As a lender, how do I collect the information I need to provide an accurate Loan Estimate (“LE”) (which replaces the initial Truth in Lending (“TIL”) disclosure and Good Faith Estimate (“GFE”)) under the new definition of “application”?

Implementing the TRID rule is as much about improving the way you and your systems manage information as it is about providing the new forms. This is because the TRID rule uses the existing mortgage disclosure framework you are familiar with, but enhances and tightens those requirements so that compliance can only be achieved if you have the ability to collect, track, and analyze the information you receive during the origination process. That begins with determining when you have received an “application.”

As is the case today with the GFE and initial TIL disclosure, you must provide the LE no more than three business days after you receive an “application.”[1] Unlike the current rules, however, you will no longer have the right to gather all the information you need before providing an estimate.

Instead, under the TRID rule, you will generally be considered to have received an “application” – and the three-business day clock will start running – once the consumer has submitted these six pieces of information for the purpose of obtaining an extension of credit:

  1. The consumer’s name;
  2. The consumer’s income;
  3. The consumer’s social security number to obtain a credit report;
  4. The property address;
  5. An estimate of the value of the property; and
  6. The mortgage loan amount sought.[2]

Although the Bureau has said that you may attempt to sequence the collection of information so that you receive everything you need to provide an LE before the submission of the last of the six items, Bureau staff has also advised that you cannot refuse to accept any of the six items.[3]

This means that you must be able to track and document what information you have received and when you received it. Furthermore, if you work with brokers, you must also be able to document what information the broker received and when the broker received it because you retain responsibility and liability for providing a compliant LE.[4] Accordingly, you may want to ensure that you have sufficient time during the three day period to review any LE the broker prepares before the broker provides it to the consumer.

[1] 12 C.F.R. § 1026.19(e)(1)(iii).

[2] 12 C.F.R. § 1026.2(a)(3)(ii).

[3] Cmt. 2(a)(3)-1; BuckleySandler Unofficial Transcript of Aug. 26, 2014 CFPB Webinar (“Transcript”) at 11, available at http://www.buckleysandler.com/uploads/1082/doc/TILA-RESPA_Integrated_Disclosures_8-26-2014_Transcription.pdf (stating that “the Bureau has never endorsed refusal of any of the six elements by a creditor because it would like additional information”).

[4] 12 C.F.R. § 1026.19(e)(1)(ii); cmt. 19(e)(1)(ii)-2.

Answered By: Ben Olson

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

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

With regards to the information that triggers an “application”, can we request additional information before, say the SSN, or do all six pieces of application information need to be solicited at one time? What are the exact triggers?

The exact triggers are the six pieces of listed information. But can you collect or ask for additional pieces of information? The answer is absolutely yes, you can. The Bureau has said you can ask for as much additional information as you want. Again, not documents, but information. However, you cannot refuse to accept the six pieces of information if that’s all the borrower wants to give you.

The Bureau has provided some guidance on online applications that is useful in thinking about what this means. Anybody who has filled out an online application form has had the experience where there are certain fields you have to fill out. They usually have little red asterisks next to them and, when you try to click submit or move to the next screen, it won’t let you proceed until you fill them out. Instead, the system is going to kick you back and make you fill out those fields. The way this works if this were a mortgage application — and this is guidance that the Bureau has provided — it is fine to ask the borrower for 20 pieces of information in addition to the six, but when it comes time for the borrower to move to the next screen, you cannot kick it back to them for failing to fill out any field except the six required items.

So that’s the balance you have to strike: you can engineer this process so that the overwhelming majority of time, you will be able to get this information from the borrower and you will know everything you need to know. However, there will be circumstances — whether you’ve got a borrower who’s working as a tester and is actually going to refuse to give you anything other than the six items or whatever else it might be – for which you do need to plan and build a process to be able to handle.

The question that comes up a lot: Because loan product is not one of the six pieces of information, what do you do if the borrower gives you the six things but doesn’t say if they want an ARM or a fixed, a 15 or a 30 year loan? The Bureau’s responded to that question by saying the best information reasonably available is the standard and that’s what you comply with. You are not required to give the borrower a Loan Estimate for every product that you offer, but instead it might be reasonable to say that, if your most common product is a 30 year fixed or a 5 year ARM, then in the absence of direction from the borrower about what they want, you are going to give them a Loan Estimate based on that product.

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

Answered By: Ben Olson

Is over estimation of LEC’s acceptable?

