TRID Update: 6 Months In, Areas of Concern and Uncertainty

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1 TRID Update: 6 Months In, Areas of Concern and Uncertainty New Jersey Bankers Association prycompliance@hotmail.com 0 0 of of 6674 Clarifications Coming CFPB announced upcoming Proposed Rule in April 28, 2016 letter to trade groups Hope to issue the NPRM in late July We also believe that there are places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity Issues still remain The regulation is incomplete in many areas Lack of formal CFPB guidance CFPB information guidance: Is not legally binding does not represent legal interpretation, guidance or advice of the Bureau does not bind the Bureau and does not create any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner 1 1 of of 6674

2 High TRID Error Rates The agencies have begun TRID testing in their exams (CFPB started in June) Post-TRID testing has shown errors of up to 90% in some banks How should you deal with this? Provide clear and consistent policies and procedures (good faith effort to comply) Extensive training and retraining, even now TRID risk assessment? Conduct pre- and post-closing reviews at appropriate times (30, 60 days after close, for instance) Concentrate on specific areas of concern and problems risk-based testing 2 2 of of 6674 Coverage Issues Closed-end consumer credit transactions secured by real estate Consumer purpose under Reg. Z and RESPA remain the same, except that trust coverage was expanded Consumer-purpose trusts for estate or tax purposes essentially same as consumer Reg. Z s real estate definition followed, not RESPA definition ( residential real estate ) RESPA exemptions gone now Rules does apply to assumptions (Reg. Z standard) But not successor in interest is not an assumption under Reg. Z The rule does not apply to: Chattel dwelling (e.g. mobile home) loans (existing Reg. Z disclosures) HELOCs Reverse mortgages Loans made by a creditor who makes 5 or fewer mortgages in a year Certain no-interest loans secured by subordinate liens made for the purpose of downpayment or similar home buyer assistance, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention (Existing Reg. Z disclosures) 3 3 of of 6674

3 Construction Loans Construction-only loan challenges CFPB webinar answered only some, not all, questions Sales price Transaction with a Seller: contract sales price of the property No seller: estimated property value at time of LE Make sure Loan Term and Product are correct Loan Term is term of just the construction loan (not the Construction + Perm period) Loan Purpose: Use construction only when purchase or refi don t apply In construction-perm setting, generally the purpose of the permanent loan is a refi, but it could be a purchase (when does title transfer?) 4 4 of of 6674 Construction Loans Monthly Principal & Interest Use half the commitment amount (from Reg. Z Appendix D) to calculate the amount of interest due Projected Payments table uses the same rules Don t forget to forecast any post-consummation improvements Disclose balloon payment properly Monthly interest payment plus the balloon amount (principal) Other Considerations: Don t include the New Construction statement on the construction-only loan, which says, You may receive a revised Loan Estimate at any time prior to 60 days before consummation 5 5 of of 6674

4 TRID Loan Purpose Waterfall Make sure this is correct surprising how many errors are here Purchase Loan used to finance acquisition of the identified property (collateral property) Refinance Loan used to refinance an existing obligation secured by the identified property (even if the creditor is NOT the holder or servicer of the original obligation) Construction Loan will finance the initial construction of a dwelling on the property disclosed on the LE Home Equity Loan to be used for any other purpose not listed above 6 6 of of 6674 Waterfall: Strange Situations Loan Purpose Collateral TRID Purpose Purchase of vacation home Borrowers primary dwelling Home Equity Refi of vacation home purchase and collateral substitution Permanent financing of initial construction loan via new loan Permanent financing of construction via modification at same bank Primary dwelling Same property constructed by first loan Loan modification secured by same note and property as initial loan Home Equity Refinance Not covered (modification) Finance child s wedding & college 26 acres of farmland Home Equity Finance expansion of business (40%) and purchase new vehicle (60%) Purchase 50 acres for personal hunting reserve 50 acres of commercial property Home Equity The land purchased Purchase Purchase 2 acres bare land The land purchased Purchase 7 7 of of 6674

