credits when calculating the Cash to Close, resulting in a

significant underquoting of the amount of cash required to close

Confusion here may come from fact that on the LE, all fees being paid by the Lender are

supposed to be deducted as Lender Credits, whereas on the CD, fees being paid by the Lender

that are for specific items are supposed to be deducted under Adjustments and Other Credits


Carl Pry


Numerical computation errors; for example:

Itemization of Loan Costs do not total the Total Loan Costs on page 2

Loan Costs and Other Costs do not total Estimated Closing Costs in the Costs at

Closing table on page 1

Estimated Closing Costs are not calculated in same manner as the Total Closing

Costs disclosed on page 2

Prepaids table does not include the applicable time period covered by the

amount to be paid by the borrower and the total amount paid

Problem: courier, wire, and storage fees on same line in the closing costs

section

Each fee should be disclosed on its own line

"Title - CPL" fee is not labeled correctly on the Loan estimates

CPL is not an acceptable abbreviation; should reflect "Closing Protection Letter"


Carl Pry


Association of Mortgage Investors (AMI) letter to CFPB

http://www.housingwire.com/ext/resources/images/editorial/BS_ticker/PDF/A-

March-2016/Association-of-Mortgage-Investors-AMI-CFPB-TRID-Letter-March-

30-2016-final.pdf

Provides information from investors’ pre-purchase due diligence reviews

LE defects cited:

Non-numerical clerical errors

• Lender name/address missing

• Incorrect or incomplete fields

Numerical computation errors

Disclosure omissions

• Prepaids table

• Initial Escrow Payment at Closing table

Estimated Taxes, Insurance, & Assessments - inaccurate or incomplete


Carl Pry

June 24, 2016 “No Cost” Loans Debate Pre-TRID, GFE showed all fees required by the lender to be paid in connection with the

loan, not just fees applicant would pay

Reg. Z: 1026.37(f)(2) and (f)(3) require itemization of cost of each settlement service the

consumer “will pay” in connection with the loan, either in cash or by financing the cost as

part of the loan proceeds

If the consumer will not pay (or is not obligated to pay) for a settlement service, is it

required to be disclosed?

If the consumer will pay the settlement service cost, but will be provided a lender credit to offset

some or all of the cost, the service/cost (as well as the lender credit) should be disclosed on the

LE

For example, lender offers rate that provides a lender credit to offset some or all of the charges

required to be paid by the borrower; lender credit and the cost of the services must each be

disclosed

On LE, all fees being paid by the Lender should be deducted as Lender Credits

On CD, fees being paid by Lender for specific items should be deducted under

Adjustments and Other Credits

http://www.housingwire.com/ext/resources/images/editorial/BS_ticker/PDF/A-March-2016/Association-of-Mortgage-Investors-AMI-CFPB-TRID-Letter-March-30-2016-final.pdf





























Carl Pry

June 24, 2016 Title Insurance “Simultaneous

Discount”

Discounted premium provided when an owner's title

policy (which is optional) and a lender's title policy are

both purchased

Rules don't allow for disclosure of simultaneous discount on

the LE, so actual amount the borrower will have to pay at

closing is overstated

• ALTA letter signed by members of Congress have asked CFPB to

address this issue in its clarifications


Carl Pry

June 24, 2016 Written List of Providers

Must provide a written list identifying at least one available provider for each settlement

service for which the consumer is permitted to shop (Model Form H-27)

Provide list separately from disclosures

Can provide disclaimer that referrals aren’t endorsements

If consumer selects a provider on the list, charge is in 10% tolerance category

Shopping means consumer can go off-list

If consumer selects a provider not on list, subjected to unlimited tolerance (fee can change)

Written list is a referral under RESPA, so don’t forget the AfBA if necessary

Even if the borrower doesn’t select that provider

Be sure to monitor list and provide changes when necessary (i.e. change of

circumstance)


Carl Pry

June 24, 2016 Loan Estimate Delivery

Can you document delivery (and/or receipt)?

