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TILA/RESPA Integrated Disclosure (TRID) Rule
Ken Markison, Vice President, Regulatory Counsel, MBA
Jerra H. Ryan, Vice President of Compliance, Cherry Creek Mortgage
Alex Karram, Attorney, Weiner Brodsky Kider PC
Background
• For more than 30 years, TILA and RESPA have required creditors & settlement agents to give consumers applying for mortgage loans different but overlapping disclosures regarding terms and costs
• The duplication has long been recognized as inefficient and confusing for both consumers and industry, with HUD having authority over RESPA and the Federal Reserve Board over TILA
• Efforts to integrate the disclosures began in 1996, when Congress directed HUD and the Board to simplify the disclosures
• In 1998, HUD and the Board issued a Joint Report to Congress concluding that “meaningful change could come only through legislation” from Congress
• HUD and the Board continued to revise their respective disclosures separately (HUD’s 2008 rule revising the GFE & HUD-1, Board’s 2010 rule implementing the MDIA timing requirements), stating they would work towards integrating the two disclosure regimes
• Congress enacted the Dodd-Frank Act in July 2010 • Transferred rulemaking authority under TILA & RESPA to the CFPB • Directed the CFPB to integrate the mortgage loan disclosures
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Overview
CFPB Issued Final Integrated Disclosure Rule Nov. 20, 2013 • Effective date: August 1, 2015 • Goals of New Rule:
• Easier to use mortgage disclosure forms • Improve consumer understanding • Aid comparison shopping • Prevent surprises at closing table
• Implements requirements in TILA’s Regulation Z • Finalizes 2 new disclosure forms:
• Loan Estimate (3 pages): • To replace the GFE/Initial TIL
• Closing Disclosure (5 pages): • To replace the HUD-1/Final TIL
• Includes new timing requirements, tolerance levels, and pre-disclosure requirements, among other things
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Overview
Coverage • Applies to most closed-end consumer mortgage loans • Does not apply to:
• Open-end HELOCs, reverse mortgages (will still use GFE/HUD-1/TIL), & mortgages secured by mobile homes or by dwellings not attached to property
• Loans exempt from TILA altogether, such as business-purpose loans, creditors that make five or fewer mortgage loans in one year
• Partial exemption for certain second lien down payment assistance loans if current TIL is provided & meets certain requirements (e.g., no interest, limited closing costs, forgiven or deferred payments)
• If the Rule applies, creditor can no longer use the GFE or HUD-1 forms for the transaction
Effective Date • Applies to closed-end mortgage transactions for which the creditor or mortgage broker
receives an application on or after August 1, 2015 • Except the restrictions on pre-disclosure activity are effective on August 1, 2015, without
respect to whether an application has been received
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Loan Estimate (LE)
• LE must be delivered or mailed within 3 General Business Days after application & not later than 7 Specific Business Days before consummation
• General Business Day is any day the creditor’s (or broker’s) offices are open to the public for carrying on substantially all of its business
• Specific Business Day means all calendar days except Sundays & federal holidays • Application is triggered when the consumer submits 6 pieces of information
• Name • Income • Social security number • Property address • Estimated Value • Mortgage loan amount sought
• LE is not required if the consumer withdraws or the creditor denies the application before the
end of the 3 day period
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Definition of Application
• TRID amends definition of application to remove 7th “catch all” provision of: “any other information deemed necessary by the loan originator” in current Reg X
• Online applications (Save vs. Submit)
• Impacts ability to require information as part of online application
• No guidance on how to deliver LE when insufficient info is provided
• LE may need to be issued based on assumed defaults (loan type
• Creditors may sequence the request of information
• But cannot refuse the consumer’s submission of information – LE is triggered once the 6 pieces of information are received
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Definition of Application & Sequencing
• Create a “sequence” request other relevant information before obtaining the 6 pieces of information for an application
• The “RESPA 6” does not include important details necessary for an accurate disclosure
• Cautioned not to use sequencing as a way of avoiding or delaying providing LE, but as a way to best serve the consumer, e.g., “request SSN last
• Receipt of purchase contract is not required for “submission of property address”
• What is your process for pre-application fee sheets?
• What is your process for providing the consumer pre-approval letters?
• Do they reference a purchase price, loan amount and property address?