5 Application Issues Submission of these 6 pieces of information constitute an application: 1. Consumer's name 2. Consumer's income 3. Consumer's SSN to obtain a credit report 4. Property address 5. Estimate of property value, and 6. Mortgage loan amount sought No more catch-all category RESPA: Any other information deemed necessary for the originator CFPB concluded creditors can collect other information they deem necessary before obtaining the 6 items above (such as obtaining SSN last) sequencing or strategic collection of information However, cannot artificially delay receipt of sixth item to delay delivery of the LE Can try to get the additional information within that 3 days, but HAVE to provide the LE within 3 business days after that 6 th item is collected Notice loan program is not an element! But don t have to produce multiple LEs in that situation, or default to a specific one (such as a 30-yr fixed loan) 8 8 of of 6674 Application Issues Key is submission from consumer wishing to apply How is information collected? Online systems consumer inputs data and saves it, but doesn t submit it to credit yet no application Online make sure systems don t prevent consumers from submitting the 6 items if they want to because additional information must be submitted Refis: creditor having information on file from a previous or existing loan, or loan application, does not mean that a new application has been submitted 9 9 of of 6674

6 Pre-Disclosure No fees may be imposed before the consumer has received the LE and indicated an intent to proceed (which is after LE is received) Except a bona fide and reasonable fee for credit report Can t hold checks for later deposit or credit card numbers Cannot require verifications before LE is delivered Intent to proceed may be in any manner consumer chooses (but not silence no negative options) unless lender requires a particular format document this! of of 6674 Pre-Disclosure If a consumer is provided with a written estimate of terms or costs (worksheets) before receiving the LE: Provided pursuant to prequalifications, for example Don t ask for verifications, though Top of first page must contain a statement that Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan Must be in font size no smaller than 12-point Estimate may not be made with headings, content, and format substantially similar to LE Different content, headings, format Cannot be a substitute for the LE May not require documents verifying information related to the application before providing the LE of of 6674

7 Loan Estimate Issues LE and CD forms are not template-based, are dynamic in construction and content based upon loan program and other terms and conditions of the transaction Meaning if certain terms are not applicable to the loan, either the form must follow specified rules regarding how the disclosure is made, or NOT appear on the form (AP and AIR tables, for instance) N/A should not be used where there is no value to be disclosed Either omit it or leave it blank No required font sizes Forms are standard mandated forms, not model forms No particular required naming convention (or fee names) for charges on the LE of of 6674 Alternative Loan Estimate Alternative Loan Estimate may be used if the transaction does not have a seller Refis, for instance Can also be used for simultaneous closed-end seconds by the same lender (but not required to do so) Checkboxes used to indicate if Cash to Close is being paid by or to the consumer on Page 1 Alternative Calculating Cash to Close table used with fewer entries on Page of of 6674

8 LE Contents: Pg. 1 General information related to applicants, property, loan, and rate lock status For multiple borrowers, additional space or pages may be used Applicant address must be physical address, not address instead Name of Creditor may not be a broker name, even if creditor has not yet been determined But if creditor has not yet been determined, broker does not have to assigned a unique loan ID# (left blank) Would then add it once creditor has been identified Date Issued is date lender delivered or mailed, not receipt date Property is address of property securing the loan, not purchased (if different) Sale Price for refis or other transactions without a seller, is estimated property value (but still call it Sale Price Purpose is a list of list of options: purchase, refinance, construction, and home equity (catch-all) Product Type is adjustable, step rate, or fixed use only one, even if hybrid product Loan Type is Conventional, FHA, VA, or Other of of 6674 LE Contents: Pg. 1 Loan Terms Interest Rate for an ARM, if interest rate at consummation is not known, rate disclosed is fully indexed rate Where initial interest rate is calculated using a different formula than for subsequent rate adjustments, disclose the initial interest rate of of 6674

9 LE Contents: Pg. 1 Projected Payments If payments will remain constant over life of the loan (such as a fixed rate, fixed payment loan with no MI) disclose a single column Additional columns (maximum of 4): Change to the periodic principal and interest payments Scheduled balloon payment Automatic termination of MI under PMI law (HPA) Amount disclosed for estimated taxes, insurance and assessments can be for a time period other than monthly (list time period) Estimated Escrow must be there even if there is no escrow put $0 here of of 6674 LE Contents: Pg. 1 Costs at Closing Including the total estimated closing costs and the estimated cash to close Alternative Costs at Closing table used for transactions without a seller, i.e. refinance (optional) Shows a check box to indicate whether the consumer will be expected to bring cash, or will receive cash at consummation for the estimated cash to close amount of of 6674