Must deliver or mail LE no later than 3 business days after creditor receives

consumer's application – clock starts running

• “General” definition of business day:

– Day in which creditor’s offices are open to the public for carrying on substantially all of its

business functions

• If the LE is not provided in person, consumer is considered to have received it 3 business

days after it is delivered (including electronic) or mailed (“mailing rule”)

– In-person is assumed received upon delivery

– Electronic – date/time stamp, for example

– Mailing rule uses “specific” definition of business day: “All days except Sundays and the legal

public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin

Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day,

Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day”

If a mortgage broker receives application, either the creditor or mortgage broker

may provide the LE

• But creditor still remains responsible for compliance requirements


Carl Pry

June 24, 2016 Loan Estimate Delivery

LE must be delivered or mailed at least 7 business days before

consummation

Same as Reg. Z MDIA rule for initial disclosures (eTIL)

Specific definition of “business day” applies.

Consumer may waive or modify waiting period based on a bona fide

personal financial emergency – same standard as now

This 7-day period applies only to provision of the original/first LE (not

revised LEs)

Waiver or modification of this requirement is never a good idea

Investor probably will not buy loan


Carl Pry

June 24, 2016 Tolerance: “Good Faith” Standard

LE figures “must be made in good faith and consistent with the best

information reasonably available to the creditor at the time disclosed”

To determine good faith:

Difference between estimated charges originally provided in LE and actual charges

paid by or imposed on the consumer

• The word “tolerance” is not used in the regulation – called “Variations”

• Exceptions if within the tolerance levels

Generally, if the charge paid by or imposed on the consumer exceeds the amount

originally disclosed on the LE it is not in good faith

• True regardless of whether creditor later discovers a technical error, miscalculation, or

underestimation of a charge

Amount paid by or imposed on the consumer may always be less than the amount

estimated

Notice LE does not list cents, so rounding may lead to tolerance problems


Carl Pry

June 24, 2016 Tolerance Levels

“No Variations” (zero tolerance)

Creditor may not charge more than the estimated amount

unless there is a valid “changed circumstance” (or other

triggering event)

Fees paid to creditor, mortgage broker, or affiliate of either

• AfBA charges placed here

– Be aware RESPA’s AfBA/required provider rules are still in place

• Affiliate aspect is new

Fees paid to an unaffiliated third party if the creditor did not

permit the consumer to shop

• This is a new one, also

Transfer taxes


Carl Pry


“Variations Permitted” (unlimited tolerance)

Charges may vary by any amount between LE and CD

Prepaid interest

Property insurance premiums

Amounts in escrow, impound, reserve or similar account

Services required by the creditor if creditor permits the consumer to shop and

consumer selects a third-party service provider not on creditor's written list of

service providers

Charges paid to third-party service providers for services not required by the

creditor

• May be paid to affiliates

• This one is new

Does not necessarily mean “No Tolerance,” however

“Best information reasonably available to the creditor”

Cannot intentionally under-disclose prepaid interest, escrow charges, or similar

amounts


Carl Pry


“Limited Increases” (10% cumulative tolerance level)

Recording fees

Charges for third-party services where:

• Charge is not paid to creditor or affiliate

• Consumer is permitted by the creditor to shop, but selects a third-party

service provider on the creditor's written list of service providers, not an

affiliate

Owner’s title insurance not required by the creditor does not

fall under this category (this has no tolerance)


Carl Pry

June 24, 2016 Revised Loan Estimate

CFPB: “Creditors are bound by the Loan Estimate, and may not issue revisions because

they later discover technical errors, miscalculations, or underestimations of charges”

However, there is no explicit prohibition of this in Reg. Z

But resetting the tolerances baseline is allowed only when:

Changed circumstances (COC) occur after LE is provided cause settlement charges to increase

more than permitted (tolerance level)

• Although you can provide a revised LE if the change does not exceed the tolerance level, but the

tolerance level does not then reset

Changed circumstances occur after LE is provided affect consumer's eligibility

• For terms for which the consumer applied or the value of the security for the loan

Revisions requested by the consumer

• Such as different loan product

Rate lock (float-to-lock) causes points or lender credits disclosed on the LE to change

• Provide a revised LE within 3 days (originally was same day)

Consumer does not indicate intent to proceed within 10 business days after LE was provided

New construction loan and settlement is delayed


Carl Pry

June 24, 2016 What is a Changed Circumstance?