• ”
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Delivery of LE
• Either the creditor or mortgage broker may provide the LE, but the creditor is ultimately responsible for ensuring the LE is provided timely and correctly
• Mailbox Rule:
• If the LE is not provided to the consumer in person, the consumer is considered to have received the LE 3 Specific Business Days after it is delivered or placed in the mail, unless the creditor relies on evidence the consumer received the LE earlier (e.g., signature for receipt)
• LE must be delivered or placed in the mail not later than the 7th Specific Business Day before consummation
• Waiting period begins when the LE is delivered or placed in the mail, not upon the consumer’s receipt
• Waiver of waiting period only permitted if the consumer requests it in writing for a “bona fide personal financial emergency” – CFPB interprets this narrowly and should only be waived in the “most stringent of circumstances” (e.g., to avoid foreclosure)
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Delivery of LE
• LE may be provided on paper or electronically
• Issues
• Face-to-Face – need evidence disclosure is actually provided
• Electronic receipt – what is sufficient to demonstrate receipt?
• Compliance with ESIGN for electronic delivery
• An encrypted PDF attached to an Outlook email is typically not compliant with consumer consent and provisions of the E-SIGN Act.
• The E-SIGN Act applies to electronic delivery, whether or not the consumer is actually “signing electronically”
• If delivery does not comply with ESIGN requirements, then creditor did not comply with the timing requirements for delivery
• Have systems that maintain how and when disclosures are sent/received; document E-SIGN compliance
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Delivery of LE - Wholesale
Wholesale Transactions • Broker or Creditor may provide the LE
• Creditor cannot duplicate or correct Broker LE • Creditors responsibility for LE issued by Broker
• Concerns if Broker issues LE without Creditor’s authorization • Broker to make good faith effort to identify Creditor on LE
• How will industry handle? • Creditor to provide LE • Creditor to support Broker’s provision of LE by info, system, platform, etc… • Broker to go it solo (with risk of Creditor pushback if no Creditor is disclosed) • Loan identification number issue • Same issues for initial & revised LEs
• Will you limit the brokers you work with? • Develop procedures for managing disclosure of the LE, tracking application dates, etc.,—will
you provide a centralized disclosure desk for wholesale?
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Other Application Disclosures
• Written list of settlement service providers with the LE • Required if the creditor requires the service and the consumer is permitted to
shop for that service • Must be provided separately from, but at the same time as, the LE
• Whether a consumer is permitted to shop affects tolerances • A consumer is permitted to shop if the creditor gives the consumer a
written list identifying at least 1 available provider for that service and stating the consumer may choose a different provider that is not on the list
• Consumer is not permitted to shop if the creditor selects the provider or the consumer is required to choose a provider from the creditor’s list
• Special Information Booklet / Toolkit • Must be provided with the LE, no later than 3 General Business Days after
application • If the consumer uses a mortgage broker, the mortgage broker must provide
the Booklet and the creditor need not do so 11
Restrictions on Pre-Disclosure Activity
• Fee Restrictions • No fee may be imposed on a consumer in connection with an Application before the
consumer has received the LE and indicated an intent to proceed with the loan described in the LE
• Limited exception for a bona fide & reasonable credit report fee • So, except for credit report, you can’t impose upfront fees.
• Concept of impose is addressed in Commentary to address what CFPB believed was conduct intended to get around current upfront fee restriction.
• Solutions: • No postdated checks • Do not retain credit card or similar info used for Credit Report • Request Deposits/Obtain Payment Method or Info only after receipt of LE and
Intent to Proceed • Intent to Proceed
• Consumer may indicate an intent to proceed in any manner the consumer chooses, unless a particular manner is required by the creditor (silence is not sufficient)
• Communication must be documented for recordkeeping rules 12
Restrictions on Pre-Disclosure Activity
• Verification Information • Creditor/mortgage broker is prohibited from requiring a consumer to submit
documents verifying information collected for an application before providing the LE
• How does this affect pre-qualifications & pre-approvals? • According to the CFPB
• 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 • Service to consumers and competition among creditors for
consumers will continue to be an incentive to provide pre-qualifications and pre-approvals
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Restrictions on Pre-Disclosure Activity
• Cost Estimates / Pre-Application Fee Worksheets • Creditor/mortgage broker may provide a written estimate of terms or costs
specific to the consumer before providing the LE, as long as the estimate does not look like the LE or CD, and it includes a disclaimer
• 12 Point Font disclaimer at the top of the first page:
• “Your actual rate, payment and costs could be higher: Get an official Loan Estimate before choosing a loan”
• May not look like the LE or CD, should have different headings, form, etc.
