If the LE must be provided based on incomplete information, what should I do when a change increases an estimated cost?

Similar to the current GFE and TIL requirements, the LE must provide a “good faith estimate” of the terms and charges associated with the transaction.[1] The core requirement here is that you must “exercise due diligence” to obtain “the best information reasonably available . . . at the time the estimate is provided.”[2] Fortunately, you generally may rely on the representations of the parties and service providers.[3] However, your systems must be able to track these representations and tie them to the estimates provided on the LE because the TRID rule requires you to maintain records demonstrating compliance with these requirements.[4]

Even if an estimate was based on the best information reasonably available, additional restrictions on increasing the estimated charges apply. Specifically, unless an exception applies:

  • You cannot charge more than the amount on the LE for lender fees, broker fees, transfer taxes, affiliate fees, and third-party fees if the consumer could not shop for the service (“zero tolerance” category);[5] and
  • You are limited to an aggregate increase of 10% for the total amount of recording fees and third-party fees for the services for which the consumer is permitted to shop (“10% tolerance” category).[6]

While at first blush these may seem like the familiar “tolerances” adopted by HUD under RESPA in 2010, they differ in several important respects. Most notably, affiliate fees have been moved to the zero tolerance category, so you must disclose the exact cost ultimately charged to the consumer for all fees paid to an affiliate, unless a permitted exception applies. Furthermore, the rule expands liability to include a private right of action for violations of the tolerance requirements because the Bureau’s “good faith” requirement relies on TILA as well as RESPA.[7]

When the limitations or tolerances apply, the amount actually paid by the consumer at closing can only exceed the amount on the LE if a “changed circumstance” or other exception applies (a “permitted exception”), and a revised LE is issued within three business days of “receiving information sufficient to establish that” the exception applies.[8]

The TRID rule specifically requires you to maintain proof of the reasons justifying each cost increase.[9] This means that, for each increase, you must document:

  • The information demonstrating that the increase falls within one of the permitted exceptions;
  • When you learned of that information;
  • That the increase is solely attributable to the exception; and
  • That a revised disclosure was provided within the applicable time period.[10]

As with tracking the application information, your systems must also be able to track and store the cost information coming from various sources (the borrower, the settlement agent, appraisers, and other service providers), determine when a permitted cost increase has occurred, and issue a revised disclosure by the applicable deadline.

This can be especially complicated when, for example, multiple changed circumstances cause multiple increases of less than 10% in charges that fall within the 10% tolerance category. The TRID rule provides that the 10% tolerance does not reset until there has been an aggregate increase of 10% or more and a revised LE has been provided within three business days of receiving information establishing that increase.[11] However, the CFPB’s forms do not include a total for the charges in the 10% tolerance category, so you must track this separately.

Consider the following scenario, which is adapted from an example provided by the CFPB in the TRID rule:[12]

  • The estimated fees for the pest inspection and title services on your initial LE are subject to the 10% tolerance category.
  • After the initial LE is provided, you receive information that a permitted exception caused the pest inspection fee to increase by 5% of the total amount of charges in the 10% tolerance category. Because the increase is less than 10%, you are permitted – but not required – to provide a revised LE informing the consumer of the increase. Regardless, this increase does not reset the 10% tolerance category and this LE will be disregarded when determining compliance.
  • Three weeks later, on a Monday, you receive information that another permitted exception has caused the title fees to increase by 6% of the total amount of charges in the 10% tolerance category. Because there has now been an aggregate increase of more than 10%, you must provide a revised LE within three business days (i.e., by Thursday) if you want to pass the 11% increase on to the consumer. If you do so, this revised LE will be used to assess compliance.

This example shows that determining compliance goes beyond tracking each individual cost increase. To accurately determine whether you have complied with the TRID rule, you must be able to maintain a running tally of cost increases with documentation of the permissible exception justifying each increase so that you know when a revised LE must be provided.

[1] 12 C.F.R. § 1026.19(e)(1)(i).

[2] 12 C.F.R. § 1026.17(c)(2)(i); cmt. 17(c)(2)(i)-1.

[3] Cmt. 17(c)(2)(i)-1 (stating that lenders “might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, or to realtors for taxes and escrow fees”).

[4] Cmt. 19(e)(3)(iv)-3 (stating that lenders “must retain records demonstrating compliance with the requirements” to provide the LE).

[5] 12 C.F.R. § 1026.19(e)(3)(i); Cmt. 19(e)(3)(i)-1.

[6] 12 C.F.R. § 1026.19(e)(3)(ii).

[7] See 78 Fed. Reg. 79730, 79799 (Dec. 31, 2013).

