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).
The creditor or broker must
provide the Loan Estimate to the consumer no later than the seventh business
day before consummation of the transaction (except for time-share
transactions).[xxiii]
There is a more specific
“business day” definition (viz., includes non-holiday Saturdays) that applies
to the requirement that the Loan Estimate be provided at least 7 business days
before consummation. The term “consummation” means the time when the consumer
becomes contractually obligated on the credit transaction. This 7-day period
begins when the creditor delivers the Loan Estimate or places it in the mail,
not when the consumer receives or is considered to have received the
disclosures.[xxiv]
In this definition, excepting only timeshare transactions, “business day” is all
calendar days except Sundays and legal national public holidays (i.e., New
Year’s Day, Birthday of Martin Luther King, Jr., Washington’s Birthday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day).
A question I often get is: how do
these two different definitions of “business day” affect the proper disclosure
timing? The 3-business-day period is timed from receipt of an application,
whereas the 7-business-day waiting period begins when the creditor delivers the
Loan Estimate or places it in the mail, not when the consumer receives or is
considered to have received it.
The consumer may modify or waive
the 7-day waiting period if he or she determines that the loan is needed to
meet a bona fide personal financial
emergency. Any modification or waiver may not occur until after a Loan Estimate
has been received. To modify or waive the 7-day waiting period, the consumer
must give the creditor a dated written statement describing the emergency,
specifically modifying or waiving the 7-day period, and bearing the signature
of all consumers who are primarily liable.
Delivery: How and By Whom
Regulation Z allows either the
creditor or a mortgage broker to provide the Loan Estimate.[xxv]
This rule closely reflects the requirements under RESPA’s Regulation X,[xxvi]
including:
·
If a mortgage broker receives an application,
either the creditor or the broker must provide a Loan Estimate within 3
business days of receipt.
·
If the mortgage broker provides the Loan
Estimate, the mortgage broker must comply with all applicable requirements as
if it were the creditor.
·
The creditor must ensure that the Loan Estimate
is provided in accordance with all the applicable requirements.
·
Disclosures provided by a mortgage broker in
accordance with the requirements satisfy the creditor’s obligation.
·
If a mortgage broker issues a Loan Estimate, the
broker also must comply with the 3-year record retention requirements.[xxvii]
·
The creditor is not permitted to issue a
separate Loan Estimate or revised disclosures to correct a mortgage broker’s
error.[xxviii]
The creditor is expected to maintain communications with the broker to ensure
that the broker is acting in place of the creditor (even if the creditor does
not know about the broker’s involvement until after the Loan Estimate has been
given).[xxix]
·
Either the creditor or the mortgage broker may
provide revised Loan Estimates based on any of the six legitimate reasons for
revisions.
·
Mortgage brokers are not required to get
authorization from creditors before providing Loan Estimates.
·
Creditors are bound by the terms of the Loan
Estimate, subject to one of the six legitimate reasons for revisions, whether
or not the creditor has authorized the mortgage broker to provide the Loan
Estimate.
·
The regulation does not explicitly require a
mortgage broker to provide application information to the creditor nor
establish other conditions brokers must satisfy before they issue a Loan
Estimate. The regulation considers the creditor to be in the best position to
set requirements contractually.
To emphasize: even if a mortgage broker provides the Loan
Estimate, the creditor remains responsible for complying with all requirements concerning
provision of the form; and a broker that provides a Loan Estimate also is
required to comply with all requirements regarding the Loan Estimate as if it
were the creditor.[xxx]
Application Definition
TRID formally does away with the
catch-all, seventh information item. Six information items are needed to
constitute an application. A creditor may provide a Loan Estimate without
receiving all of the six items of information that comprise an “application”
within the meaning of Regulation Z. But if it does this, the receipt of any of
the missing items does not constitute a “changed circumstance” to justify a
revised Loan Estimate.
Prior to providing the Loan
Estimate, a creditor may collect, but may not require, documentation verifying
information provided by the consumer in the application. For example, a
creditor may not require a purchase and sale agreement before providing a Loan
Estimate for purchase transactions but it may accept a copy if the applicant
voluntarily offers it.
A creditor need not provide a
Loan Estimate if it declines the loan or the consumer withdraws the application
within the 3-business-day period. However, if the creditor fails to provide the
Loan Estimate and then later consummates the transaction on the terms
originally applied for, then the creditor has not complied with the TRID Rule.
