Thank you to ComplianceBuzz for putting together a comprehensive list of 40 TRID Facts You Need To Know. We are less than a month til the October 3rd deadline and wanted to refresh you and your team on some of these facts. An added bonus...You can also take a sneak peek at our eBook "Steps to Reduce Third Party Risks" as part of our mortgage lending services. Enjoy!
Fact #1: Lenders (and therefore Loan Originators) are prohibited from requiring verification documents such as a verification of employment or a purchase & sale contract prior to issuing a Loan Estimate. Lenders are allowed to ask about that type of information but cannot imply that the borrower must provide it or that the information/documents are required in order to obtain a Loan Estimate. A document such as a sales contract can be provided voluntarily by the borrower but cannot be required.
Fact #2: Because the new rule does not allow certain information to be required prior to issuing a Loan Estimate (LE), many lenders will not be able to continue their PreApproval program in current form. Verification information and documents otherwise submitted to an underwriter for PreApproval can no longer be required prior to issuing a Loan Estimate (LE). Lenders doing robust (and compliant) PreApproval programs will be forced to prove that the borrower voluntarily submitted certain information or will have to issue a LE but not a PreApproval.
Fact #3: The rule requires customers to have in their possession final closing figures on the new Closing Disclosure (CD) at least 3 business days prior to closing. An Electronic Closing Disclosure must be e-signed (not just accepted) and in-person Closing Disclosures must be wet signed in order to schedule the closing. U.S. Mailed Closing Disclosures must be placed in the mail 6 business days in order to comply with the 3-business review period and schedule the closing.
Fact #4: After delivering the Closing Disclosure, a new 3 business day review period is required if the consumer changes the loan product or term, if a prepayment penalty is added or if the APR changes by more than 1/8 from the previously disclosed APR. Other changes required a new CD to be delivered but do not require a new 3 business day waiting period.
Fact #5: The new rule applies Truth in Lending Act (TILA) liability to the lender regardless of who produces, edits or amends the new Closing Disclosure (CD).
Fact #6: Lenders are required to produce a list of service providers for any settlement related service where the consumer can shop for a provider. In most cases, the fees for the providers on the list – settlement agents, survey, pest, etc. – are held to a 10% tolerance.
Fact #7: Lenders who do not allow consumers to shop for services are held to zero tolerance on those fees. Broker compensation and affiliate fees are also zero tolerance regardless of whether the consumer can shop or did shop.
Fact #8: The new Closing Disclosure (CD) must include all the identical line items and names of fees that were included in the Loan Estimate (LE). These fees are subject to the Changed Circumstance rules under RESPA, but this means that settlement service providers, in particular, must coordinate with lenders to properly identify fees from the start.
Fact #9: The Loan Estimate (LE) does not include certain charges that factored into the interest rate, like lender-paid broker compensation. Lender-paid broker compensation is considered indirect compensation and found on other disclosures but not the LE.
Fact #10: A Revised Loan Estimate is required to be delivered to the consumer within 3 business days after rate lock. This is the only required redisclosure within the rule. All other redisclosures are “permissive” meaning they only become necessary if there happens to be a changed circumstance or the consumer requests a new copy.
Fact #11: A Revised Loan Estimate (LE) cannot be issued once the Closing Disclosure (CD) is finalized. This means all rate lock activity must be finalized one business day prior to issuing the CD. In the case of U.S. Mail disclosures which go out 6 business days prior to closing, the Revised LE must be delivered to the consumer 7-8 business days prior to closing giving the consumer enough time to accept the disclosures after which the CD can be delivered.
Fact #12: The consumer can e-sign the electronic disclosure or wet sign an in-person disclosure any time on the 3rd business day prior to closing, allowing the closing to, legally, occur anytime on that 3rd business. However, even though the rule allows flexibility to obtain confirmation the consumer received the Closing Disclosure, it is subject to lender’s scheduling policies.
Fact #13: Once the Closing Disclosure (CD) is confirmed to be in the hands of the consumer either via signature or U.S. Mail, last minute changes to the CD can be handled between the lender and settlement agent without further delaying the closing. A Revised CD can be created and sent to the closing table for most adjustments and unanticipated costs. However, the lender remains liable for delivery a Final CD with accurate numbers, and retaining that document for the file, even if new information is discovered after closing.
Fact #14: A lender may revise and deliver a new Closing Disclosure (CD) up to 30 days after closing. For example, if the closing attorney discovers a $5.00 discrepancy in recording charges, the attorney is required to notify the lender, the lender is required to update the Final CD and confirm delivery to the consumer via electronic signature, wet signature or U.S. Mail.
Fact #15: Lenders that use an affiliated appraisal management company, or lenders, like many banks, that utilize an in-house appraisal ordering system will be subject to zero tolerance on most appraisal fees. These fees are subject to the changed circumstance (COC) rules but, barring an actual COC, the initial disclosed fee will be the only allowable fee charged to the consumer at closing.