[8] 12 C.F.R. § 1026.19(e)(4)(i). If charges increase because the interest rate was not locked when the LE was provided, and you enter into a rate lock agreement with the borrower, the revised LE must be provided on the date the interest rate was locked. 12 C.F.R. § 1026.19(e)(3)(iv)(D). The Bureau has proposed to relax this requirement so that the revised LE need not be provided until the next business day after the rate is locked. See, e.g., 79 Fed. Reg. 64336, 64344 (Oct. 29, 2014) (hereinafter “Proposed Amendment”).

[9] Cmt. 19(e)(3)(iv)-3.

[10] Cmt. 19(e)(3)(iv)-3.

[11] 12 C.F.R. § 1026.19(e)(3)(iv)(A); cmts. 19(e)(3)(iv)(A)-1.ii and 19(e)(4)(1)-1.ii.

[12] Cmt. 19(e)(4)(i)-1.ii.

Answered By: Ben Olson

What is my responsibility with respect to the new Closing Disclosure (“CD”) (which replaces the HUD-1/HUD-1A and final TIL disclosure)?

Under the TRID rule, responsibility for the information currently disclosed on the HUD-1 or HUD-1A shifts from the settlement agent to you.[1] You must disclose the costs associated with the transaction that are actually charged to the borrower on the CD, and you must provide this disclosure sooner than previously required—it must be received by the borrower at least three business days prior to closing.[2] You may delegate completion of the form to a settlement agent, but you ultimately retain the liability if the settlement agent gets it wrong.[3]

Notably, liability for these disclosures has also expanded. The Dodd-Frank Act expanded TILA to require that, for residential mortgage loans, you disclose “the aggregate amount of settlement charges for all settlement services provided in connection with the loan, the amount of charges that are included in the loan and the amount of such charges the borrower must pay at closing, . . . and the aggregate amount of other fees or required payments in connection with the loan.”[4] Because there is no accuracy tolerance for the aggregate settlement charge, you must accurately disclose each individual settlement charge to avoid liability under TILA for stating an inaccurate total. If you inaccurately disclose the charges, then borrowers may bring a private right of action against you for violating TILA.

Most lenders will continue to rely heavily on settlement agents in preparing the CD, and the TRID rule expressly condones this practice.[5] However, careful coordination and communication are required to ensure the disclosure is accurately and timely made.

[1] Cmt. 19(f)(1)(v)-3.

[2] 12 C.F.R. § 1026.19(f)(1).

[3] 12 C.F.R. § 1026.19(f)(1)(v); cmt. 19(f)(1)(v)-3.

[4] 15 U.S.C. § 1638(a)(17).

[5] See comment 19(f)(1)(i)-2.i.B (“Assume that . . . the creditor obtained information about the terms of the consumer’s transaction from the settlement agent regarding the amounts disclosed under § 1026.38(j) and (k). The creditor has exercised due diligence in obtaining the information about the costs under § 1026.38(j) and (k) for purposes of the “reasonably available” standard in connection with such disclosures under § 1026.38(j) and (k).”); 78 Fed. Reg. at 79868 (“The final rule clarifies that, with respect to the Closing Disclosure provided three business days before consummation, creditors may provide disclosures based on the best information reasonably available and may rely on information provided by settlement agents.”).

Answered By: Ben Olson

Do we have to re-disclose when adding a borrower to the loan application?

No. That may be an event where you want to re-disclose, but the obligation to re-disclose under the rule only occurs when you have an amount that has increased beyond tolerance due to a changed circumstance or other exception and you need to re-disclose within 3 days in order to pass that charge on to the consumer and reset the tolerance. Other changes do not mandate redisclosure of the Loan Estimate although you are always free to provide, voluntarily, a revised loan estimate or closing disclosure.

[In a follow up question, a listener asked whether every borrower needs to receive a Loan Estimate and, if so, whether a new Loan Estimate should be issued when a borrower is added.  In situations involving multiple borrowers, the long-standing rule in 12 C.F.R. 1026.17(d) continues to apply: “If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation.”  In the TRID rule, the CFPB revised comment 17(d)-2 to state:

When two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. If one consumer is merely a surety or guarantor, the disclosures must be given to the principal debtor. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind under § 1026.23, although the disclosures required under § 1026.19(b) need only be provided to the consumer who expresses an interest in a variable-rate loan program. When two consumers are joint obligors with primary liability on an obligation, the early disclosures required by § 1026.19(a), (e), or (g), as applicable, may be provided to any one of them. In rescindable transactions, the disclosures required by § 1026.19(f) must be given separately to each consumer who has the right to rescind under § 1026.23. In transactions that are not rescindable, the disclosures required by § 1026.19(f) may be provided to any consumer with primary liability on the obligation. See §§ 1026.2(a)(11), 1026.17(b), 1026.19(a), 1026.19(f), and 1026.23(b).