Therefore, if, following a decline or withdrawal within the 3-day period, the
consumer later amends the application because of the creditor’s unwillingness
to approve it on the terms originally requested, the creditor did not violate
the regulation by failing to provide a Loan Estimate based on the original
terms, but the amended application must be a new application that requires a
Loan Estimate.
In other words, procedurally, if
the creditor determines within the 3-business-day period that the application
will not be approved on the terms requested by the consumer, or if the consumer
withdraws the application within that period, the creditor does not have to
provide a Loan Estimate. If the creditor does not provide the Loan Estimate, it
will not have complied with the Loan Estimate requirements if it later
consummates the transaction on the terms originally applied for by the
consumer. If the consumer then amends the application and the creditor
determines the amended application may proceed, the amended application is a
new application that requires a Loan Estimate within the 3-business-day period.
Collection of Fees and Consumer
Documents
With the exception of a creditor
or other person imposing a bona fide
and reasonable fee for obtaining the consumer’s credit report, TRID prohibits a
creditor or other person from imposing a fee on a consumer before the consumer
has:
·
Received the Loan Estimate,[xxxi]
and
·
Indicated an intent to proceed with the
transaction.[xxxii]
The consumer may indicate intent
to proceed in any manner the consumer chooses, unless the creditor requires a
particular manner of communication, provided that the creditor does not assume
silence indicates intent. The creditor must document the communication of
intent to satisfy TILA’s record retention requirements.[xxxiii]
A consumer’s signature or initials on a Loan Estimate do not constitute an
intent to proceed. A creditor may not allow the Loan Estimate to be signed by
the consumer to document intent to proceed – the optional signature on the Loan
Estimate is only to document receipt of the Loan Estimate.
Oral communication in person
immediately upon delivery of the Loan Estimate sufficiently indicates intent;
also valid would be an oral communication over the phone, written communication
by email, or signing a pre-printed form, if the action occurs after receipt of
the Loan Estimate.[xxxiv]
But silence is not acceptable.
One highly charged question
usually is posed whenever I outline the requirements concerning the collection
of fees prior to the consumer receiving the Loan Estimate. The fact is no
manner of constructive receipt of fees is permitted prior to the Loan Estimates
receipt by the consumer, other than the bona
fide and reasonable fee for obtaining the consumer’s credit report. A
creditor or third party imposes a fee if the person requires a consumer to
provide a method of payment, even if
payment is not made at that time. For example, if a creditor or other
person requires the consumer to provide a $500 check to pay for a “processing
fee” before the consumer receives a Loan Estimate, the creditor does not comply
with the TRID rule, even if the creditor or other person stated that the check
would not be cashed until after a Loan Estimate was received by the consumer
and waited to cash the check until after the consumer indicated an intent to
proceed. Similarly, a creditor may not require the consumer to provide a credit
card number before the consumer receives the Loan Estimate and indicates an
intent to proceed, even if the creditor promises not to charge the card until
after that time – although the creditor may accept a credit card number for
purposes of imposing a reasonable and bona
fide credit report fee, and may maintain the number on file so long as no
other fee is imposed until the Loan Estimate is received, the consumer has
indicated an intent to proceed, and the creditor has received a separate
authorization to process the additional fee charge.[xxxv]
With respect to consumer
documentation, a creditor or other person may not require a consumer to submit
documents verifying information related to the consumer’s application before
providing a Loan Estimate.[xxxvi]
The creditor or other person may collect from the consumer any information it
requires prior to providing a Loan Estimate or at the same time as it collects
the six items of information that constitute an “application,” but the creditor
or other person may not require the consumer to submit documentation to verify
that information until a Loan Estimate has been provided.
Consider these two examples. The
creditor may ask for the sale price and property address, but may not require
the consumer to provide a purchase and sale agreement to support the
information the consumer orally provides until after a Loan Estimate has been
given. A mortgage broker may ask for the names, account numbers, and balances
of the consumer’s checking and savings accounts, but may not require the
consumer to provide bank statements or similar documentation until the Loan
Estimate has been provided.[xxxvii]
Both this fee imposition
prohibition and the prohibition against requiring verification documentation
take effect August 1, 2015 and are not tied to the receipt of a loan
application.