10 LE Contents: Pg. 2 Loan Costs The term Points can only be used for charges paid to reduce the interest rate cannot be other origination fees If LLPA is assessed through the rate, but not charging the consumer directly up-front, would not have to disclose that as an origination charge Cannot change the number of lines for each category of costs charges in excess of that number are totaled into one charge and described as additional charges of of 6674 LE Contents: Pg. 2 Other Costs Recording Fees and Other Taxes does not include taxes on separate services, such as title insurance Calculating Cash to Close Deposit or down payment is not subtracted as part of the calculation of closing costs financed Calculation of the closing costs financed line item is not affected by a seller credit. Seller credits are disclosed as a separate line item in the Calculating Cash to Close table For down payment/funds from borrower line item, existing debt being satisfied includes any type of debt of of 6674

11 LE Contents: Pg. 2 Adjustable Interest Rate (AIR) and Adjustable Payment (AP) tables Used ONLY when applicable; otherwise leave them out If no such features in the legal obligations, tables are not disclosed at all of of 6674 LE Contents: Pg. 3 Additional Information About This Loan In a loan with a mortgage broker, both creditor s loan officer and mortgage broker s loan officer must be listed (if available) Same NMLSR ID identified on the note and other documents Comparisons APR is not rounded, should be disclosed up to 3 decimal places If APR is a whole number, truncated at the decimal point (i.e. 7, not 7.000; 7.25, not 7.250) of of 6674

12 LE Contents: Pg. 3 Other Considerations Must disclose transfer servicing will at some point later during the life of the loan take place if that is the intent at the time the LE is issued Even if servicing transfer is to affiliate or subsidiary Appraisal disclosure: for loans subject to both Regs B and Z, satisfy both requirements here Confirm Receipt (signature, is optional) of of 6674 Loan Estimate Issues Lack of consistency of naming conventions between the LE and CD Failure to disclose all known fees on initial LE Can t disclose them later Would a COC that affects that fee change this? Title charges missing Title Loan Purpose If purpose of the loan is for anything other than purchase, refi, or construction, it is to be disclosed as a Home Equity Loan ; sometimes shown as a refi even though no prior debt was being refinanced Product Guidance is very specific as to what should be listed for product information, including using the term Adjustable rather than Variable Bank product name used for marketing purposes being added to the description of a fixed rate product rather than just stating Fixed Rate as prescribed by the regulation of of 6674

13 Loan Estimate Issues Rate lock If rate is locked, the date and time (including the time zone) must be shown Increasing payment loans Under both interest rate and monthly P&I payments, increases are to be shown as can go as high as in Year ; not can go as high as in years Cash to Close Errors in the way Lender Credits are shown, resulting in significant underquoting of the costs at closing E.g. lender Credits applied to reduce Total Closing Costs and then again applied under Adjustments and Other Credits when calculating the Cash to Close, resulting in a significant underquoting of the amount of cash required to close Confusion here may come from fact that on the LE, all fees being paid by the Lender are supposed to be deducted as Lender Credits, whereas on the CD, fees being paid by the Lender that are for specific items are supposed to be deducted under Adjustments and Other Credits of of 6674 Loan Estimate Issues Numerical computation errors; for example: Itemization of Loan Costs do not total the Total Loan Costs on page 2 Loan Costs and Other Costs do not total Estimated Closing Costs in the Costs at Closing table on page 1 Estimated Closing Costs are not calculated in same manner as the Total Closing Costs disclosed on page 2 Prepaids table does not include the applicable time period covered by the amount to be paid by the borrower and the total amount paid Problem: courier, wire, and storage fees on same line in the closing costs section Each fee should be disclosed on its own line "Title - CPL" fee is not labeled correctly on the Loan estimates CPL is not an acceptable abbreviation; should reflect "Closing Protection Letter" of of 6674