Therefore, as long as the new borrower does not become the sole principal obligor, it appears that it is permissible to wait and provide both borrowers with the Closing Disclosure.  However, there is no question that the safest approach would be to provide a new Loan Estimate to both borrowers when the new borrower is added, as long as your system can put that Loan Estimate aside when checking the tolerances, as discussed below.]

Something important to note there, this comes back to your systems and processes. If you choose to voluntarily provide a Loan Estimate when not required by the rule, that Loan Estimate must be disregarded when evaluating compliance with the tolerance requirements. Here is an example of where that really matters: you have the 10% aggregate tolerance bucket, which applies to the total amount of all the different fees that make up that bucket. Did those fees go up by 10% or not? If they did, you need a valid changed circumstance or other exception. This is something the Bureau has clarified that was unclear under HUD’s rule. Well, not unclear — HUD ultimately came out differently on that point.

In any event, under the Bureau’s rule, if you have a changed circumstance that causes a charge in the 10% bucket to go up by less than 10%, that does not allow you to reset the 10% tolerance even though it’s a valid changed circumstance and even though, if this were a zero tolerance fee, you could reset. What the Bureau said is the cumulative changes need to push you over 10% before you get to reset. That doesn’t mean you lose the ability to pass that increase on to the consumer — it just means that you have to disclose 3 days from the date on which the changed circumstances push you over 10%.

So the question comes up that today many lenders will push out a new GFE if say something goes up by 4%. Can lenders continue to do that with the Loan Estimate? Yes, there is nothing prohibiting you from doing that but your system has to know that the voluntary Loan Estimate does not reset the tolerance. So when you’re calculating compliance with the 10% bucket, you need to be looking back past that voluntary Loan Estimate. You need to ignore that Loan Estimate when making the calculations.

Note: This transcript has been edited from the February 2015 TRID webinar for clarity and completeness.

Answered By: Ben Olson

The final rule requires that disclosures be provided before consummation of the transaction. How is this defined and what all must be included in this disclosure?

The requirement is that the borrower receives the Closing Disclosure 3 business days prior to consummation, which can be different than closing. Consummation is the date the borrower becomes legally obligated to the transaction and that is usually going to be the date they sign the note; however, in escrow closing states, you may have circumstances where the borrower is not actually legally obligated until funding occurs. In those circumstances, you may, depending on how many days are between the date the consumer signs and the actual funding date, the consumer could be receiving the final Closing Disclosure on the date they sit down with you to sign the note. That could be the first Closing Disclosure they see. You have to look to your state law on that particular point.

In terms of what you’re giving them, you’re giving them a Closing Disclosure that provides all of the information that we walked through – all five pages — based on the best information reasonably available to the creditor through the exercise of due diligence. The rule makes clear that the due diligence obligation means getting information from the settlement agent, realtor, and service provider. You do have an obligation to seek this information out. You can delegate that. The settlement agent can perform the same functions it does today when collecting this information, but do so on behalf of the creditor, pursuant to an agreement between the creditor and settlement agent.

That will be the new normal under this rule. The question is, of course, do those three days mean essentially you’ll close before you close? Will it add 3 days on to the end of the process? Or is this something that can be accomplished within the existing timeline? I think the general assumption seems to be that it will make closings take longer than they do today, but we simply don’t know yet.

Note: This transcript has been edited from the February 2015 TRID webinar for clarity and completeness.

Answered By: Ben Olson

What are your thoughts on situations where the APR goes down by 1/8 or more from the last disclosure? Would the CD need to be re-disclosed and a waiting period be observed?

Short answer is no. The way this rule works is, and you sort of have to walk a Byzantine maze to get there, there is buried within the depths of Regulation Z a carve out for circumstances in which the APR goes down as a result of the finance charge. This is an important point: If you simply get the APR wrong — in other words, you overdisclosed it — not because you overdisclosed the finance charge used to calculate the APR, but literally you made a mathematical error, then in theory that could cause redisclosure and an additional 3 day waiting period. I’m sure that has happened, but I personally have not seen it happen. A far more common circumstance is where you’ve accidentally included something in the finance charge that shouldn’t have been in there and then when you take it out, the APR goes down. Or you disclosed the correct finance charge but then it simply goes down on the loan, which sometimes happens. In either case, that will not trigger a 3 day waiting period.

Note: This transcript has been edited from the February 2015 TRID webinar for clarity and completeness.

Answered By: Ben Olson

What do you see as the biggest challenges for wholesale lenders in implementing TRID?

TRID presents a number of challenges to everyone: this rule really affects every party to a real estate transaction, from the mortgage broker to the real estate broker to the settlement agent to the creditor. That’s what makes TRID different than a lot of the other rules that the CFPB has issued. The Ability-to-Repay/QM rule is essentially a creditor rule. The loan originator rule is very focused on originators and how they are compensated. Servicing rule is focused on servicers. This rule basically affects everyone.