• Implementation Challenge:
• Ensure LE is issued once the 6 pieces of information for the application are received
• Possible use of Pre Approval Authorization Notice or Disclosure
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Good Faith & Tolerances
LE Must Provide A “Good Faith” Estimate Of Closing Costs • An estimate is in good faith if the charge paid by the consumer does not exceed the amount
originally disclosed, except as follows: • Charges that cannot increase (Zero tolerance):
• Fees to affiliated service providers when service is required • Fees to unaffiliated service providers that consumer cannot shop for • Fees paid to the creditor or mortgage broker & transfer taxes (current rule)
• Charges subject to 10% aggregate tolerance (i.e., the sum of all charges in this category may not increase by more than 10%, regardless of the amount of increase of any particular charge in this category):
• Fees paid to unaffiliated service providers where the consumer is permitted to shop & chooses a provider on the creditor’s written list
• Recording fees • Charges that can increase:
• Fees for consumer selected third-party providers not on creditor’s list • Fees for services not required by creditor, even if to an affiliate • Prepaid interest, property insurance premiums, and escrow amounts
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Revised LE & Resetting Tolerances
Events Permitting a Revised LE • Creditor may issue a revised LE & reset tolerance if the revision is due to one of the specified
triggering events & the event causes the charge to increase beyond the applicable tolerance • Changed circumstances (including changes affecting consumer’s eligibility)
• Essentially retains definition (information relied upon inaccurate/ changed, new information not relied upon, extraordinary event)
• Consumer requested change • LE Expires (intent to proceed more than 10 General Business Days after the LE was
provided) • Delayed Settlement Date on a Construction Loan
• Transactions involving new construction where the creditor reasonably expects that settlement will occur more than 60 days after the original LE was provided, as long as the LE explains this
• Rate Lock – Interest Rate Dependent Charges • Creditor must issue a revised LE if the interest rate is not locked when the initial LE
is provided and locking the rate causes the points or lender credits disclosed on the LE to change
• Revised LE must reflect the revised interest rate, points, lender credits, and any other interest rate dependent charges and terms
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Revised LE & Resetting Tolerances
• To reset tolerance & use the revised charge instead of the originally disclosed charge to determine good faith
• The changed circumstance or other event must cause the charge to increase by more than the applicable tolerance for that charge (i.e., causes a charge subject to zero tolerance to increase or causes the sum of all estimated charges subject to the 10% aggregate tolerance to increase by more than 10%)
• Example:
• Changed circumstance increases title fees by an amount totaling 6% of the charges in the 10% category
• Revised LE may not be used for good faith calculation and actual title fees charged would be compared to the originally estimated title fees
• However, if two weeks later a different changed circumstance increased the pest inspection fee by an amount totaling 5% of the charges in the 10% category
• Then the creditor may issue a revised LE reflecting the 11% increase and use the revised title and pest inspection fees for the good faith calculation
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Issuing a Revised LE
• Creditor must provide the revised LE within 3 General Business Days of receiving sufficient information to establish one of the events
• For interest rate related changes, revised LE must be provided no later than 3 General Business Days from the date the interest rate is locked
• Revised LE may reflect the increased charges only to the extent the reasons for revision (i.e., the triggering event) actually increased the particular charge
• Increased fees that do not stem from the event warranting a revised LE cannot be used for purposes of determining good faith (i.e., the charge to the consumer at closing is compared to the charge originally disclosed unless an event warrants a revision)
• Consumer must receive the revised LE no later than 4 Specific Business Days prior to consummation & can never receive a revised LE on or after the date the CD is provided
• If there are less than 4 Specific Business Days between the event triggering the revised LE and consummation, limited exception permits providing the revised LE by including the revised information on the CD
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Managing Tighter Tolerances
• Systems must be able to make an assessment of actual values prior to and at each disclosure event to determine:
• Did any charge subject to 0% variance get added or increase?
• Did the aggregate of the 10% variance section exceed the 10% limit?
• Did a component of the 10% variance section get removed?
• Was an appropriate change circumstance documented?
• Were the charges that changed related to the identified change circumstance?
• Was the change circumstance re-disclosed on time?
• Did the aggregate of lender credits decrease?