Defined as:

Extraordinary event beyond the control of any interested party or other unexpected

event specific to the consumer or transaction

• War, natural disaster, etc.

Information specific to the consumer or transaction that the creditor relied upon

when providing the LE and that was inaccurate or changed after the disclosures

were provided

• Such as loss of employment, or appraisal issues

New information specific to the consumer or transaction that creditor did not rely on

when providing the LE

Revised LE must be provided within 3 business days (“general” definition)

from the event the gave rise to the revised LE

No new 7-day period after a revised LE is provided

• Meaning provide it no less than 4 (specific) business days before consummation

Document the changed circumstance! MAJOR PROBLEM


Carl Pry

June 24, 2016 Fee Changes and What Happens

Fee Change Reason

New Disclosure

Required within 3

business days?

Fee Baseline Reset

Permitted?

1. COC involving settlement fees

a. Changes do not cause fees to increase more than 10% No No

b. Fee changes cause total of fees to increase by more than 10% Yes Yes

2. COC involving borrower’s eligibility for loan

a. Changes do not cause fees to increase more than 10% No No

b. Fee changes cause total of fees to increase by more than 10% Yes Yes

3. Borrower requested changes (any amount) Yes Yes

4. Interest rate-dependent changes (any amount) Yes Yes

5. Borrower intent to proceed given more than 10 days after

delivery of LE (any amount) Yes Yes

6. Construction loan that will not close in 60 days (any amount) Yes Yes


Carl Pry

June 24, 2016 LE Tolerance Issues

Lender credit tolerance issues

Later changes to lender credits fall into 0% tolerance category, not 10% (even if

underlying fee was in the 10% category)

Have you delivered LEs that did not reset the tolerances?

Be sure to know what your tolerance baseline is

You can issue a revised LE whenever you want (there is no regulatory rule

preventing you from doing so), but the revised LE may not reset the tolerance

Is there a UDAAP issue here? Too many LEs? Is too much information a bad thing?

Resetting tolerance when first change does not exceed tolerance threshold (i.e.

10%), but subsequent COC does

Example: First LE issued. Subsequently, first COC (second LE issued) bumps fees

up 8% - no baseline reset. Second COC (third LE issued) bumps fees up another 7%

- baseline IS reset


Carl Pry

June 24, 2016 Closing Disclosure

Generally must state “the actual terms of the credit

transaction, and the actual costs associated with the

settlement of that transaction”

But if information is not known despite creditor having

exercised due diligence to obtain it, may disclose an estimate

based on the best information reasonably available

• Even if the creditor knows that more precise information will be

available at or before consummation

Information that does not fit may be disclosed on a separate

page


Carl Pry

June 24, 2016 Alternative Closing Disclosure

May be used if the transaction does not have a seller (like HUD-

1A today)

Checkboxes are used to indicate if Cash to Close is being paid by or to the

consumer on Page 1

Seller's column for costs is deleted on Page 2

Summaries of Transactions is deleted and Payoffs and Payments are

disclosed at the top of Page 3

Alternative Calculating Cash to Close table is used with fewer entries on

Page 3

May only be used if alternative LE was also used

Otherwise standard form must be used


Carl Pry

June 24, 2016 CD Contents: Pg. 1

General information

“Date Issued” is date delivered to the consumer, not the date the

form was printed

“Closing Date” is consummation date – state law issues again

“Sale Price” for a refi is appraised value (label it “appraised prop.

value”)

“Transaction Information” – “Lender” need not list address here


Carl Pry


Loan Terms

Projected Payments

Mostly same instructions as LE

Different rules for the disclosure of

estimated escrow and estimated taxes,

insurance and assessment

• For loans covered under RESPA,

amounts of property taxes and

homeowner's insurance are determined

under RESPA escrow account analysis

rules

• If not covered under RESPA, use Reg. Z

rules

Different reference to the escrow

account information, which is on Page 4

Costs at Closing

Alternative table for transactions with

no seller


Carl Pry


Loan Costs

Similar to page 2 of the LE – categories are the same

Itemization of each amount in LE, and who pays

• Including third column if any third-party, such as creditor/lender, paid it

• Charges paid by lender, include “(L)” to left of amount in the column in order to denote those charges

are paid by the lender

• LO compensation paid by creditor to a third-party LO (such as a mortgage broker) is not disclosed on