There is a range of challenges that go from technical details about populating the form to fundamental business process questions, which I think tend to be the most challenging operationally. These questions require lenders to rethink how to structure everything from application intake processes, to adapting to more complicated rules regarding tolerances, to new timing requirements for the LE and CD, and various other issues.

For wholesale lenders, what I think is the most challenging is the front end application intake to Loan Estimate stage. Instead of designing your own application intake process that you’re in control of, you can train your people around and you can very closely monitor, you are outsourcing that function to a third party. You will not be able to control the application flow on your own system; nor will you know exactly when the application has been submitted each time. You also won’t be generating the Loan Estimate yourself and making sure the estimates are good and reliable, based on the best information you have. Rather, for each application you’re going to be turning that over to third parties and different third parties at that. So the biggest challenge is how to manage that process. How to make sure that your third party LOs are taking applications in a manner that is acceptable to you, your investors, and to the regulators. How to make sure you know that they are actually complying with the timing requirements and producing the Loan Estimates on time, and that the estimates they are providing are good and based on the same information that you would use—because you’re ultimately going to have to honor the estimate they’ve given and will be liable for the disclosures that they’ve given.

Those are challenges, but there are different ways of dealing with them. One is to closely monitor who you’re doing business with. Another way is to mitigate your risk somewhat and take more of the responsibility yourself as the wholesaler. You could accomplish this by letting the broker take the application, but as soon as the broker has an application, sending it to you and generating your own Loan Estimate. That’s one approach some people in the industry are doing and there’s nothing wrong with that. But you basically need to have realtime information if that’s what you’re going to do, because you’re still going to be on that 3-day clock that starts when the broker has received the application. In other words, you still will need to produce an estimate within the same time frame that the broker would have, so any lag in information flow could be a challenge for you.

The alternative is allowing the broker to provide the Loan Estimate for you. The rule does allow some flexibility for brokers to just take applications and generate Loan Estimates without a specific creditor in mind and leave the creditor’s name blank. That’s something you can do, but again, there’s more risk on your end doing business that way because it’s harder to monitor whether or not the estimates were really made according to what estimates and terms you would use if you are just taking an estimate a broker provided that wasn’t even really done with you in mind.

There are different ways of attacking that issue but the biggest challenge is really getting from application to Loan Estimate in a compliant manner and making sure the estimates you’ve been given and running with are reliable and good.

This transcript has been edited from the May 2015 round table discussion for clarity and completeness.

Answered By: Andy Arculin

What should a creditor do if a loan has been pulled from a previous creditor due to a longer-term time and is submitted to the new one? To add complexity, what if the previous lender’s fees were lower and an appraisal has already been ordered? Would the new creditor have to match fees and use a previous creditor’s loan number, or would the consumer be committed to using the first creditor with a longer term time and potentially miss the closing date?

There’s nothing in the rule that says creditors can’t do that. But there are some tricks and traps along the way I think that are embedded in this question. One being, at a very high level, will your investor buy the loan? That’s always going to be question one. And wherever there’s doubt, the answer may be no. These could be portfolio loans and it may not matter. But one thing to always think about is what the secondary market will do and what sort of controls are they going to have in place. That’s a big threshold question for a lot of loans. Assuming that’s not an issue, then it becomes a regulatory question as to what happens when a loan ID has been assigned. That’s something that is in the rules. The Bureau has given some flexibility as to when brokers can avoid putting a loan ID on a loan when they don’t know who the creditor is going to be. This was a big question that came up very early in the implementation process that the brokers and wholesalers were very concerned about. There’s this provision, 1026.37(a)(12) if I’m not mistaken, which is the Loan Estimate disclosure rule that says the loan ID determined by the creditor has to go on the Loan Estimate and then it has to track basically through the Closing Disclosure. And there doesn’t seem to be a way to change that once it’s there. The first big question we had is if the broker is generating the Loan Estimate and this has to be a creditor’s ID, what if the broker can’t get it? The Bureau said in that instance, that it’s acceptable if the best information reasonably available doesn’t provide the loan ID because you don’t know who the creditor is going to be, then it can be blank, and it can be later filled in by the creditor. The same goes for the creditor’s name. If the creditor’s name is not known, the broker can leave it blank and issue a Loan Estimate. Once a Loan Estimate has been done in a creditor’s name, with the creditor’s loan ID, it’s a little less clear how, or if, that can change under the rules. One way to read the rule is you can say nothing prohibits you from issuing a revised Loan Estimate correcting information that has changed or is wrong. You wouldn’t have a changed circumstance event necessarily, where you’re re-disclosing estimates here; you’d be re-disclosing information. And I don’t think there’s anything in the rule that specifically says you’re not allowed to do that because you had a change in creditor. The alternative, of course, would be that creditor A denies the loan or the consumer withdraws and then applies with creditor B. That may be a cleaner way to do it, but the rule doesn’t seem to foreclose either. Your investors may read the rule more conservatively and say that it does, but in my reading of the rule, it doesn’t specifically say no. As far as estimates go, I think that’s where it would get trickier. If a broker has provided estimates and you don’t have a changed circumstance or other event that changes that specific estimate, then I think creditor B is still going to have to live with it. Whether or not there’s a valid change of circumstance or a borrower-requested change, anything like that that would allow you to re-disclose the estimate and reduce it, that’s always going to be fact-specific and it’s going to depend on what has changed and why and how you can document it. You will always have a record retention requirement where you have to show evidence of compliance. If you have a change event you’ll have to make note of it and you’ll have to explain it. And it has to be tied to a specific charge.