14 Loan Estimate Issues Association of Mortgage Investors (AMI) letter to CFPB March-2016/Association-of-Mortgage-Investors-AMI-CFPB-TRID-Letter-March final.pdf Provides information from investors pre-purchase due diligence reviews LE defects cited: Non-numerical clerical errors Lender name/address missing Incorrect or incomplete fields Numerical computation errors Disclosure omissions Prepaids table Initial Escrow Payment at Closing table Estimated Taxes, Insurance, & Assessments - inaccurate or incomplete of of 6674 No Cost Loans Debate Pre-TRID, GFE showed all fees required by the lender to be paid in connection with the loan, not just fees applicant would pay Reg. Z: (f)(2) and (f)(3) require itemization of cost of each settlement service the consumer will pay in connection with the loan, either in cash or by financing the cost as part of the loan proceeds If the consumer will not pay (or is not obligated to pay) for a settlement service, is it required to be disclosed? If the consumer will pay the settlement service cost, but will be provided a lender credit to offset some or all of the cost, the service/cost (as well as the lender credit) should be disclosed on the LE For example, lender offers rate that provides a lender credit to offset some or all of the charges required to be paid by the borrower; lender credit and the cost of the services must each be disclosed On LE, all fees being paid by the Lender should be deducted as Lender Credits On CD, fees being paid by Lender for specific items should be deducted under Adjustments and Other Credits of of 6674

15 Title Insurance Simultaneous Discount Discounted premium provided when an owner's title policy (which is optional) and a lender's title policy are both purchased Rules don't allow for disclosure of simultaneous discount on the LE, so actual amount the borrower will have to pay at closing is overstated ALTA letter signed by members of Congress have asked CFPB to address this issue in its clarifications of of 6674 Written List of Providers Must provide a written list identifying at least one available provider for each settlement service for which the consumer is permitted to shop (Model Form H-27) Provide list separately from disclosures Can provide disclaimer that referrals aren t endorsements If consumer selects a provider on the list, charge is in 10% tolerance category Shopping means consumer can go off-list If consumer selects a provider not on list, subjected to unlimited tolerance (fee can change) Written list is a referral under RESPA, so don t forget the AfBA if necessary Even if the borrower doesn t select that provider Be sure to monitor list and provide changes when necessary (i.e. change of circumstance) of of 6674

16 Loan Estimate Delivery Can you document delivery (and/or receipt)? Must deliver or mail LE no later than 3 business days after creditor receives consumer's application clock starts running General definition of business day: Day in which creditor s offices are open to the public for carrying on substantially all of its business functions If the LE is not provided in person, consumer is considered to have received it 3 business days after it is delivered (including electronic) or mailed ( mailing rule ) In-person is assumed received upon delivery Electronic date/time stamp, for example Mailing rule uses specific definition of business day: All days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day If a mortgage broker receives application, either the creditor or mortgage broker may provide the LE But creditor still remains responsible for compliance requirements of of 6674 Loan Estimate Delivery LE must be delivered or mailed at least 7 business days before consummation Same as Reg. Z MDIA rule for initial disclosures (etil) Specific definition of business day applies. Consumer may waive or modify waiting period based on a bona fide personal financial emergency same standard as now This 7-day period applies only to provision of the original/first LE (not revised LEs) Waiver or modification of this requirement is never a good idea Investor probably will not buy loan of of 6674

17 Tolerance: Good Faith Standard LE figures must be made in good faith and consistent with the best information reasonably available to the creditor at the time disclosed To determine good faith: Difference between estimated charges originally provided in LE and actual charges paid by or imposed on the consumer The word tolerance is not used in the regulation called Variations Exceptions if within the tolerance levels Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the LE it is not in good faith True regardless of whether creditor later discovers a technical error, miscalculation, or underestimation of a charge Amount paid by or imposed on the consumer may always be less than the amount estimated Notice LE does not list cents, so rounding may lead to tolerance problems of of 6674 Tolerance Levels No Variations (zero tolerance) Creditor may not charge more than the estimated amount unless there is a valid changed circumstance (or other triggering event) Fees paid to creditor, mortgage broker, or affiliate of either AfBA charges placed here Be aware RESPA s AfBA/required provider rules are still in place Affiliate aspect is new Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop This is a new one, also Transfer taxes of of 6674