Good Faith and Tolerance Rules
TRID continues and expands the
general RESPA rule that the charges actually paid by or imposed on the consumer
for certain settlement services and transfer taxes when the loan is closed may
not exceed the amounts included on the early disclosures, with several
exceptions.[xxxviii]
Like RESPA, TILA (as amended by
the TRID rule), establishes tolerance categories limiting the permissible
variations between the estimated amounts and the actual amounts: the 10%
category, the unlimited variation category, and the zero percent category.
An amount disclosed on the Loan
Estimate is considered in good faith and in compliance with TRID if the actual
charge does not exceed the estimated amount by the amount permitted by the
applicable tolerance rule.[xxxix]
10% Category
An estimate of a charge for a
third-party service or a recording fee is in good faith if:
(1)
the aggregate amount of actual charges for
third-party services and recording fees does not exceed the aggregate amount of
those charges disclosed on the Loan Estimate by more than 10 percent;
(2)
the charge for the third-party service is not
paid to the creditor or an affiliate of the creditor;[xl]
and
(3)
the creditor permits the consumer to shop for
the third-party service. Only these items fit into the 10% category:
a. fees
paid to an unaffiliated third party if the creditor
i. permitted
the consumer to select a settlement service provider not on the written list of
service providers and
ii. disclosed
on that list that the consumer may select the provider; and
b. recording
fees.[xli]
Assume that the Loan Estimate
includes a $300 estimated fee for a settlement agent, the settlement fee is
included in the 10% category, and the sum of all 10% category charges,
including the settlement agent fee, equals $1,000. If the actual settlement
agent fee exceeds 10% (i.e., exceeds $330), then the creditor does not violate
the tolerance rule if the sum of all 10% category charges does not exceed 10%
(i.e., $1,100). The focus of the 10% tolerance rule on aggregate amounts also
provides flexibility in disclosing individual fees. For example, if the
creditor does not include an estimated charge for a notary fee, but a $10
notary fee is charged to the consumer and the notary fee qualifies as a 10%
category fee, then the creditor does not violate the tolerance rule if the sum
of all 10% category amounts does not exceed $1,100, even though the creditor
did not disclose the notary fee on the Loan Estimate.[xlii]
Unlimited Variation Category
An estimate of the following
charges is in good faith if it is consistent with the best information
reasonably available to the creditor at the time it is disclosed, regardless of
the amount of variation between it and the amount actually charged:
(1)
prepaid interest;
(2)
property insurance premiums;
(3)
amounts placed into an escrow, impound, reserve,
or similar account;
(4)
charges paid to third-party service providers
for which the consumer is permitted to shop and which the creditor did not
identify on the written list of service providers; and
(5)
charges paid to third-party service providers
not required by the creditor, including affiliates of the creditor.
Under TRID, a fee is not
considered “paid to” a person if the person does not retain the fee. A fee is
also not considered “paid to” a person if the person retains the fee as
reimbursement for an amount it has already paid to another party.[xliii]
Differences between the amount of
these charges disclosed in the Loan Estimate and actual charges do not
constitute a lack of good faith so long as the original estimated charge, or
lack of an estimated charge for a particular service, was based on the best
information reasonably available to the creditor when the Loan Estimate was
provided. A charge is considered to be in good faith if the creditor charges
the consumer less than the amount disclosed on the Loan Estimate.
Zero Percent Category
All other charges are in good
faith only if the actual charge does not exceed the estimated amount. These
include, but are not limited to, fees paid to the creditor, fees paid to the
mortgage broker, fees paid to an affiliate of the creditor or mortgage broker,
fees paid to an unaffiliated party if the creditor did not permit the consumer
to shop for a third-party settlement service provider, and transfer taxes.[xliv]
Changes and Revised Loan
Estimates: Six Situations
A creditor may provide a revised
Loan Estimate at any time. The provision addressing revised Loan Estimates[xlv]
does not prohibit a creditor from providing updated disclosures. Rather, it
provides an exception to the general rule that an actual charge must be
compared to the amount in the original Loan Estimate.
There are six specific situations
where providing a revised Loan Estimate allows the creditor to compare the
actual amounts charged to the updated figures that have increased since the
original Loan Estimate and that justify the revised Loan Estimate. If the
creditor issued a revised Loan Estimate for a reason other than the six
situations, then the creditor must compare the actual amounts charged to the
earlier disclosures, not those on the revised Loan Estimate. I provide a brief
outline of these six situations.[xlvi]
If the creditor wants to use a
revised Loan Estimate, the creditor must provide the revised Loan Estimate
within three business days after receiving information sufficient to establish
that one of the six situations applies.[xlvii]
The six situations are these:
1)
Changed Circumstance Affecting Settlement
Charges
A changed
circumstance causes the estimated charges to increase or, in the case of a 10%
category charge causes the aggregate amount of those charges to increase by
more than 10 percent.