Answered By: Andy Arculin

The new rules require that a Loan Estimate is sent to the consumer no later than the third business day after the consumer’s application is received, regardless of whether a broker or lender takes that application. What options do wholesalers have for producing the Loan Estimate in this tight window, when a third-party loan originator is taking the application?

Wholesalers can do really one of two (or if you count blank Loan Estimates, three) things. One would be you trust the broker to generate the Loan Estimate on your behalf. And you make sure that they’re doing it in a manner that’s compliant with the rules and they’re also producing estimates that you’re going to be willing to guarantee. That’s one way to do it. Another way to do it, which I have heard, is having a tight enough information flow so when your broker takes an application, as soon as that application is completed, you know about it. And you’re producing the Loan Estimate, you—meaning the wholesaler—you’re producing the Loan Estimate in your own name, with your own estimates rather than trusting a broker to do that. That’s another option. If there’s any type of lag in information time that may cost you a day—remember you’re only going to have three business days, so you have a tighter window to do it. You can’t receive a package and then start your clock three from when you receive the package. It’s going to be three days from when the broker took the application. But if you have a way that your systems are synced up or your information is being shared, and you know exactly when that happens, another option you have is to produce the Loan Estimate yourself.

Answered By: Andy Arculin

Is it required to show a broker’s commission on the new forms?

This depends on how the broker is being paid. The answer ultimately is yes, but it depends on how the broker’s being paid and which form you’re talking about. If the consumer is paying the broker directly, then the broker comp is shown both in the Loan Estimate and the Closing Disclosure as an origination charge. That’s specifically mentioned in the rules to origination charges, which are section 1026.37(f)(1). If what you’re talking about is creditor-paid broker compensation—like you have in points and fees today for creditor-paid LO compensation—that will not go on the Loan Estimate. Consumer testing showed that it was confusing and consumers thought this was a charge they were going to be paying, so it was not actually included on the Loan Estimate. However, it is still on the Closing Disclosure as a paid by others charge. There is a regulatory provision there (38(f), if I’m not mistaken), which tells you where to put it on the Closing Disclosure. Essentially, this number should be exactly what you’re including in points and fees for creditor-paid compensation and it goes only on the Closing Disclosure. Consumer-paid goes on both and it’s an origination charge.

Answered By: Andy Arculin

Are the sellers’ charges going to be shown on the borrower’s CD?

The settlement agent is required to provide the sellers’ charges to the seller on a Closing Disclosure. That’s a requirement under the rule. So the settlement agent still has a role in the transaction; they are still required to provide the closing disclosure to the seller. There are also provisions for the borrower’s Closing Disclosure that would require some of the sellers’ charges to be shown. For example, the prorations between the two parties will be the same, so some of those prorations will be shown on the borrower’s side of the disclosure. Also, the seller credit will be shown on both disclosures.

With respect to other charges that aren’t necessarily required to be disclosed on the borrower’s disclosure, TRID does not address whether those charges can or can’t be put on the borrower’s Closing Disclosure. It would come down to state law to see whether there are privacy restrictions on settlement agents or creditors from sharing the information about the borrower’s and the seller’s transactions between the parties.

A lot of settlement agents commented that the sample Closing Disclosures in the proposed TRID rule had information from both the borrower and the seller on them and they said there were state law privacy restrictions on sharing such information between the parties.

In response to that, the final rule allows the separation of the borrowers’ and sellers’ information in two ways. The creditor and the settlement agent can take the standard Closing Disclosure and put blanks for the borrower’s or seller’s information on the disclosure to the other party. The rule also provides for a seller-only version of the Closing Disclosure that only includes the information on the closing disclosure that pertains to the seller, so it deletes the borrower’s columns from the closing-cost details and it deletes the borrower’s summaries of transactions table. So there are two options that settlement agents and creditors have to separate the borrower’s and seller’s information.