There are new tolerances that come into effect with the new rules. The way the rules are designed is very similar to what you have for the RESPA GFE. There is a good faith standard, meaning you (or the broker on your behalf) have to provide the consumer with good faith estimates, based on the best information reasonably available for any settlement charges. Then there are tolerance rules that are going to be in place for those charges. There is an expanded category of zero tolerance charges, meaning that, under the rules, if what the consumer ultimately pays is higher than what was on the estimate, then the estimate was deemed to not be in “good faith” and you must cure a tolerance violation unless there was a changed circumstance or other event that allows you to redisclose it. There’s another category called the 10% category where you’ve permitted shopping for a service and it’s not being paid to an affiliate of the creditor or broker. This also is very similar to what you have under RESPA. Then there are other types of charges, like prepaid interest that are not subject to tolerance at all. But generally the baseline for “good faith” is that you did not charge more than you stated on the estimate.

However, I wouldn’t bank on the fact that “good faith” relies on charging the consumer more than the estimate as a license to intentionally overestimate. There are business reasons and legal reasons why you still wouldn’t want to do that. The business reasons are obvious: you’re probably putting yourself at a competitive disadvantage if you are overestimating fees and making the loan look more expensive than it is. That’s a practical concern. The legal concern is that, even though the good faith standard turns on charging the consumer more than the estimate, there also is still a best information reasonably available standard. This means each disclosure that is made has to be made according to the best information reasonably available. So if what you or your third party LO is doing is intentionally inflating estimates to get around potential tolerance violations, then those disclosures wouldn’t be made according to the best information reasonably available. Even though they may end up protecting you from a tolerance violation, you still could still violate TILA.

Answered By: Andy Arculin

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

Is there a problem with a broker generating Loan Estimates when they are unsure who the creditor is going to be?

The rules don’t get that specific. The standard is best information reasonably available. The hook to issuing a Loan Estimate without a creditor’s name on it, meaning a broker is issuing a Loan Estimate and isn’t actually putting the name and address of the creditor on the form is that, despite using reasonable diligence to determine who the creditor will be, the broker is unable to determine who the creditor is going to be prior to issuing the Loan Estimate. In other words, the best information reasonably available does not include the name of the creditor; therefore, the creditor’s name can be blank.

Answered By: Andy Arculin

The new application definition eliminates some of the flexibility that wholesalers and the third party originators/brokers have today in determining when an application has been submitted. Are there still ways that information collection can be controlled?

Yes, there are, but there are some limitations. Recall the “catch-all” element, which exists under RESPA. This is basically anything else (in addition to the six elements) that the creditor requires to complete an application. This catch-all element is going to be gone on August 1st so the new definition for an application triggering the Loan Estimate is going to be six specific pieces of information: the consumer’s name, income, social security number (as the rule is written it says social security number for purposes of retaining a credit report), the property address, the estimated property value, and the estimated loan amount. Those are the six. That’s it and once those six elements have been submitted by the consumer for purposes of obtaining credit—meaning they’re not just on file somewhere, but the consumer has actually submitted them to a broker or a creditor for the purposes of getting an extension of credit—the application has been submitted and the clock is ticking.

However, the preamble sections on the new definition of application in the final rule (if you want a regulatory cite that’s section 2(a)(6) of Regulation Z) discuss at length the flexibility that creditors or brokers have in controlling or sequencing the collection of information. For example, the sixth element collected in a lot of cases is going to be something sensitive like the social security number, and may be saved for the end while other useful information or necessary information like date of birth and mailing address (which aren’t in the 6 elements), as well as information like the product type, can be captured first. The catch, however, is implied in the preamble and was clarified later by the CFPB’s webinar: the creditor or broker is not permitted to refuse to proceed with the application collection if the consumer has provided all six elements and wants to submit the application. There’s a reason for this. Despite all this talk about flexibility, which I think usually works because people want to get a loan and they will willingly give information as the information collection goes, one of the main policy objectives of the rule is making it easier and quicker for consumers to get estimates and shop between them. The Bureau felt strongly that removing the creditor-specific or “catchall” application element would mean that the consumers can get Loan Estimates from different creditors based on the same universe of information, and that would greatly facilitate shopping. That was the theory. This means sequencing is allowed, but in the CFPB’s view there is a caveat—and in your case, that is a caveat you are going to be entrusting to third party brokers.

As for what you need to do to make sure brokers are complying with the rule, section 19(e)(1) has a section titled “Mortgage Broker,” and makes clear what the minimum expectations are going to be: the creditor is expected to maintain communications with the brokers to ensure the broker’s acting in place of the creditor. In other words you do have responsibilities for making sure that the broker is doing this correctly. Policies and procedures will govern how information is collected, how scripts are designed, how people are trained if you’re doing face to face sales, and there’s also some specific guidance about online application systems as well if that’s the way your brokers are taking applications.

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

Under the new rules, do brokers have to issue an LE for a specific creditor when they get the application, or can they shop the loan or application around to different creditors?

