Jonathan Foxx
President & Managing Director
This third article of a four-part
series beckons us to a deep dive into the Loan Estimate.
In the first article, I discussed
the mission of TILA-RESPA Integration and the Loan Estimate (LE).[i]
The second article introduced and treated the numerous features of the Closing Disclosure (CD).[ii]
Each of the foregoing articles were accompanied by detailed tables to be used
for certain itemized categories and action requirements.
The final and fourth article will
provide an extensive analysis of the Closing Disclosure.
I would suggest that you read all
the articles in this series in order to better understand the TILA-RESPA
Integration Disclosure (TRID) rule promulgated by the Consumer Financial
Protection Bureau (CFPB).
One of the reasons I have written
this series is to cut through the information noise. My concern stems from the nearly
profiteering stance of the flourishing punditry to opine on TRID. This approach
to learning seems to have become the norm recently at conferences, conventions,
webinars, seminars, lectures, and pricey city-to-city forums. Indeed, also, people
with no real experience in directing regulatory compliance, though having some
training background, seem to hang out their TRID webinar shingle. I view the
latter as but shills for generating leads for their affiliated pundits.
Attendees sometimes leave these
convocations and ad hoc caboodles more
confused than beforehand. Occasionally, they call my firm and want to know who
has the correct view, Mr. Pundit A or Ms. Pundit B. I have noticed recently
that certain pundits that previously, freely offered advice on TRID are now
charging fees for their webinars or offering their guidance, for a fee, via
well-known webinar purveyors and online audio/visual enablers. I offer these
reflections not as exculpation, rather as expiation, since I have been on
panels, and given lectures and webinars, alongside many members of the conscientious
punditocracy.
But I happen to think that TRID
is too important, being a generational change in disclosure, to hog the helpful
information about TRID by charging a fee just so somebody could attend and possibly
learn something about it. With that in mind, my firm recently did two proactive
things: (1) we established the TEAM TRID™ task force,[iii]
a relatively inexpensive, cost-effective way to get TRID integration
implementation done efficiently; and importantly (2) we established
TRIDHotline.com,[iv]
an entirely free online service,
manned by our task force, to assist people with their questions about TRID. We
want to listen to their compliance needs!
In my view, these two foregoing
measures help to address the challenge we face as we head toward the compliance
effective date of August 1, 2015. I want to do what I can to ensure that we all
are ready! “Ready” means ready for everybody, since the stability of the residential
mortgage loan originations industry and the financial protection of the
consumer depend on understanding and implementing the many features of the TRID
rule.
Hopefully, you will have read the
previous two articles (i.e., Part I and Part II). Now we will embark on a
detailed review of the new disclosures, beginning in this third article with
the Loan Estimate.
Let’s get real close to the Loan
Estimate. In this article I will not discuss pre-application estimates and
worksheets in detail, except to mention that a creditor or other person may
choose to provide a consumer with a written preliminary estimate of terms or
costs specific to that consumer before providing the Loan Estimate. If it does
so, the creditor or other person must clearly and conspicuously state at the
top of the front of the first page of the estimate in a font size no smaller
than 12-point: “Your actual rate, payment, and costs could be higher. Get an official
Loan Estimate before choosing a loan.”[v]
Furthermore, the estimate may not be made with headings, content, and format
substantially similar to the Loan Estimate or Closing Disclosure.[vi]
So let’s focus on the Loan
Estimate, since I plan to take you solely through the Loan Estimate in
considerable detail. I will discuss salient highlights of the Loan Estimate,
though I caution you to realize that this review is not exhaustive or
comprehensive, given that the TRID rule contains very complex disclosure requirements,
far more involved, byzantine, elaborate, incisive, and potentially enigmatic
than the compendiary features of it discussed herein.
Please follow my analysis carefully.
Allow at least two hours to consider this elucidation. Make notes, raise
questions, seek answers from competent compliance professionals!
HIGHLIGHTS
Loan Estimate Form
For any federally related
mortgage loan,[vii]
the Loan Estimate must be made using the model form set forth in Exhibit H - Form
H-24 in the CFPB’s Federal Register issuance.[viii]
TRID does not require the use of the model form for non-RESPA transactions;
that is, those subject to the integrated disclosures because they are subject
to TILA and secured by real property but are not subject to RESPA.[ix]
There are numerous text, structure, and field descriptions associated with the
LE disclosure. Thus, it would be wise not to deviate from the model provided.