A “changed
circumstance” means:
·
An extraordinary event beyond the control of any
interested party (i.e., a war or natural disaster that damages the property or
otherwise results in additional closing costs) or other unexpected event
specific to the consumer or the transaction (i.e., the title insurer goes out
of business during underwriting).
·
Information specific to the consumer or
transaction that the creditor relied upon when providing the Loan Estimate and
that was inaccurate or changed after the disclosures were provided (i.e., a
consumer misrepresented income and the creditor relied on the misrepresentation
when providing the Loan Estimate, or a co-applicant becomes unemployed during
underwriting and the creditor relied on the combined income when providing the
Loan Estimate).
·
New information specific to the consumer or
transaction that the creditor did not rely on when providing the Loan Estimate
(i.e., the creditor relied on the value of the property in providing the Loan
Estimate, but during underwriting a neighbor of the seller, learning of the
impending sale, files a claim contesting the boundary of the property).[xlviii]
2)
Changed Circumstance Affecting Eligibility
The consumer is
ineligible for an estimated charge previously disclosed because a changed
circumstance affected the consumer’s creditworthiness or the value of the
security for the loan.[xlix]
3)
Revisions Requested by the Consumer
The consumer
requests revisions to the credit terms or the settlement that cause an
estimated charge to increase.[l]
4)
Interest Rate-Dependent Charges
The points or
lender credits change because the interest rate was not locked when the Loan
Estimate was provided. On the date the interest rate is locked the creditor
must provide a revised version of the Loan Estimate to the consumer with the
revised interest rate, points as are required to be disclosed in Section A
under Origination Charges on the Closing Disclosure, lender credits, and other
interest-rate dependent charges and terms.[li]
An inquiry we
have received relating to this category involves the complexity of rate lock
timing. So let’s assume that a creditor executes a rate lock agreement with the
consumer and then provides a Loan Estimate. The actual points and lender
credits are compared to the estimated points and lender credits disclosed in
the Loan Estimate to determine if those charges have increased. If the consumer
enters into a rate lock agreement after a Loan Estimate has been provided, then
the creditor must provide, on the date of the rate lock agreement, a revised
Loan Estimate reflecting the revised interest rate, points, lender credits and
any other interest rate-dependent charges and terms. Assuming that the revised
Loan Estimate is appropriate, the actual points and lender credits are compared
to those disclosed on the revised Loan Estimate to determine if the fees have
increased.[lii]
5)
Expiration
The consumer
indicates an intent to proceed with the transaction more than 10 business days
after the Loan Estimate is timely provided. TRID requires no justification for
the revised Loan Estimate other than the lapse of 10 business days (using the
definition of business day that applies for Loan Estimate timing rules – days on
which the creditor’s offices are open to the public for carrying on
substantially all of its business functions).[liii]
6)
Delayed Settlement Date on a Construction
Loan
In transactions
involving new construction, when the creditor reasonably expects settlement to
occur more than 60 days after the Loan Estimate is timely provided, the
creditor must provide a revised Loan Estimate if the original Loan Estimate
clearly and conspicuously states that at any time prior to 60 days before
consummation the creditor may issue a revised Loan Estimate. If no such
statement is provided, the creditor may not issue revised disclosures unless
one of the other five situations outlined above applies. If a use and occupancy
permit has been issued for the home before the issuance of the Loan Estimate,
then the home is not considered to be under construction and the transaction would
not fit within this provision.[liv]
By new construction loan, I mean a loan for the purchase of a home not yet
constructed or the purchase of a new home where construction is currently
underway; I do not mean a loan for financing home improvements or remodeling,
or adding to an existing structure, or for which a use and occupancy permit has
been issued before provision of a Loan Estimate.
The timing of a revised Loan
Estimate relating to providing it prior to consummation has been the source of
much consternation. There are several scenarios, but the following are the
primary concerns:
(1) The
creditor may not provide a revised Loan Estimate on or after the date on which
a Closing Disclosure is provided.
(2) The
consumer must receive the revised Loan Estimate not later than four business
days before consummation.