LE, but is disclosed on CD

Number of lines can be reduced or added by the creditor for each category based on need if

need more pages, break into two pages (number 2A and 2B) with loan costs on Page 2A and

other costs on Page 2B

Fees and costs are listed alphabetically

No more uniform sections as on HUD-1


Carl Pry


Loan Costs

If consumer could have shopped for a provider, but chose one that was on the

written list (and creditor did not require that service provider), charge would

move to the services borrower did not shop for category

• Items disclosed as a service you (the consumer) can shop for will stay in the category

of services the borrower did shop for on the CD if the consumer does not use a

provider on the written list, or if provider was not required by creditor


Carl Pry


Other Costs

Amount paid for real estate commission is total amount of the commission and is not affected

by status of earnest money deposit that may be held by the real estate broker

General lender credits not associated with any particular item are listed at the bottom as a

negative number along with a narrative description

Transfer taxes and recording fees are itemized on the CD instead of aggregated on the LE

• Disclose name of entity assessing the transfer tax, even if different from payee of the check cut by the

settlement agent

Prepaids are for services or costs due for future periods that are due before the first scheduled

monthly payment


Carl Pry


Calculating Cash to Close

Compared with information on Page 2 of the LE – is a tolerance check

Amounts under heading “Final” taken directly from other portions of the CD or

are calculated off-sheet based on actual amounts at consummation

If amounts are different, the answer “Yes” is listed with narrative description of

why the amount changed; if amounts are the same, the answer is “No” and

nothing else is stated


Carl Pry


Summaries of Transactions

Resembles current HUD-1

Lender credits will not appear in the

“Borrower's Transaction” table

Only amounts disbursed to the seller prior to

consummation are disclosed as excess deposits

– any deposits held by the real estate brokerage

is not included in this calculation

“Seller's Transaction” table can be omitted from

the CD provided to the consumer, and the

“Borrower's Transaction” table can be omitted

from the CD provided to the seller

• Both can be deleted when there is a transaction

without a seller

• Instead of the “Summaries of Transactions” tables,

they're replaced with a pay off and payments table

when the LE was provided with the alternative

“Cash to Close” table


Carl Pry


Loan disclosures

Escrow account

Adjustable Payment (AP)

and Adjustable Interest

Rate (AIR) tables (when

applicable)

Same rules as LE


Carl Pry


Partial Payment – 3 check boxes to make disclosures of lender's partial payment policy

1. If periodic payment less than the full amount due are accepted, disclose a statement that it

may accept partial payment and apply payment to the consumer's loan

2. If periodic payments less than the full amount due are accepted but not applied to loan until

consumer pays the remainder of the full amount due, disclose a statement that it may hold

partial payments in a separate account until consumer pays remainder of payment and then

applies the full payment to the loan

3. If periodic payments less than the full amount due are not accepted, disclose a statement

that it does not accept partial payments

May check multiple boxes (first and second only)

Also disclose that if loan is sold, new lender may have a different policy


Carl Pry


Loan Calculations

Roughly amounts disclosed

currently on the TIL in the Fed

Box, plus new Total Interest

Percentage (TIP)

Other Disclosures

Contact Information

Confirm Receipt


Carl Pry


“Liability after Foreclosure” provision requires a brief statement that certain

protections may be lost if consumer refinances or incurs additional debt on the

property, and statement that the consumer should consult an attorney for

additional information

Check state law

For example, an anti-deficiency law is a state law that protects consumer against

liability for unpaid balance of the loan after foreclosure

• Statutes of limitation do not count as anti-deficiency laws

• However, state laws that limit how much a creditor may collect in an anti-deficiency

judgment are considered anti-deficiency protections


Carl Pry

June 24, 2016 CD Issues

Calculating Cash to Close table does not reflect “Yes” when

amount changed from Loan Estimate to Final

When the answer to the question is “Yes”, there is no indication where the

consumer can find the amounts that have changed on the Loan Estimate.