The rule specifically contemplates that brokers may not know who the creditor is going to be, as long as they’ve made a reasonable effort to determine who the creditor will be. If they don’t know that when they’re making the Loan Estimate, they can issue a blank estimate and then shop it to creditors. There’s flexibility in the rule for doing that. I think where this gets challenging is appetite to actually run with a loan that was made by a broker without a specific creditor in mind. That’s something people in wholesale lending might be skittish about or might not, depending on who the broker is and what your relationships are. And also, of course, secondary market investors—whether they would actually take a loan where a broker made the estimate with a blank name on it and then a creditor later picked it up. Generally, I think if you’re the creditor, the risk you have is that the estimates aren’t any good and you can’t change them. That’s probably your biggest risk. But if you’re willing to live with that, then that’s something you can certainly do.

Answered By: Andy Arculin

In the wholesale environment, if a loan is denied or it’s drawn from lender A and the broker submits the LE with Lender A on it to Lender B, is there any issue with Lender B accepting the LE that has Lender A’s information on it?

The rule doesn’t get into that level of specificity; there are things the rule’s silent on and doesn’t tell lenders how to operationalize it. This is one of them.

Technically, under the rule, the only time a revised Loan Estimate is required to be provided is if the lender wants to use a revised charge for purposes of the tolerances requirements.

Generally, even though there might not be a requirement to provide a revised Loan Estimate, in a situation where a lender did take a Loan Estimate from a broker that had a previous lender’s name on it, it would probably be a good idea to provide a revised Loan Estimate with the revised lender’s name on the Loan Estimate, just for consumer understanding purposes. I don’t think the rule would prohibit a lender from taking such a Loan Estimate, but just operationalizing that may be tricky. I understand some lenders are saying they wouldn’t take a loan that was previously submitted to another lender.

Once you get to the Closing Disclosure stage, you’re going to have to put the accurate lender’s name on that.

Answered By: Richard Horn

As an add-on to that question, as long as the fees are honored, would there be an issue?

If they honor that Loan Estimate and the only change literally is the lender’s name, I don’t see that being a problem with the rule. But I think it would probably be a good idea to send a revised Loan Estimate, at least with the change in the lender’s name.

Answered By: Richard Horn

What about the Intent to Proceed period of time; if a borrower does not provide intent within ten days, can a new loan estimate be disclosed?

That’s called the Loan Estimate “expiring” under the rule. That means if you provide a Loan Estimate and the borrower doesn’t respond with the Intent to Proceed within ten business days under that provision, then that would be a valid reason for revising that Loan Estimate. So you would provide a new Loan Estimate with different charges and that would be okay.

Answered By: Richard Horn

The way I look at it, we (the lender) already are responsible for everything. How does TRID increase our liability with both regulators and investors in addition to what we have today?

Right, the lender is technically responsible for everything today. There are a couple of ways this complicates things. One, the liability risk is a lot more substantial. There are a lot of confusing aspects to the RESPA GFE rules that I think everyone got comfortable enough with, but the threat of a private lawsuit really just wasn’t there. An example is the 10% tolerance in Reg X—I don’t know if anyone ever really fully understood how it’s supposed to work, and HUD never explained it. But everyone started doing it a certain way and it wasn’t something that was subject to private liability where a court could really come in and undermine what they’d done. Now everything’s under Regulation Z and potentially carries with it TILA liability. That is a pretty big change. The TILA disclosures have always had liability, but today’s TILA disclosures really aren’t that complicated. These are a lot more complicated. The lender also is legally considered the party doing the disclosures, even in a broker transaction. The lender can’t take a package from a broker and consider that receipt of the application. If a lender is doing work with a broker, the broker is presumed to be acting on behalf of the lender, making a disclosure in the lender’s shoes. These changes haven’t necessarily increased responsibility that much, but they’ve increased exposure. In general, these are just harder forms. They’re a lot more detailed, a lot more technical. And now everything is potentially subject to scrutiny, whereas before RESPA and the GFE rules weren’t tightly enforced and there was no private right.

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

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

Regarding the HUD OIG audit of HUD’s indemnification recovery process, what were HUD OIG’s conclusions?

The HUD OIG concluded that HUD had not been doing an adequate job of recovering for losses when indemnification agreements were in place. Specifically, it found that there had been recoverable losses on hundreds of loans included in the review, and although enforceable indemnification agreements were in place, HUD had not taken action to collect the losses pursuant to those agreements. Ultimately, HUD OIG recommended that HUD improve its processes around this, and HUD agreed with the OIG’s recommendations and indicated that it would be initiating billing processes where appropriate, and changing its processes to prevent recurrence of this issue.

Answered By: Melissa Klimkiewicz

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