(3) If
the revised Loan Estimate is not provided to the consumer in person, the
consumer is considered to have received it three business days after the
creditor delivers or places it in the mail.
(4) If
fewer than four business days remain between the time the revised Loan Estimate
must be provided and consummation, the creditor complies with the Loan Estimate
timing requirement by reflecting the revised disclosures in the Closing
Disclosure.
A change of circumstance may
happen within four days of consummation. What then?
The remedy takes into
consideration that the creditor will not be able to provide and rely on a
revised Loan Estimate. Instead, the creditor may provide a Closing Disclosure
reflecting any revised charges resulting from one or more of the six specific
situations and rely on those figures, rather than the amounts disclosed on the
Loan Estimate, for purposes of determining good faith and the applicable
tolerance.[lv]
Procedurally, if the changed
circumstance or other triggering event occurs between the fourth and third
business days from consummation, the creditor may reflect the revised charges
on the Closing Disclosure provided to the consumer three business days before
consummation; and if the event occurs after the first Closing Disclosure has
been provided to the consumer (i.e., within the 3-business-day waiting period
before consummation), the creditor may compare charges on the revised Closing
Disclosure with the amounts actually charged for purposes of determining good
faith and tolerances.
Rounding Rules for Loan Estimates
On many occasions, the TRID rule
requires rounding, but its general rule is to require numbers and percentages
to be disclosed as exact numbers. This does not mean that a number like 3.14159265
should not be rounded. A creditor may safely assume that a dollar amount would
be rounded to the nearest cent. Obviously, a borrower cannot pay $3.14159265;
the actual payment will be $3.14. A percentage amount would be rounded to 3. 141%
or 3.14%. TRID generally offers an option for percentages to either two or
three decimal places.[lvi]
The rounding rule is influenced
by the CFPB’s view that, due to its consumer testing results, “a large number
of exact dollar amounts and percentages had the potential to cause information
overload and reduce the overall effectiveness of the disclosure.” The CFPB
believes “that rounded disclosures allow consumers to digest the information on
the Loan Estimate faster and more easily than disclosure of non-rounded
numbers. Moreover, given that many of the numbers on the Loan Estimate are
simply estimates and will likely change on the Closing Disclosure, disclosing
exact values is unnecessary and may contribute to information overload without
any real benefit to consumers.”[lvii]
Written List of Settlement
Service Providers
Like RESPA, TILA requires a
creditor to provide a written list of settlement service providers if the
creditor allows the consumer to shop for providers.[lviii]
[lix]
A creditor permits a consumer to
shop for a settlement service if it permits the consumer to select the provider
of the service, subject to reasonable requirements. For instance, a creditor
may require that a settlement agent chosen by the consumer must be
appropriately licensed in the relevant jurisdiction.[lx]
In contrast, a creditor does not permit a consumer to shop if the creditor
requires the consumer to choose a provider from a list provided by the
creditor. Thus, the written list requirement does not apply if the creditor does
not permit the consumer to shop for any of the settlement services.
In any event, the written list
must:
·
Identify at least one available provider of each
settlement service for which the consumer is permitted to shop. An entity that
the creditor lists for a particular service must be available to provide the
service. The settlement service providers identified on the written list must
correspond to the settlement services for which the consumer may shop, as
disclosed in the Loan Costs table on page 2 of the Loan Estimate.
·
State that the consumer may choose a different
provider for that service. Model form H-27 in Appendix H of Regulation Z offers
a model statement.
·
Be provided separately from the Loan Estimate
but according to the same timing requirements.
How should affiliates be treated,
with respect to the written list of settlement service providers? A creditor
may include affiliates on the list.[lxi]
But the listing of an affiliated provider, under a heading that clearly states
that a consumer can shop for different providers (even if the affiliate is the
only provider listed), does not make that provider a “required provider” under
RESPA, although the listing constitutes a “referral” under RESPA[lxii]
and the creditor must give an affiliated business arrangement (AfBA) disclosure
as required by RESPA’s Regulation X.
A creditor is allowed to state on
the written list the service providers for which the consumer is not permitted
to shop,[lxiii]
provided that the creditor clearly and conspicuously distinguishes those
services from the services from which the consumer is permitted to shop.
In providing this broad overview
of the Loan Estimate, it is my hope that this analysis encourages management to
meet to discuss the ways and means available to effectuate its proper and
timely implementation.
