Do We Finally Have a Better TRID?

By Victoria Stephen, Compliance Alliance

On July 7 the CFPB finally issued its much-anticipated final rule amending various parts of the TILA-RESPA Integrated Disclosure Rule. Clocking in at 560 pages, the final rule clarifies a variety of issues that have been thorns in the sides of lenders across the country for two years now, but it also leaves much to be desired.

The final rule is effective Oct. 1 but compliance isn’t mandatory until Oct. 1, 2018. During this year-long optional compliance period, the bank can comply with the changes all at once or phase in the changes one at a time, even within the course of a single transaction.

Despite this flexibility, the bank cannot phase in certain parts of the final rule in a way that would violate existing rules, though. For example, the bank can’t provide a good faith estimate followed by a closing disclosure for a transaction secured by a cooperative unit because the current rule requires that disclosures on the loan estimate also be included on the closing disclosure.

Tolerances for the total of payments

The first of the substantive changes is the addition of a tolerance provision to the total of payments that parallels the finance charge tolerance. Generally, the total of payments disclosure will be considered accurate if it is understated by no more than $100 or overstated at all, although this varies some based on the type and status of the loan.

Privacy and sharing of information

The CFPB noted that “it is usual, accepted, and appropriate” for the closing disclosure to be provided not only to consumers and sellers, but also their real estate brokers and other agents. The new rule clarifies that the bank may provide separate disclosures to a borrower and seller if state law prohibits sharing this information, as well as in any other situation where the bank chooses to provide separate disclosures.

Cooperatives

This change is probably the most straightforward. Cooperative units will now be subject to TRID regardless of whether they are considered real property under state law. If you recall, TRID applies if a loan meets three basic tests: 1. consumer purpose; 2. closed end; and 3. secured by real estate (other than reverse mortgages). The problem is that TRID itself doesn’t define real property; rather, state law does. With this change, the CFPB sought to create a uniform rule to avoid “uncertainty and potential inconsistency” in providing disclosures for cooperatives.

Housing assistance lending

Regulation Z provides an exemption from the TRID requirements for low-cost, non-interest bearing, subordinate-lien housing assistance loans that satisfy six criteria, and Regulation X provides a similar exemption. One of the criteria limits the costs that may be paid by the borrower without loss of eligibility for the partial exemption, and the final rule broadens these costs. Transfer taxes, recording fees, application fees, and housing counseling fees may now be paid by the borrower, and recording fees and transfer taxes are also excluded from the 1-percent cap on total costs payable by the borrower.

Further, it hadn’t been clear whether the lender was allowed to provide TRID disclosures even if the six criteria of the exemption had been met. The new rule generally says the answer is yes. Assuming the loan meets the six criteria, the lender may provide either the general TIL disclosures or a compliant LE and CD, and does not need to provide the special information booklet, GFE, or HUD-1.

Settlement service provider list

Besides these new provisions, the final rule also clarifies several other existing areas of concern. One is whether to apply the 10 percent tolerance level when the bank actually allowed the borrower to shop for a service, but failed to include the service on the settlement service provider list (SSPL). The final rule allows the bank to do so as long as it actually allows the borrower to shop; if it doesn’t, then the zero percent tolerance applies. How does the bank prove that it allowed the borrower to shop though? Somewhat unhelpfully, the CFPB simply says that it depends “on all the relevant facts and circumstances” in each case.

As we know, if the bank wants to apply “shopping tolerance levels” to settlement charges, it has to provide an SSPL listing the services it requires and for which the borrower can shop. For example, if the bank requires lender’s title insurance and allows the borrower to shop for it, the creditor has to disclose the lender’s title insurance on the loan estimate, and include it on the SSPL with at least one available provider.

But what about fees that the lender doesn’t require, but the title company does? The final rule makes clear that the bank is not required to provide a detailed breakdown of all related fees that are not directly required by the bank, like a notary fee, title search fee, or other administrative services needed to provide the service required by the lender.

What about everything else?

As important as what the final rule does clarify, however, is what it doesn’t. Yes, we’re talking about the infamous “black hole” problem. Instead of tackling the really tough issues like this one, the CFPB punted and issued a new proposal to request additional comments on it instead. If you’ve been lucky enough to not yet encounter this, a timing issue arises when the bank has to reset tolerances on the Closing Disclosure, but closing has also been delayed.

The new proposal would allow the bank to reset tolerances on the Closing Disclosure regardless of when closing is scheduled. The CFPB seeks comments on whether allowing this might have other undesired effects, and the deadline for submitting these is 60 days after publication in the Federal Register.

While we still have to wait on a verdict for the black hole problem, there is a laundry list of other changes and clarifications that are worth reviewing in the final rule, including Calculating Cash to Close calculations, construction loan disclosures, escrow closing notices, partial payment disclosures, and several technical corrections. Find the full rule here: http://files.consumerfinance.gov/f/documents/201707_cfpb_Final-Rule_Amendments-to-Federal-Mortgage-Disclosure-Requirements_TILA.pdf

Owned by 28 state bankers associations, Compliance Alliance provides an all-inclusive compliance solution for banks of all sizes. Membership offers three main areas of support including downloadable documents, a compliance hotline and document review services. Compliance Alliance members receive unlimited access to all products and services for one annual fee. Visit www.compliancealliance.com or call (888) 353-3933 for more information about the benefits of a membership with Compliance Alliance.

Victoria E. Stephen serves as associate general counsel for Compliance Alliance. While receiving her bachelor of business administration in banking finance from the McCombs School of Business, Victoria worked in both deposit and lending services. She continued her interest in financial services at the University of Texas School of Law by focusing on secured transactions, taxation, contracts, and corporate governance. Victoria has since worked in corporate tax law, mergers and acquisitions, and performed legal research on a range of regulatory issues. As one of our hotline advisors, Victoria helps Compliance Alliance members with a variety of compliance and regulatory questions.