18 Tolerance Levels Variations Permitted (unlimited tolerance) Charges may vary by any amount between LE and CD Prepaid interest Property insurance premiums Amounts in escrow, impound, reserve or similar account Services required by the creditor if creditor permits the consumer to shop and consumer selects a third-party service provider not on creditor's written list of service providers Charges paid to third-party service providers for services not required by the creditor May be paid to affiliates This one is new Does not necessarily mean No Tolerance, however Best information reasonably available to the creditor Cannot intentionally under-disclose prepaid interest, escrow charges, or similar amounts of of 6674 Tolerance Levels Limited Increases (10% cumulative tolerance level) Recording fees Charges for third-party services where: Charge is not paid to creditor or affiliate Consumer is permitted by the creditor to shop, but selects a third-party service provider on the creditor's written list of service providers, not an affiliate Owner s title insurance not required by the creditor does not fall under this category (this has no tolerance) of of 6674

19 Revised Loan Estimate CFPB: Creditors are bound by the Loan Estimate, and may not issue revisions because they later discover technical errors, miscalculations, or underestimations of charges However, there is no explicit prohibition of this in Reg. Z But resetting the tolerances baseline is allowed only when: Changed circumstances (COC) occur after LE is provided cause settlement charges to increase more than permitted (tolerance level) Although you can provide a revised LE if the change does not exceed the tolerance level, but the tolerance level does not then reset Changed circumstances occur after LE is provided affect consumer's eligibility For terms for which the consumer applied or the value of the security for the loan Revisions requested by the consumer Such as different loan product Rate lock (float-to-lock) causes points or lender credits disclosed on the LE to change Provide a revised LE within 3 days (originally was same day) Consumer does not indicate intent to proceed within 10 business days after LE was provided New construction loan and settlement is delayed of of 6674 What is a Changed Circumstance? Defined as: Extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction War, natural disaster, etc. Information specific to the consumer or transaction that the creditor relied upon when providing the LE and that was inaccurate or changed after the disclosures were provided Such as loss of employment, or appraisal issues New information specific to the consumer or transaction that creditor did not rely on when providing the LE Revised LE must be provided within 3 business days ( general definition) from the event the gave rise to the revised LE No new 7-day period after a revised LE is provided Meaning provide it no less than 4 (specific) business days before consummation Document the changed circumstance! MAJOR PROBLEM of of 6674

20 Fee Changes and What Happens Fee Change Reason 1. COC involving settlement fees New Disclosure Required within 3 business days? Fee Baseline Reset Permitted? a. Changes do not cause fees to increase more than 10% No No b. Fee changes cause total of fees to increase by more than 10% Yes Yes 2. COC involving borrower s eligibility for loan a. Changes do not cause fees to increase more than 10% No No b. Fee changes cause total of fees to increase by more than 10% Yes Yes 3. Borrower requested changes (any amount) Yes Yes 4. Interest rate-dependent changes (any amount) Yes Yes 5. Borrower intent to proceed given more than 10 days after delivery of LE (any amount) Yes Yes 6. Construction loan that will not close in 60 days (any amount) Yes Yes of of 6674 LE Tolerance Issues Lender credit tolerance issues Later changes to lender credits fall into 0% tolerance category, not 10% (even if underlying fee was in the 10% category) Have you delivered LEs that did not reset the tolerances? Be sure to know what your tolerance baseline is You can issue a revised LE whenever you want (there is no regulatory rule preventing you from doing so), but the revised LE may not reset the tolerance Is there a UDAAP issue here? Too many LEs? Is too much information a bad thing? Resetting tolerance when first change does not exceed tolerance threshold (i.e. 10%), but subsequent COC does Example: First LE issued. Subsequently, first COC (second LE issued) bumps fees up 8% - no baseline reset. Second COC (third LE issued) bumps fees up another 7% - baseline IS reset of of 6674

21 Closing Disclosure Generally must state the actual terms of the credit transaction, and the actual costs associated with the settlement of that transaction But if information is not known despite creditor having exercised due diligence to obtain it, may disclose an estimate based on the best information reasonably available Even if the creditor knows that more precise information will be available at or before consummation Information that does not fit may be disclosed on a separate page of of 6674 Alternative Closing Disclosure May be used if the transaction does not have a seller (like HUD- 1A today) Checkboxes are used to indicate if Cash to Close is being paid by or to the consumer on Page 1 Seller's column for costs is deleted on Page 2 Summaries of Transactions is deleted and Payoffs and Payments are disclosed at the top of Page 3 Alternative Calculating Cash to Close table is used with fewer entries on Page 3 May only be used if alternative LE was also used Otherwise standard form must be used of of 6674