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Lender Credits
• Lender Credits subject to zero tolerance
• Lender credits are considered negative charges to the consumer and cannot decrease after disclosure
• Example:
• Initial LE discloses $750 in lender credits to cover a $750 appraisal fee
• Appraisal fee subsequently decreases by $50
• Creditor violates tolerance if it decreases the lender credit by $50
• However, a revised LE that contains revisions to the interest-rate related lender credits (and any other interest rate dependent charges & terms) may be provided when the interest rate is locked
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Closing Disclosure (CD)
• Must be received by the consumer no later than 3 Specific Business Days before consummation & reflect actual terms/costs of transaction
• Seller must receive no later than day of consummation • Mailbox Rule applies – if not provided in person, considered received 3 Specific
Business Days after delivered or mailed (unless evidence of earlier receipt) • How to Count the 3 Days:
• For a closing scheduled for Thursday: • Hand deliver on Monday with confirm receipt • Courier/Fed Ex with signed receipt showing delivery to consumer on Monday • Place in US Mail Thursday of the previous week
• Electronic documents • Same timing/evidence of receipt rules above • E-sign requirements – consumer consent, notice of right to get disclosures in
paper, notice of software compatibility information, notice of procedures to withdraw consent
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Delivery of CD
• Consumer may only waive the waiting period for a bona fide personal finance emergency (same standard as LE waiting period)
• “forfeiture of Earnest Money does not constitute a ‘bona fide personal financial emergency”
• Creditor is ultimately responsible for ensuring the CD is provided to the consumer correctly
• May contract settlement agents to provide the CD to consumers on the creditor’s behalf
• Creditors and settlement agents also may agree to divide responsibility, with the settlement agent assuming responsibility to complete some or all the CD
• But either the creditor or agent must provide only one complete CD to the consumer
• Settlement agent still must prepare & provide the CD to the seller reflecting the actual terms of the seller’s transaction
• Creditor may include a consumer signature line on the LE and/or the CD at the creditor’s option, using rule’s required language
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Delivery of CD
• What Are The Potential Methods Of Delivery? • Hand Delivery • Courier/Express Mail/Postal Service • Electronic – Must Comply With Consumer Consent And Other Applicable E-sign
Provisions • What Does Evidence Of Delivery Look Like?
• Optional Confirm Receipt Line On CD • Mailbox Rule - Presumption Of Receipt 3 Business Days After They Are Delivered Or
Placed In The Mail • Evidence Of Actual Receipt • Audit Trail
• What if we don’t know the final numbers? • Closing disclosure must be completed to the best information reasonably available • Requires due diligence, must try contacting provider
• What about multiple borrowers/obligors? • Generally may provide CD to any consumer who is primarily liable on the obligation • However, in a rescindable transaction, CD must be provided to each consumer with the
right to rescind 23
Corrected CD
• If Closing Disclosure becomes inaccurate before consummation, corrected CD must be provided at or before consummation
• But consumer has the right to ask to inspect the Closing Disclosure the business day prior to consummation
• Changes on corrected CD that require a new 3 business day waiting period:
• APR changes more than 1/8 of a percent (1/4 for irregular transactions – multiple advance loans, or irregular payment periods/amounts)
• Change in loan product (e.g., adjustable to fixed rate) or
• Addition of a prepayment penalty
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Corrected CD
Inaccurate APR Triggering New 3 Day Waiting Period
• New three-day waiting period required if APR disclosed on initial Closing Disclosure “becomes inaccurate, as defined in § 1026.22”
• § 1026.22 continues to state that the APR is accurate if:
• The APR results from the disclosed finance charge; and
• The disclosed finance charge is greater than the amount required to be disclosed
• Therefore, a reduction in the APR of more than 1/8 or 1/4 of a percentage point as a result of a reduction in the finance charge will not render the APR inaccurate
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Corrected CD
Change in Loan Product Triggering New 3 Day Waiting Period
• A “loan product”
• Includes one of the following terms:
• Adjustable rate
• Step rate
• Fixed Rate
• May include the following features that may change the periodic payment:
• Negative amortization
• Interest only
• Step payment
• Balloon payment
• Seasonal payment
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Post Closing
Post-Closing Corrected CD • Corrected CD to the Consumer
• If an event causes the CD to be inaccurate that results in a change to an amount actually paid by the consumer:
• Creditor must deliver or place in the mail a corrected CD no later than 30 calendar days after receiving information sufficient to establish the event
• If the CD contains non-numeric clerical errors (errors that do not affect a numerical disclosure or LE and CD disclosure requirements, such as timing and delivery)
• Creditor must deliver or place in the mail a corrected CD no later than 60 calendar days after consummation
• Example: identification of the incorrect service provider • Corrected CD to the Seller
• Settlement agent must provide a corrected CD to the seller not later than 30 calendar days after receiving information that an event causes the seller’s CD to be inaccurate & results in a change to the amount actually paid by the seller
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Post Closing