For those non-RESPA loans, the
disclosures must be made with headings, content and format substantially
similar to form H-24. Use of model form H-24, properly completed with accurate
content, would constitute compliance for those loans.[x]
According to the CFPB, the Loan
Estimate integrates at least seven pages of disclosures, including:
·
Three pages of the RESPA Good Faith Estimate;
·
Two pages typically used for early TILA
disclosures;
·
One page typically used for the appraisal notice
under the Equal Credit Opportunity Act;
·
One page typically used for the servicing
disclosure.
The Loan Estimate also incorporates
disclosures of:
·
The total interest percentage (TIP);[xi]
·
The aggregate amount of loan charges and closing
costs the consumer must pay at consummation;[xii]
·
For refinances, the anti-deficiency protection
notice;[xiii]
·
The homeowner’s insurance disclosure.[xiv]
TRID imposes strict
specifications for the Loan Estimate. For instance, unless otherwise
specifically provided, a disclosure that does not apply to a transaction should
be left blank, not marked “not applicable” or “N/A,” and, as a general rule,
may not be deleted.[xv]
There are special rules for
certain disclosures. For example, the Adjustable Payment and Adjustable
Interest Rate tables may be included only when applicable to the transaction
and otherwise must be excluded.[xvi]
The importance of complying with
the specialized requirements cannot be overstated: failure to comply with the precise and detailed rules may lead to
significant liability and litigation risk, under both TILA and RESPA, as
well as other statutes, such as the Equal Credit Opportunity Act, State and
federal unfair, deceptive or abusive acts or practices (UDAAP) statutes, and
State mini-TILA and mini-RESPA statutes.
Given the rigid features of the
LE, I suggest that a creditor should use Form H-24 for all loans covered by the
TRID rule, even if the loan is not a RESPA loan. TRID permits providing a cover
letter so long as the Loan Estimate is provided separately from the cover
letter.[xvii]
Creditors may not add pages in between the pages of the Loan Estimate, or at
the end of the Loan Estimate, except as permitted by Regulation Z.[xviii]
Creditors may not add information not required by TILA Regulation Z. If the
creditor devises its own form for loans not subject to RESPA, it must be very careful
to compare that form to Form H-24 and ensure that each difference is carefully
examined and justified. TRID does not permit any deviations from form H-24 for
forms optimized to be shown on a computer screen or tablet.
Timing and Receipt
The creditor or mortgage broker
must provide (either give or mail) the Loan Estimate to the consumer no later
than 3 business days after receiving the consumer’s application for a mortgage
loan. The standard definition of “business day” applies (i.e., a day on which
the creditor’s offices are open to the public for carrying on substantially all
of its business functions).[xix]
A mortgage broker that gives a Loan Estimate must comply with all the Loan
Estimate requirements as if it were the creditor.[xx]
If the LE is not delivered in
person, “receipt” occurs three business days after the Loan Estimate has been
delivered or placed in the mail. Alternatively, the creditor may rely on
evidence (i.e., a signed receipt for overnight delivery) that the consumer
received the disclosures earlier than the end of the three business days.[xxi]
One question that comes up often
is how to manage the timing with respect to electronic delivery. The
3-business-day period applies to methods of electronic delivery, such as email.
Thus, if a creditor sends a Loan Estimate by email on a Monday, the consumer is
considered to have received the disclosures on a Thursday, unless the creditor
relies on evidence that the consumer received the emailed disclosures earlier
(such as an acknowledgment of email receipt). Creditors relying on electronic
delivery methods must comply with the consumer consent and other applicable
provisions of the E-Sign Act.[xxii]
Irrespective of E-Sign consent
provisions, we advise our clients to consider:
·
Whether procedures are needed to deal with
electronic disclosures returned undelivered;
·
Whether electronic disclosures are provided in a
form that can be retained;
·
The duration of electronic notices or
disclosures available to consumers through the financial institution’s systems;
·
Establishing a process to appropriately respond
to consumer requests for paper copies of electronic notices and disclosures;
·
Dealing with changes in hardware or software
that may create a risk that consumers will no longer be able to access or
retain electronic disclosures; and
·
Ensuring their electronic disclosures comply
with the timing, format, content, and recordkeeping requirements of the
underlying substantive rule (i.e., Regulation Z).