22 CD Contents: Pg. 1 General information Date Issued is date delivered to the consumer, not the date the form was printed Closing Date is consummation date state law issues again Sale Price for a refi is appraised value (label it appraised prop. value ) Transaction Information Lender need not list address here of of 6674 CD Contents: Pg. 1 Loan Terms Projected Payments Mostly same instructions as LE Different rules for the disclosure of estimated escrow and estimated taxes, insurance and assessment For loans covered under RESPA, amounts of property taxes and homeowner's insurance are determined under RESPA escrow account analysis rules If not covered under RESPA, use Reg. Z rules Different reference to the escrow account information, which is on Page 4 Costs at Closing Alternative table for transactions with no seller of of 6674

23 CD Contents: Pg. 2 Loan Costs Similar to page 2 of the LE categories are the same Itemization of each amount in LE, and who pays Including third column if any third-party, such as creditor/lender, paid it Charges paid by lender, include (L) to left of amount in the column in order to denote those charges are paid by the lender LO compensation paid by creditor to a third-party LO (such as a mortgage broker) is not disclosed on LE, but is disclosed on CD Number of lines can be reduced or added by the creditor for each category based on need if need more pages, break into two pages (number 2A and 2B) with loan costs on Page 2A and other costs on Page 2B Fees and costs are listed alphabetically No more uniform sections as on HUD of of 6674 CD Contents: Pg. 2 Loan Costs If consumer could have shopped for a provider, but chose one that was on the written list (and creditor did not require that service provider), charge would move to the services borrower did not shop for category Items disclosed as a service you (the consumer) can shop for will stay in the category of services the borrower did shop for on the CD if the consumer does not use a provider on the written list, or if provider was not required by creditor of of 6674

24 CD Contents: Pg. 2 Other Costs Amount paid for real estate commission is total amount of the commission and is not affected by status of earnest money deposit that may be held by the real estate broker General lender credits not associated with any particular item are listed at the bottom as a negative number along with a narrative description Transfer taxes and recording fees are itemized on the CD instead of aggregated on the LE Disclose name of entity assessing the transfer tax, even if different from payee of the check cut by the settlement agent Prepaids are for services or costs due for future periods that are due before the first scheduled monthly payment of of 6674 CD Contents: Pg. 3 Calculating Cash to Close Compared with information on Page 2 of the LE is a tolerance check Amounts under heading Final taken directly from other portions of the CD or are calculated off-sheet based on actual amounts at consummation If amounts are different, the answer Yes is listed with narrative description of why the amount changed; if amounts are the same, the answer is No and nothing else is stated of of 6674

25 CD Contents: Pg. 3 Summaries of Transactions Resembles current HUD-1 Lender credits will not appear in the Borrower's Transaction table Only amounts disbursed to the seller prior to consummation are disclosed as excess deposits any deposits held by the real estate brokerage is not included in this calculation Seller's Transaction table can be omitted from the CD provided to the consumer, and the Borrower's Transaction table can be omitted from the CD provided to the seller Both can be deleted when there is a transaction without a seller Instead of the Summaries of Transactions tables, they're replaced with a pay off and payments table when the LE was provided with the alternative Cash to Close table of of 6674 CD Contents: Pg. 4 Loan disclosures Escrow account Adjustable Payment (AP) and Adjustable Interest Rate (AIR) tables (when applicable) Same rules as LE of of 6674