[i]
Foxx, Jonathan, RESPA/TILA Integration –
Part I: Overview and Loan Estimate, pp 28-54, National Mortgage
Professional, October 2014
[ii]
Foxx, Jonathan, RESPA/TILA Integration –
Part II: Closing Disclosure and Action Plan, pp 26-50, National Mortgage
Professional, December 2014
[v]
Regulation Z § 1026.19(e)(2)(B)(ii)
[vi]
Regulation Z § 1026.19(e)(2)(ii)
[vii]
As defined by RESPA, Regulation X § 1024.2(b)
[viii]
78 FR 79729, 79993, December 31, 2013
[ix]
Construction-only loans with terms of less than 2 years that do not finance the
transfer of title to the borrower, loans secured by vacant land on which a home
will not be constructed or placed using the loan proceeds within 2 years after
settlement of the loan, and loans with a consumer purpose secured by
non-residential real property. TILA § 105(b) explicitly provides that nothing
in TILA may be construed to require a creditor to use any model form or clause
prescribed by the CFPB under that section (viz., § 105(a) being the authority
relied upon by the CFPB for these non-RESPA loans).
[x]
Regulation Z, Official Staff Commentary, Comment 37(o)(3)-1
[xi]
TILA § 128(a)(19), added by Dodd-Frank Act § 1419
[xii]
TILA § 128(a)(17), added by Dodd-Frank Act § 1419
[xiii]
TILA § 129C(g)(3), added by Dodd-Frank Act § 1414(c)
[xiv]
TILA § 106(c) and Regulation Z § 1026.4(d)(2)(i), required to exclude
homeowner’s insurance premiums from the finance charge.
[xv]
Regulation Z, Official Staff Commentary, Comment 37-1
[xvi]
Regulation Z § 1026.37 includes special rules for certain disclosures. See also
§ 1026.37(i), (j)
[xvii]
Applies also the Closing Disclosure with respect to allowing a separate cover
letter.
[xviii]
Regulation Z Official Staff Commentary, Comment 37(o)(1)-1; see also § 1026.37
[xix]
Regulation Z §§ 1026.19(e)(1)(iii)(A) and 1026.2(a)(6)
[xx]
Regulation Z Comment 19(e)(1)(ii)-1. In a future article, I will provide an
analysis of the creditor and mortgage broker relationship relating to TRID
requirements, responsibilities, and regulatory implementation.
[xxi]
Regulation Z § 1026.19(e)(1)(iv)
[xxii]
Regulation Z § 1026.37(o)(3)(iii), and Official Staff Commentary, Comment
19(e)(1)(iv)
[xxiii]
Regulation Z § 1026.19(e)(1)(i)(C)
[xxiv]
Regulation Z §§ 1026.19(e)(1)(iii)(B) and 1026.2(a)(6). “Consummation” means
the time the consumer becomes contractually obligated on the credit
transaction. See also Regulation Z § 1026.2(a)(13).
[xxv]
Regulation Z § 1026.19(e)(1)
[xxvi]
Regulation X § 1024.7
[xxvii]
Regulation Z § 1026.25(c)
[xxviii]
This may be an area vetted through litigation. The applicable Comment states
that “the creditor is responsible and may not issue a revised disclosure
correcting the error.” Yet TILA § 130(b) generally offers the creditor the opportunity
to escape civil, enforcement or criminal liability for TILA disclosure errors
by issuing corrections within 60 days after discovery, provided that an
appropriate notification accompanies the notification. Although issuance of a
revised disclosure may not erase liability for actual settlement charges that
fall outside the tolerances for determination of good faith, it might allow the
creditor to escape liability for the damages specified by TILA § 130. The area
of dispute may be a claim that Regulation Z should not be permitted to
contradict this statutory provision.
[xxix]
Regulation Z, Official Staff Commentary, Comment 19(e)(1)(ii)-1 and-2
[xxx]
Regulation Z also follows this convention, that is, the term “creditor” used in
the Regulation Z generally refers to the creditor or the mortgage broker, as
applicable.