Fact #16: Many large banks have announced publicly that they will mail the Closing Disclosure (CD) to consumers via the U.S. mail. In some cases, lenders are requiring a final CD 10 days before the anticipated closing date. This means they will require a final CD to be placed in the mail at least 6 business days prior to closing
Fact #17: Though requiring the consumer to sign the Loan Estimate (LE) and Closing Disclosure (CD) is optional, many lenders are going to require a signature, or confirmed U.S. Mail receipt, in order to ensure the best possible documentation of the loan file.
Fact #18: The Loan Estimate (LE) is required to be delivered to the consumer within 3 business days of the lender obtaining the following information – consumer’s name, income, social security number (i.e. credit report), property address, estimate value of the property and amount of loan desired. Generally, this means within 3 days of pulling credit on a refinance transaction and within 3 days of obtaining the potential property address for a purchase transaction.
Fact #19: While the lender may structure online systems to collect information in a specific order ensuring that we can act quickly when the 6th piece of application information is collected, the new rule will change how many lenders issue initial paperwork to the consumer. Point of sale (POS) or front-end websites that accept applications are allowed to sequence the information that the consumer provides so that the lender can properly prepare a Loan Estimate but cannot be set-up to restrict what the borrower provides. For example, POS software cannot require a borrower’s income or current address prior to allowing them to submit application information to the lender. However, lenders may request or leave fields for this information open as long as the borrower is able to submit without it. The rule is intended to allow consumers to collect multiple Loan Estimates (LE’s) and compare lenders and loans products.
Fact #20: The only fee a lender is allowed to charge prior to a documented Intent to Proceed is a fee associated with obtaining a standard credit report. Lenders may not collect or retain methods of payment (i.e. a check or CC number) for use with later charges such as the appraisal, either. Lenders many not charge the borrower any fees associated with requesting a Loan Estimate (LE) or producing a LE including document fees or application fees.
Fact #21 – The lender is allowed to issue a fee or cost estimate prior to issuing a Loan Estimate (LE) under certain conditions. It cannot be called a Good Faith Estimate (GFE) and it cannot look similar to the GFE or LE. For example, a borrower may have provided Norcom 5 pieces of information but has not identified a property address. The LO is allowed to use their own estimates or worksheet to give the borrower a sense of the costs associated with the transaction subject to current regulations governing this type of conversation (TILA’s advertising rules, ECOA, and Unfair, Deceptive, or Abusive Acts and Practices (UDAAP)).
Fact #22 – The “Estimated Closing Costs” and “Estimated Cost of the Transaction” on the Loan Estimate (LE) cover the entire cost of the transaction even if there is other financing or other product(s) involved. For example, a transaction with subordinate financing must still show the cost of the entire transaction on the initial LE.
Fact #23 – The Loan Estimate (LE) now includes a new feature called the Total Interest Percentage or TIP. The TIP shows the consumer the cost of the financing over the life of the loan as a percentage of interest in the first five years. While this information was always included on the initial Truth In Lending (TIL) statement, it was never displayed to the consumer as a percentage. In most test cases this number has been between 62%-82% and can be startling for the consumer. It remains to be seen whether consumers will question it more than the APR.
Fact #24 – The Loan Estimate (LE) is required to be completed by the lender with “the best information known at the time” of the disclosure. Many lenders are concerned about the ability to comply with the new application definition and still meet the rule’s tolerance requirements. For example, there are certain fees associated with construction loans, escrows or other fees that are not known at the time of the LE or even the Closing Disclosure (CD). We must be careful to document what information is known when if we are planning to rely on the “best information known at the time.” Please note – TRID maintains the current changed circumstances (COC) provisions in the law; however, the entity enforcing COCs and the attention paid to COCs has changed. Keep in mind the “best information known at the time” standard will be interpreted and applied by the Consumer Finance Protection Bureau (CFPB) and our state regulators during examination. It will be critical to document all fees and changed circumstances in the loan file to provide the reason a fee is changing.
Fact #25 – The Loan Estimate (LE) contains “Additional Considerations” that include a statement about Assumption, a statement for refinancing that reads “You may not be able to refinance this loan,” and a statement from the lender about whether or not the lender intends to service the loan. There is no option for “might service” as there is today, so lenders are required to determine based on the best information available at the time of disclosure whether we will be servicing the loan.
Fact #26 – The Closing Disclosure (CD) includes a statement from the Consumer Finance Protection Bureau (CFPB) asking the consumer to contact CFPB in case of questions or concerns. It directs consumers to www.consumerfinance.gov/mortage-closing. It is a good idea for LO’s and closing agents to be familiar with this site in case a consumer decides to visit the site or has questions.