26 CD Contents: Pg. 4 Partial Payment 3 check boxes to make disclosures of lender's partial payment policy 1. If periodic payment less than the full amount due are accepted, disclose a statement that it may accept partial payment and apply payment to the consumer's loan 2. If periodic payments less than the full amount due are accepted but not applied to loan until consumer pays the remainder of the full amount due, disclose a statement that it may hold partial payments in a separate account until consumer pays remainder of payment and then applies the full payment to the loan 3. If periodic payments less than the full amount due are not accepted, disclose a statement that it does not accept partial payments May check multiple boxes (first and second only) Also disclose that if loan is sold, new lender may have a different policy of of 6674 CD Contents: Pg. 5 Loan Calculations Roughly amounts disclosed currently on the TIL in the Fed Box, plus new Total Interest Percentage (TIP) Other Disclosures Contact Information Confirm Receipt of of 6674

27 CD Contents: Pg. 5 Liability after Foreclosure provision requires a brief statement that certain protections may be lost if consumer refinances or incurs additional debt on the property, and statement that the consumer should consult an attorney for additional information Check state law For example, an anti-deficiency law is a state law that protects consumer against liability for unpaid balance of the loan after foreclosure Statutes of limitation do not count as anti-deficiency laws However, state laws that limit how much a creditor may collect in an anti-deficiency judgment are considered anti-deficiency protections of of 6674 CD Issues Calculating Cash to Close table does not reflect Yes when amount changed from Loan Estimate to Final When the answer to the question is Yes, there is no indication where the consumer can find the amounts that have changed on the Loan Estimate. Numerical computation errors; for example: Itemization of Loan Costs do not total Total Loan Costs on page 2 of the Closing Disclosure Loan Costs and Other Costs do not total Closing Costs in the Costs at Closing table on page one of the Closing Disclosure of of 6674

28 CD Issues From AMI letter: Non-numerical clerical errors Lender name/address, seller name/address, and check boxes missing, incorrect, or incomplete Disclosure omissions Fees in Loan Costs table Prepaids table and Initial Escrow Payment at Closing table Estimated Taxes, Insurance, & Assessments inaccurate or incomplete Loans closed prior to 3-day waiting period On both LE and CD: Human errors typos, leaving things blank Tables not balancing check to see your automation is doing this (don t assume) e.g., Cash to Close Table had Total Closing Costs of one figure, nothing deducted, but yet a different amount shown as the Estimated Cash to Close $100,000 - $0 = $99, of of 6674 Closing Disclosure Delivery Creditor is generally responsible for ensuring the consumer (buyer) receives the CD no later than 3 business days (specific) before consummation May contract with settlement agent to provide CD on creditor's behalf Consummation defined under Reg. Z as time that a consumer becomes contractually obligated on a credit transaction (state law issues) If CD is not provided to the consumer in person, consumer is considered to have received it 3 business days after it is delivered or mailed In person = receipt upon delivery Anything other than in person mailing rule applies Or can rely on proof of receipt to evidence earlier receipt of of 6674

29 Closing Disclosure Delivery Settlement agent must provide the seller with CD at or before consummation How to deal with combined disclosures? Once CD is sent, any changes to LE stop Cannot deliver a revised LE on the same day the CD is provided, either Therefore, revised LE must be received by the consumer no later than 4 business days prior to consummation of of 6674 Closing Disclosure Delivery Creditor is liable for CD no matter who prepares it How will lenders do this? Do it yourself Let closing agent prepare CD Make sure they re proficient and compliant vendor due diligence is essential Indemnity agreements signed? Joint effort Lender prepares 3 TIL pages Closing agent prepares 2 pages on title/closing Each liable for their own submissions This is the most likely outcome of of 6674

30 Revising or Correcting the CD Creditors must redisclose terms or costs on the CD if certain changes occur that cause the disclosures to become inaccurate Would not reset the tolerance levels Is meant to be used only as an exception, not as a means of disclosing changes (that s what the revised LE is for) 3 categories of changes require a corrected CD containing all changed terms: 1. General rule: changes before consummation do not require new 3 business day waiting period If the Closing Disclosure becomes inaccurate before consummation, the creditor must provide corrected disclosures reflecting any changed terms to the consumer at or before consummation; however, the consumer may inspect the disclosure during the business day immediately preceding closing of of 6674 Revising or Correcting the CD 3 categories of changes require a corrected CD containing all changed terms: 2. Changes before consummation that require new 3 business day waiting period: Loan product changes Prepayment penalty added Disclosed APR becomes inaccurate Reg. Z standard: 1/8 pt for regular transactions; 1/4 pt for irregular Does this mean only if the APR goes UP? What if the change causes the APR to go DOWN (meaning there is no harm to the consumer)? Small Entity Compliance Guide vs. the Regulation Which to follow? of of 6674