To sum it up, the rule would require some of the seller’s information to appear on the borrower’s disclosure, but there’s no requirement under the rule that says “yes” or “no” that it has to or cannot be disclosed on the borrower’s Closing Disclosure. It would come down to state law privacy requirements.

Answered By: Richard Horn

What would be the specific business day in the case of a holiday falling on a Sunday, but the observed holiday is the following Monday?

The definition of a holiday is very specific under the rule. I know it cites a particular statute for those holidays, but I don’t know if it describes what happens between the actual holiday and the observed day.

One thing I’ll mention about that is in this rule, we tried not to change some of the underlying compliance requirements. The specific definition of business day doesn’t change between the current rules and this rule; the same holidays are used. Whatever you’re doing for the current specific definition of business day would apply to the TRID rule.

Same thing with APR tolerance for the revised closing disclosure. That currently applies to the Final TIL. Whatever you’re doing for the Final TIL, if you’ve looked at the compliance issues surrounding your APR tolerance of the Final TIL and already decided you’re compliant with the requirements under MDIA for that, then you should be within compliance with that provision under TRID as well.

Answered By: Richard Horn

What is the “black hole” timeline for resetting tolerances on the CD?

Comment 19(e)(4)(ii)-1 is not as clearly worded as some would like. There are a lot of different interpretations out there about what the timeframe is for providing revised estimates on the closing disclosure.

Generally, my interpretation is that if you have a changed circumstance that you get information about six business days or less before consummation, then you can disclose the revised estimate that results from that changed circumstance on the Closing Disclosure and use it to rebaseline your tolerance calculation. Using the interpretation I just mentioned, if you provide the Loan Estimate early—ten days before closing—and then received information about a changed circumstance eight days before closing, then because that is earlier than the six business days or less I just mentioned, that changed circumstance would fall into the “black hole” and not be able to be used for changed circumstances.

A similar thing would happen if closing were delayed. Let’s say closing is delayed two weeks, then for a period of time until you get back within that window of six business days before closing, changed circumstances would also fall into the “black hole” and not be able to be used for revised estimates.

Answered By: Richard Horn

Can you address guidance, or a lack thereof, regarding one-time-close construction programs and the closing disclosure specifically?

The CFPB put out examples of several different types of transactions and did not put out any examples of single-close construction-to-permanent loans. There are some challenges I’m aware of for completing the form. The projected payment table can be hard to do for a single-close construction-to-permanent loan. However, the Bureau has always had a view that even for a loan that’s only technically closed once, a construction-to-permanent loan can be disclosed as two separate transactions for disclosure purposes. I think some people don’t like that and it’s a practical challenge. But the construction phase technically can be disclosed as one transaction and the permanent phase as another, and that eliminates a lot of the problems. That’s basically where the Bureau left it–the Bureau has never come out and given an example of how to do the projected payments table or anything else with the single-close construction-to-permanent disclosed as one transaction. I think there’s a belief, right or wrong—maybe wrong—that the market would basically elect to do two disclosures. And that’s why in the May webinar the Bureau was talking about 12 C.F.R. 1026.17(c)(6), which is old news (it explains a construction-to-permanent loan can be disclosed as two transactions). Of course, that doesn’t make it any easier for people who want to do one disclosure. They certainly are allowed to, it’s just a matter of figuring it out.

Answered By: Andy Arculin

How close does a real estate agent’s cost estimate have to be to the CD?

The real estate agent or broker’s cost estimate does not have to match the CD. The CD and Loan Estimate are tied. There’s no legal requirement in regards to the CD. I think that certainly when you get to that cash to close number that there you want to be sure that you’re going to be close to that. If you’re doing it for the seller you want to be conservative, and if they make more money that’s great. If it’s the borrower, again you want to be conservative, you probably want to show the cost is going to be a little bit more, then it’s cheaper, but there’s no legal tie between those documents.

Answered By: Charles Cain

By law you are to retain the CD for five years. What happens in year six?

The closing disclosure is currently required because it has non-public information on it that is a five year from the date of closing retention. The question is what happens if in year six suddenly there is an issue where you need to provide it? Well then you’re legal obligation to have it is gone at the end of that fifth year. So if you’re in year six you legally do not have to have that closing disclosure retained. You can destroy it five years and a day after closing.

Answered By: Charles Cain

We’ve heard that some lenders are providing the CD earlier in the process when they don’t have the final numbers, effectively preparing it immediately upon receiving the title insurance binder. Is this meeting the intent of the rule? What are the repercussions of doing this?

We’re seeing some of that, not wide scale but we are seeing it. I think it really kind of violates the intent, because some lenders are just trying to get something out, to try to get the clock running to get to a closing date, but then I don’t know that they’re really putting forth the effort necessary to make the numbers right on it. I think that’s going to be a problem for them if they don’t get the results.