Post-Closing Tolerance Cures & Refunds
• If amounts paid at closing exceed the amounts specified in the LE by the applicable tolerance (i.e., zero or 10% aggregate tolerance tests)
• Creditor does not violate the good faith requirement if the creditor refunds the excess to the consumer no later than 60 calendar days after consummation
• Creditor must also deliver or place in the mail the corrected CD that reflects the refund no later than 60 calendar days after consummation
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Record Retention
• Records evidencing compliance generally must be retained for 3 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
• Must retain evidence both that it performed the required actions and that it made the required disclosures
• For example, evidence that it properly differentiated between affiliated and independent service providers when determining good faith estimates, documented events permitting a revised LE, properly calculated average costs
• If the mortgage broker provided the LE, then must also retain LE and evidence of required actions for 3 years
• Creditor must retain copies of the CD and all documents related to the CD for 5 years after consummation
• If the creditor sells, transfers, or otherwise disposes of its interest and does not service the loan, the creditor must provide a copy of the consumer’s CD (and seller’s CD if applicable) to the owner or servicer as part of the transfer file
• Both the creditor and owner/servicer must retain the CD for the remainder of the 5 year period
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Penalties & Liability
• No penalties for disclosure violations under RESPA, but provides for administrative enforcement
• Penalties for disclosure violations under TILA:
• $4,000 per violation
• Actual damages & attorneys’ fees
• CFPB indicates will look to the statutory authority (RESPA or TILA) for each provision to determine penalties
• CFPB has broad investigatory and enforcement powers under Dodd-Frank, including tiered civil money penalties of:
• Up to $5,000/day (any violation)
• Up to $25,000/day (reckless)
• Up to $1 million/day (knowing)
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New Forms
• Change to Format & Content Requirements • Closing Costs Details:
• Fees must be listed Alphabetically (except for hard coded fees) • Fee descriptions must be consistent between LE and CD • Indirect Broker Compensation not disclosed on LE but included in CD (still part of Sec
32 Points & Fees, downstream impact on state disclosures) • Title Fees must be appended with “Title –” in front of the fee name • Optional Fees are appended with “(optional)” at end of fee name • Simultaneous Issuance Title Policies are calculated values (does not match actual
policy invoices) • Fixed number of lines on LE, CD can expand/shorten sections or be split to two pages • Recording Fees and Government Fees are aggregated on LE • Specific and Non-Specific Lender Credits are aggregated on LE
• Standard Calculating Cash to Close table includes gift funds under “Adjustments and Other Credits” (does not match 1003 Details of Transaction)
• Very specific requirements and limitations for use of Addendums
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New Forms: The Loan Estimate
• Loan Estimate combines RESPA’s Good Faith Estimate (GFE) and TILA’s Early Truth in Lending (TIL) form.
• The Loan Estimate generally contains (can vary somewhat for different loan types):
• First page includes: (1) identifying information describing borrower and loan, (2) loan terms, amount, payments and rate; (3) particular loan features such as prepayment penalties and balloon payments; (4) projected monthly payments showing any increases; and (5) estimated cash to close and closing costs.
• Second page breaks down closing costs and includes details on prepaid and escrowed amounts and cash to close.
• Third page contains series of additional disclosures regarding: total payments over five years; APR; a new disclosure, Total Interest Payment (TIP); appraisal availability to borrower, whether loan is assumable, requirement for homeowner’s insurance; late payment policies; refinancing not guaranteed, and possibility of servicing transfer.
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Loan Estimate
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Loan Estimate
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Loan Estimate
New Forms: The Closing Disclosure
• The new “Closing Disclosure” merges and replaces the final Truth in Lending “TIL” statement and the RESPA-required HUD-1 settlement statement.
• Contents: Five-page Closing Disclosure is structured as follows:
• First page is essentially same as first page of Loan Estimate and contains: (1) identifying information describing borrower and loan; (2) loan terms, amount, payments and rate; (3) particular loan features such as prepayment penalties and balloon payments; (4) projected payments showing any increases; and (5) estimated cash to close and closing costs.
• Second and third pages include closing cost details and a calculation of cash to close and a summary of the real estate transaction.
• Fourth and fifth pages provide several disclosures regarding: whether loan is assumable; whether loan has demand feature: requirement for homeowner’s insurance; late payment policies; refinancing cannot be guaranteed; potential for servicing transfer; appraisal availability to borrower; APR; finance charge; amount financed; and new disclosure of Total Interest Percentage (TIP) that includes total amount of interest paid over loan term as a percentage of loan amount.
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Closing Disclosure
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Closing Disclosure
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Closing Disclosure
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Closing Disclosure
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Closing Disclosure