Fact #27 – The lender is not obligated to issue a disclosure to the Seller in a purchase transaction. The lender may participate in the creation and disclosure of the document. The settlement agent is required to provide such a document and the Consumer Finance Protection Bureau (CFPB) has provided a model form on their website.
Fact #28 – The Loan Estimate (LE) and Closing Disclosure (CD) are not model forms. The LE and CD are mandatory forms. The old Good Faith Estimate (GFE) and HUD-1 Settlement Statement were model forms that the secondary market insisted and the industry adopted. The same LE and CD forms will be issued by all lenders offering covered transactions.
Fact #30 – The Loan Estimate (LE) categorizes fees based on whether the consumer can shop and the Closing Disclosure (CD) categorizes fees based on whether the consumer did shop. This is a challenge for loan origination systems (LOS) because the consumer dictates tolerances because if the consumer shops and chooses a provider on the lender’s settlement provider list (even by coincidence), the fee becomes a 10% tolerance fee. This area also poses a challenge for compliance folks because documenting the consumer’s choice can be difficult, at best. What would the consumer say if asked about whether they felt free to shop?
Fact #31 – The Closing Disclosure (CD) must be disclosed and received by at least one of the primary obligors on a purchase loan and all parties with the right to rescind in a refinance transaction. Lenders should use the title report because we might need to send a CD to some who is on title and has the right to rescind but is not a party to the loan application.
Fact #32 – Lender credits are disclosed on the Loan Estimate (LE) based on the best information reasonably available at the time. It must be an accurate defensible amount and creates a prospective obligation so it can only be amended with a valid changed circumstance such as rate lock. The policy is stricter than the guidance with regard to the Good Faith Estimate (GFE) and must be based on actual price quotes.
Fact #33 – The Consumer Finance Protection Bureau (CFPB) wanted the Loan Estimate (LE) to include the actual costs to the consumer for certain products and services. As a result, the CFPB requires the actual cost of the owner’s title policy to be shown to the consumer. For states that allow simultaneous issuance pricing, the CFPB requires showing the “real” cost of the owner’s title. This is accomplished by taking the owner’s title premium adding the discount premium and subtracting the full amount of the lender’s title premium.
Fact #34 – The Closing Disclosure (CD) must continue to be disclosed to the borrower up to 60 days after closing if any changes occur. If the change is a monetary change to a fee or credit discovered after closing, the CD must be redisclosed within 30 days after the closing. If the change is a non-numeric error, the CD must be redisclosed within 60 days.
Fact #35 – The TRID rule includes a five (5) year record retention policy for certain Truth-in-Lending documentation. Regardless of the rule’s threshold, many investors will require, and many lenders will adopt, much more robust record retention policies in order to reduce risk and protect against the private right of action in TILA’s liability. Technically, though, LE and CD will be required to be in the lender’s records for 5 years.
Fact #36 – The Loan Estimate (LE) includes a section called “Other Costs.” Other costs are any costs the borrower incurs but are not required by the lender. For example, required costs must be included in Boxes A-C. Optional services or costs such as owner’s title policy, some home inspections, home warranties, and other similar additional costs must be reflected on the LE. These fees would only be disclosed if the lender is aware these exist. Norcom will only be held to a best information available standard for these fees and will not be held to any tolerance associated with this box.
Fact #37 – Recording Fees are disclosed in the Government Fees box and have been moved to the 10% tolerance category. Unfortunately, if a recording fee were to increase after closing, we do not need to charge the borrower, but we would need to document the change and issue a Revised Final Closing Disclosure (CD). Variances as small as $0.01 would require a new CD, even after closing, to avoid possible TILA liability. This increases the importance of constant communication between the lender and the settlement agent.
Fact #38 – Transfer taxes remain a zero tolerance fee. Though disclosed on the Loan Estimate (LE) in the same box as the recording fees, transfer taxes are held to a different tolerance. This created additional complexity for loan origination systems because the software needs to be dynamic as the loan fees move through the disclosure process.
Fact #39 – As evidenced by Fact #1 and Fact #2, a lender may not require the consumer provide certain documentation, like a sales contract, before issuing a LE. At the same time, if the consumer provides more information than the lender was expecting, we are still required to issue a LE within 3 business days. The Consumer Finance Protection Bureau (CFPB) defines the lender obtaining the information as the first instance it is known. A purchase & sale contract faxed or e-mailed over on an otherwise Pre-Qualified borrower triggers the 3 day timetable to begin and requires a LE.
Fact #40 – The Truth In Lending (TILA) penalties on lenders who do not comply with the new Loan Estimate (LE) and Closing Disclosure (CD) rules are severe. An honest error or mistake on the CD comes with a $5,000 per day fine. A reckless or careless error (defined as the lender should have known better or a reasonable lender would not have made the error) is a $25,000 per day fine. A knowing, intentional or ignored error is $1,000,000 per day.