Answered By: Brent Laliberte

How should we (Title Co.) handle the situations where the lender is directing us to prepare the CD in a way that we know is incorrect?

We’ve actually seen this some, where you know the lender will do theirs and then we’ll do ours and we try to reconcile them and they’re just off, and I think the occasions where we’ve had that, if anything I think they’ve usually deferred to ours. It hasn’t been wide scale, I’d say just probably a handful of situations, but I think you’ve got to document and keep copies of whatever you have because clearly, if you read a lot of these closing instructions now, they’re trying to shift as much blame and liability and responsibility to us (Title) as they can so we need to make certain that we do the best job we can and try to be in conformity with what the rule provides for, but at the end of the day it is their form so with their form, we need to do an adequate job of protecting ourselves, and our own interests.

Answered By: Brent Laliberte

Can you please reiterate that it is the settlement agent’s responsibility under TRID to provide the seller’s CD? As a lender this is so problematic that title companies and such do not, under their obligation under the rule.

Richard Horn: I was going to reiterate that, it is a requirement under the rule under 19(f)(4), for the settlement agent to provide the seller’s CD.

Brent Laliberte: I can tell you, we haven’t had any issues with that, that’s been going pretty smoothly, the bigger issue that we’ve had is, the Realtors are trying to get us to release that seller’s CD or that buyer’s CD to them, and that’s when we just tell them that’s obviously that’s a lender form, that we have no authority to release.

What we’ve been seeing lately is some kind of homebrewed authorizations, ‘Hey look, my client said it’s okay to give me this,’ look, that’s not good enough for me, I need to comply with the rule, I need to give it to the consumer, and if you want to get it from the consumer, you need to get it from the consumer, but absent written authorization from the lender allowing us to release the CD to the Realtor, we’re not even touching that, but getting it to the seller is not a problem for us.

Richard Horn: I’ll reiterate that this is why it’s so important for lenders, where they have the ability to do so, to really pay attention to the settlement agents that they are doing business with. Imposing some type of reasonable requirement, like, third party certification of compliance with ALTA’s best practices or other even more advanced certifications.

Because there is a great deal of potential liability with these TRID disclosures that actually could be caused by a settlement agent not complying with TRID, providing inaccurate information, or not following the closing instructions. Making sure that you are dealing with settlement agents that actually have the proper compliance management systems, and proper certifications, could be helpful in reducing the risk of that liability.

Is there a cure if the settlement agent did not have the buyer’s CD executed at consummation?

A signed CD not being required is one thing, clearly, you want to make every opportunity to get it, and should it be that you don’t have it, I guess you can live with that, but you don’t want to run afoul of all who’s going to buy the paper. And I think you need to minimize those possibilities of not having the signatures, even though it may not be required. I mean what’s the best way to authenticate that it was actually done and presented and explained to the consumer than to have their signature on there.

Answered By: Brent Laliberte

We’ve heard that some lenders are providing the CD earlier in the process when they don’t have the final numbers, effectively preparing it immediately upon receiving the title insurance binder. Is this meeting the intent of the rule? What are the repercussions of doing this?

That’s a great question and I think this is one that touches upon the black hole because under the most common reading of comment 19(e)(4)(ii)-1, a lender can only use changed circumstances disclosed on the CD for tolerance purposes if they learned of those changed circumstances 6 business days or fewer before consummation, closing.

If the lender then provides the CD too early, let’s say 2 weeks before closing, they could result, in about a week, (the time period before that 6 business day window under comment 19(e)(4)(ii)-1) that period, falling into the black hole where any changed circumstances that come up they wouldn’t be able to then use for tolerance purposes. So basically by providing the CD too early they are creating their own black hole.

I think that’s one of the reasons why that comment creates that disincentive, to prevent providing the CD too early. The CD is meant to be a final disclosure, it actually says that on the top of page 1, it says this is a final statement. And by providing it too early, it really could confuse the borrower because it says its the final numbers, and then there would be a significant amount of changes from let’s say two weeks before closing, and so that’s one of the reasons why I think that comment does create that disincentive because it doesn’t want the CD provided too early.

So, aside from a tolerance issue, I think there could be potential UDAAP issues because it could also be confusing and unfair to borrowers to tell them that this is going to be the actual number, and then at closing essentially is when the next corrected CD technically has to be provided to the consumer, give them a cash to close that’s much greater, so there could be some real UDAAP issues there as well to be concerned about.

Answered By: Richard Horn

Can a numerical value on a CD (Fee value omission) be deemed to be a non-numerical clerical error if the LE reflects the accurate value and the omission on the value on the CD is a result of a bona-fide technical error (data mapping)? See section-by-section analysis stating “The Bureau does not believe the fact that a charge was disclosed in a different manner to a consumer before an incorrect disclosure was provided is material for purposes of classifying a clerical error.”