Numerical computation errors; for example:

Itemization of Loan Costs do not total Total Loan Costs on page 2 of the

Closing Disclosure

Loan Costs and Other Costs do not total Closing Costs in the Costs at

Closing table on page one of the Closing Disclosure


Carl Pry

June 24, 2016 CD Issues

From AMI letter:

Non-numerical clerical errors

• Lender name/address, seller name/address, and check boxes missing, incorrect,

or incomplete

Disclosure omissions

• Fees in Loan Costs table Prepaids table and Initial Escrow Payment at Closing

table

Estimated Taxes, Insurance, & Assessments inaccurate or incomplete

Loans closed prior to 3-day waiting period

On both LE and CD:

Human errors – typos, leaving things blank

Tables not balancing – check to see your automation is doing this (don’t

assume)

• e.g., Cash to Close Table had Total Closing Costs of one figure, nothing

deducted, but yet a different amount shown as the Estimated Cash to Close –

$100,000 - $0 = $99,500


Carl Pry

June 24, 2016 Closing Disclosure Delivery

Creditor is generally responsible for ensuring the consumer

(buyer) receives the CD no later than 3 business days (specific)

before consummation

May contract with settlement agent to provide CD on creditor's behalf

Consummation defined under Reg. Z as time that a consumer becomes

contractually obligated on a credit transaction (state law issues)

If CD is not provided to the consumer in person, consumer is

considered to have received it 3 business days after it is delivered

or mailed

In person = receipt upon delivery

Anything other than in person – mailing rule applies

Or can rely on proof of receipt to evidence earlier receipt


Carl Pry


Settlement agent must provide the seller with CD at or

before consummation

How to deal with combined disclosures?

Once CD is sent, any changes to LE stop

Cannot deliver a revised LE on the same day the CD is

provided, either

Therefore, revised LE must be received by the consumer no

later than 4 business days prior to consummation


Carl Pry


Creditor is liable for CD no matter who prepares it

How will lenders do this?

Do it yourself

Let closing agent prepare CD

• Make sure they’re proficient and compliant

• vendor due diligence is essential

• Indemnity agreements signed?

Joint effort

• Lender prepares 3 TIL pages

• Closing agent prepares 2 pages on title/closing

• Each liable for their own submissions

• This is the most likely outcome


Carl Pry

June 24, 2016 Revising or Correcting the CD

Creditors must redisclose terms or costs on the CD if certain

changes occur that cause the disclosures to become inaccurate

Would not reset the tolerance levels

Is meant to be used only as an exception, not as a means of disclosing changes

(that’s what the revised LE is for)

3 categories of changes require a corrected CD containing all

changed terms:

1. General rule: changes before consummation do not require new 3 business

day waiting period

• “If the Closing Disclosure becomes inaccurate before consummation, the

creditor must provide corrected disclosures reflecting any changed terms to the

consumer at or before consummation; however, the consumer may inspect the

disclosure during the business day immediately preceding closing”


Carl Pry


3 categories of changes require a corrected CD

containing all changed terms:

2. Changes before consummation that require new 3 business day

waiting period:

• Loan product changes

• Prepayment penalty added

• Disclosed APR becomes inaccurate – Reg. Z standard: 1/8 pt for regular

transactions; 1/4 pt for irregular

– Does this mean only if the APR goes UP? What if the change causes the

APR to go DOWN (meaning there is no harm to the consumer)?

– Small Entity Compliance Guide vs. the Regulation

– Which to follow?


Carl Pry


3 categories of changes require a corrected CD containing all

changed terms:

3. Changes after consummation

• Event in connection with settlement causes CD to become inaccurate and

results in change to amount paid by the consumer or seller occurs within 30-day

period after consummation

– To document refunds for tolerance violations

– To correct non-numerical clerical errors – 60 days

• If it does not affect a numerical disclosure and does not affect the timing,

delivery, or other requirements

• Deliver or mail corrected disclosures no later than 30 days after receiving

information sufficient to establish that the event occurred

Note that different states (such as NY) define “consummation”

differently

Title company issues here


Carl Pry

June 24, 2016 Resetting the Tolerances

What is the baseline after the first CD has been delivered?