[xxxi]
Regulation X § 1024.7(a)(4) and (b)(4) and TILA Regulation Z § 1026.19(a)(1)
[xxxii]
Regulation X § 1024.7(a)(4) and (b)(4)
[xxxiii]
Regulation Z § 1026.25
[xxxiv]
Regulation Z, Comment 19(e)(2)(i)(A)-2
[xxxv]
Regulation Z Official Staff Commentary, Comment 19(e)(2)(i)(A)-5
[xxxvi]
This requirement parallels the requirement in Regulation X § 1024.7(a)(5)
[xxxvii]
Regulation Z § 1026.19(e)(2)(iii) and Official Staff Commentary, Comment
19(e)(2)(iii)-1
[xxxviii]
A charge “paid by or imposed on the consumer” refers to the final amount for
the charge paid by or imposed on the consumer at consummation or settlement,
whichever is later.
[xxxix]
Regulation X § 1024.7(e)-(f)
[xl]
An “affiliate” is “any company that controls, is controlled by, or
is under common control with another company, as set forth in the Bank Holding
Company Act of 1956.” See 12 U.S.C. 1841 et seq.
[xli]
Regulation Z § 1026.19(e)(3)(ii) and Official Staff Commentary, Comment 19(e)(3)(ii)-1
[xlii]
Regulation Z Official Staff Commentary Comment 19(e)(3)(ii)-2
[xliii]
Regulation Z, Official Staff Commentary, Comment 19(e)(3)(i)-3
[xliv]
In general, transfer taxes are state and local government fees on mortgages and
home sales based on the loan amount or sales price, while recording fees are state
and local government fees for recording the loan and title documents. See
Regulation Z, Official Staff Commentary, Comments 37(g)(1)-1 and -3
[xlv]
Regulation Z § 1026.19(e)(3)(iv)
[xlvi]
The comparison must be between the actual charges and either the charges on the
original Loan Estimate or the charges on the most recent Loan Estimate revised
to reflect one or more of the six situations.
[xlvii]
Regulation Z § 1026.19(e)(iv)(D) overrides this 3-business-day rule if the reason
for the revised Loan Estimate is the locking of the interest rate. See Official
Staff Commentary, Comment 19(e)(5)(i)-2
[xlviii]
Regulation Z § 1026.19(e)(3)(iv)(A) and Official Staff Commentary, Comment
19(e)(3)(iv)(A)-2
[xlix]
Regulation Z § 1026.19(e)(3)(iv)(B) and Official Staff Commentary, Comment
19(e)(3)(iv)(B)-1. See also Item section 8.5 in the CFPB’s TILA-RESPA Integrated Disclosure Rule Compliance Guide, available
at http://files.consumerfinance.gov/f/201403_cfpb_tila-respa-integrated-disclosure-rule_compliance-guide.pdf
[l]
Regulation Z § 1026.19(e)(3)(iv)(C) and Official Staff Commentary Comment
19(e)(3)(iv)(C)-1
[li]
This requirement of disclosure on the day the interest rate is locked applies
notwithstanding the 3-business-day rule set forth in Regulation Z
§ 1026.19(e)(4)(i). See TILA Regulation Z § 1026.19(e)(3)(iv)(D) and Official
Staff Commentary, Comment 19(e)(4)(i)-2.
[lii]
Regulation Z § 1026.19(e)(3)(iv)(D) and Official Staff Commentary, Comment
19(e)(3)(iv)(D)-1
[liii]
Regulation Z § 1026.19(e)(3)(iv)(E) and Official Staff Commentary, Comments
19(e)(1)(iii)-1 and 19(e)(3)(iv)(E)-1
[liv]
Regulation Z § 1026.19(e)(3)(iv)(F) and Official Staff Commentary, Comment
19(e)(3)(iv)(F)-1
[lv]
Regulation Z, Official Staff Commentary, Comment 19(e)(4)(ii)-1
[lvi]
Regulation Z Official Staff Commentary, Comment 37(o)(4)-1 and -2
[lvii]
78 FR 79730, 79995, December 31, 2013
[lviii]
It seems to me that the CFPB used a certain finesse by including the
requirement in the main text of the regulation. In an unusual way of imposing a
significant regulatory requirement, HUD included this requirement in Appendix C
to RESPA Regulation X, which contains instructions for completing the Good
Faith Estimate.
[lix]
Regulation Z § 1026.19(e)(1)(vi)
[lx]
Regulation Z Comment 19(e)(1)(vi)-1
[lxi]
Regulation Z Comment 19(e)(1)(vi)-7
[lxii]
Regulation X 1024.14(f)
[lxiii]
Regulation Z Comment 19(e)(1)(vi)-6