So, the way that I usually read the preamble is if there’s a sentence in the preamble, I check whether it’s responding to a public comment that was received. For many of the sections in the preamble, there’s a long list of each comment that was received, or a long description of each comment that was received to that particular revision.

When I led the rule the reason why that was important to me to include was because I wanted the responses, and the description of the reasons why the CFPB did what it did, to be responsive to the public comments that were received. I wanted that all to be in one document. And so sometimes, it’s important not to just read a sentence in isolation in the preamble, especially a sentence like that and to go see what type of comment it was responding to, and so I would want to look at that first before providing an official answer.

But I would think that, considering that what we are talking about a numerical disclosure, that that would not qualify as a violation that’s curable under that section, although it could be curable under TILA section 130(c) as I mentioned, which is a defense to liability, a defense to civil liability, for violations that were really unintentional bona fide clerical errors.

Answered By: Richard Horn

What is the potential liability or ramifications for providing a different CD to the seller than has been shared with the buyer? Meaning, if the lender delivers the CD to the buyer but the settlement agent delivers the CD to the seller, what if they are not the same document?

That’s actually allowed, under the rule there is a provision that, I think it was a response to a lot of public comments that were citing state privacy requirements for the borrower’s and seller’s information, allows lenders and settlement agents to separate the borrower’s and seller’s information onto two different CDs, so the borrower doesn’t get the seller’s and the seller doesn’t get the borrower’s private information.

Now, some numbers actually do have to be the same between the two different disclosures, so, for example, the proration, or the seller credit, those are things that will be on both the borrower’s and the seller’s forms. If that information is the same between the borrower’s and the seller’s CD there is no violation from providing the rest of the information separately, but if that information that will actually have to be the same on both the borrower’s and seller’s CD is actually different, if they don’t reconcile, that is a potential disclosure violation, on the borrower’s CD or the seller’s CD, because one of those numbers is likely inaccurate.

So, for example, if the seller is providing a $5,000 dollar lump sum credit, and on the seller’s CD it shows that $5,000 lump sum credit but on the borrower’s CD it shows a $4,000 lump sum credit, that would be a violation on the borrower’s CD that would actually be easily identifiable by an examiner or somebody looking at the loan file because the number would be different on the seller’s CD as well as probably the settlement agent’s settlement statement.

Answered By: Richard Horn

What if the settlement agent did not have the buyer’s CD executed at consummation?

So, actually, there is no technical requirement under TRID that the CD be signed. You can actually leave the signature line off of the CD. There’s a provision that makes the signature line optional for the borrowers.

But it’s a good idea to have it executed because it provides additional documentation that you are following the requirements, especially, for example, the initial CD that has to be received three business days before consummation. It’s good to get some kind of confirmation, either electronic signature or wet signature, that the borrower received it, or some other form of confirmation. Then at closing, if anything changes after that initial CD is provided, there’s actually a requirement to provide a corrected CD at or before consummation and so, it could be helpful to have the borrower sign that corrected CD at consummation just to provide additional documentation that you provided it at or before consummation.

The borrower’s signature can be helpful in that regard and then also, keep in mind that there could be investor requirements that require these documents to be executed. And sometimes, it’s actually more important what the investor requires than what the rule requires because the investors are who are going to purchase the loan. And so, it’s very important to pay attention to what their guidelines say.

Answered By: Richard Horn

How should we, a title company, handle the situations where the lender is directing us to prepare the CD in a way that we know is incorrect?

This is a great question, it’s something that unfortunately is not described in the preamble of the rule, it’s not something that’s in any of the regulatory provisions, and it’s something that is really of concern to settlement agents. Because there are a lot of misunderstandings about how to comply with TRID and actually there are probably a lot of cases where a settlement agent might understand the way the rule is intended, might understand the correct way to comply with the rule, and the lender might have a misunderstanding about it.

But the lender might still require under their closing instructions for the disclosure to be disclosed incorrectly because of their misunderstanding and the question then comes up, is the settlement agent subject to potential administrative liability for that violation.

Hopefully that’s something that the CFPB does, at some point in the future, provide some guidance on for settlement agents. I know the HUD FAQ’s previously did talk about some agents’ responsibility with respect to tolerance violations for the GFE and the HUD-1 and so there is some precedent for a regulatory agency giving some guidance about these types of situations where the lender might have a violation that the settlement agent is really just a part of because they are following the lender’s instructions.

I think the best thing for settlement agents to do is to document that they informed the lender of their interpretation and that the lender decided to still follow through with the lender’s interpretation, and then keep that in their own file. Because if there is any potential administrative liability I think that would probably be taken into account by an examiner.

Answered By: Richard Horn

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