What if you have a valid COC after the CD has been delivered?

• Confusion from CFPB in their Small Entity Compliance Guide and webinars

You can reset baseline if COC happens within 3 specific business days before

closing

• If CD is not delivered in person, must rely on the mailbox rule (3 days to get there)

• Therefore, revised CD must be delivered 6 specific business days before closing

• But what happens if another valid COC happens within those first 3 (of those 6 total)

days? No support for another baseline reset

Small Entity Compliance Guide:

• “If the event occurs after the first Closing Disclosure has been provided to the consumer

(i.e., within the three-business-day waiting period before consummation), the creditor

may use revised charges on the Closing Disclosure provided to the consumer at

consummation, and compare those amounts to the amounts charged for purposes of

determining good faith and tolerance. (Comment 19(e)(4)(ii)-1)”

But the regulation is not as clear


Carl Pry

June 24, 2016 Resetting the Tolerances

What is the baseline after the first CD has been delivered?

What about the liabilities?

Example is increases in recording fees – should the tolerance baseline be

based on the second-to-last CD or the first one?

Also would like the CFPB to clarify that lenders can make

revisions outside the 30-day fee error period specified in the rule

How can these changes be cured?

Old Reg. Z specified countdown started as of date of discovery, while

TRID seems to start when loan closes


Carl Pry

June 24, 2016 Curing Tolerance Violations

If amounts paid by the consumer at closing exceed amounts

disclosed on the LE beyond applicable tolerance threshold

Creditor must refund the excess to the consumer no later than 60 days after

consummation, and

Creditor must deliver or mail a corrected CD reflecting refund no later than

60 days after consummation

Zero tolerance charges

Any amount charged beyond amount disclosed on the LE must be refunded

10% cumulative tolerance charges

Sum of charges exceeds sum of all such charges disclosed on LE by more

than 10%, difference must be refunded


Carl Pry

June 24, 2016 Uncertainties Around Liabilities

Rule does not set forth liability that applies to each requirement

Certain specific cure provisions as to fees

In preamble, CFPB notes it addresses statutory authority relied upon for each

requirement, and this provides sufficient guidance

TILA liabilities for disclosures:

Administrative enforcement

Private right of action – actual damages, statutory damages sometimes (strict

liability), court costs and attorney’s fees

RESPA liabilities for GFE and HUD-1:

Administrative enforcement aspects

No RESPA private right of action

Bottom line is TILA liability assumed be used for all disclosure errors?

Clarity sought from CFPB

Even if not, how will investors respond? Courts when TRID loans default?


Carl Pry

June 24, 2016 Secondary Market Liability

General assignee liability standard:

Violation apparent on the face of the disclosure statement

Apparent on the face of the disclosure statement if:

• Disclosure can be determined to be incomplete or inaccurate by comparison

among the disclosure statement, any itemization of the amount financed, the

note, or any other disclosure of disbursement

• Disclosure does not use the terms or format required to be used by TILA

Assignee can be subject to claim that can be brought against lender

Although most loans are rejected for CD errors, some investors have refused

to purchase loans (or purchase with a discount) with LE problems

• Cordray’s December letter suggests that no liability if CD was accurate but

initial LE was not

• Informal CFPB statements suggest unintentional, good faith errors will not cause

liability


Carl Pry

June 24, 2016 Uniform Closing Dataset(UCD)

This will be a industry standard that will allows CD information to

be communicated electronically

Will contain additional data beyond CD (e.g. ATR info)

Will require a Seller CD

Will standardize data for consistency, common understanding, improved

accuracy

Goals to enhance credit risk management, detect fraud, additional

transparency

Fannie and Freddie to require delivery of UCD in Q317 for all

loans they acquire

Specifics later in 2016

Consider now what it will take to implement and use UCD for data

exchange

Documents

Compliance Issues for Lending Professionals - Fall...In construction-perm setting, generally the purpose of the permanent loan is ... (40%) and purchase new vehicle (60%) ... • But