31 Revising or Correcting the CD 3 categories of changes require a corrected CD containing all changed terms: 3. Changes after consummation Event in connection with settlement causes CD to become inaccurate and results in change to amount paid by the consumer or seller occurs within 30-day period after consummation To document refunds for tolerance violations To correct non-numerical clerical errors 60 days If it does not affect a numerical disclosure and does not affect the timing, delivery, or other requirements Deliver or mail corrected disclosures no later than 30 days after receiving information sufficient to establish that the event occurred Note that different states (such as NY) define consummation differently Title company issues here of of 6674 Resetting the Tolerances What is the baseline after the first CD has been delivered? What if you have a valid COC after the CD has been delivered? Confusion from CFPB in their Small Entity Compliance Guide and webinars You can reset baseline if COC happens within 3 specific business days before closing If CD is not delivered in person, must rely on the mailbox rule (3 days to get there) Therefore, revised CD must be delivered 6 specific business days before closing But what happens if another valid COC happens within those first 3 (of those 6 total) days? No support for another baseline reset Small Entity Compliance Guide: If the event occurs after the first Closing Disclosure has been provided to the consumer (i.e., within the three-business-day waiting period before consummation), the creditor may use revised charges on the Closing Disclosure provided to the consumer at consummation, and compare those amounts to the amounts charged for purposes of determining good faith and tolerance. (Comment 19(e)(4)(ii)-1) But the regulation is not as clear of of 6674

32 Resetting the Tolerances What is the baseline after the first CD has been delivered? What about the liabilities? Example is increases in recording fees should the tolerance baseline be based on the second-to-last CD or the first one? Also would like the CFPB to clarify that lenders can make revisions outside the 30-day fee error period specified in the rule How can these changes be cured? Old Reg. Z specified countdown started as of date of discovery, while TRID seems to start when loan closes of of 6674 Curing Tolerance Violations If amounts paid by the consumer at closing exceed amounts disclosed on the LE beyond applicable tolerance threshold Creditor must refund the excess to the consumer no later than 60 days after consummation, and Creditor must deliver or mail a corrected CD reflecting refund no later than 60 days after consummation Zero tolerance charges Any amount charged beyond amount disclosed on the LE must be refunded 10% cumulative tolerance charges Sum of charges exceeds sum of all such charges disclosed on LE by more than 10%, difference must be refunded of of 6674

33 Uncertainties Around Liabilities Rule does not set forth liability that applies to each requirement Certain specific cure provisions as to fees In preamble, CFPB notes it addresses statutory authority relied upon for each requirement, and this provides sufficient guidance TILA liabilities for disclosures: Administrative enforcement Private right of action actual damages, statutory damages sometimes (strict liability), court costs and attorney s fees RESPA liabilities for GFE and HUD-1: Administrative enforcement aspects No RESPA private right of action Bottom line is TILA liability assumed be used for all disclosure errors? Clarity sought from CFPB Even if not, how will investors respond? Courts when TRID loans default? of of 6674 Secondary Market Liability General assignee liability standard: Violation apparent on the face of the disclosure statement Apparent on the face of the disclosure statement if: Disclosure can be determined to be incomplete or inaccurate by comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement Disclosure does not use the terms or format required to be used by TILA Assignee can be subject to claim that can be brought against lender Although most loans are rejected for CD errors, some investors have refused to purchase loans (or purchase with a discount) with LE problems Cordray s December letter suggests that no liability if CD was accurate but initial LE was not Informal CFPB statements suggest unintentional, good faith errors will not cause liability of of 6674

34 Uniform Closing Dataset(UCD) This will be a industry standard that will allows CD information to be communicated electronically Will contain additional data beyond CD (e.g. ATR info) Will require a Seller CD Will standardize data for consistency, common understanding, improved accuracy Goals to enhance credit risk management, detect fraud, additional transparency Fannie and Freddie to require delivery of UCD in Q317 for all loans they acquire Specifics later in 2016 Consider now what it will take to implement and use UCD for data exchange of of 6674