Washington Bankers Association 2015 Northwest Compliance Conference TRID We re Down to the Wire! Presentation by Janet M. Bonnefin Aldrich & Bonnefin, PLC Agenda Creditor s duty to give Loan Estimate Restrictions on charging fees at time of application Good faith determination of borrower s costs (tolerances) Avoiding tolerance violations Creditor s duty to provide Closing Disclosure Issuing corrected Closing Disclosure Post-consummation changes Correcting tolerance violations 1
Disclaimer This presentation is intended solely for educational purposes to provide you general information about laws and regulations and not to provide legal advice. There is no attorney-client relationship intended or formed between you and the presenter. Consult your institution s legal counsel for advice about how this information impacts your institution. Important Definitions 2
Business Day Two Definitions General definition Day on which creditor is open for carrying on substantially all of its business functions May include Saturdays and Sundays if you re open, depending on the extent of the services you offer on weekends Precise definition All calendar days excluding Sundays and 10 defined legal holidays (same as rescission definition) Consummation Consummation is when the consumer becomes contractually obligated on a credit transaction State law governs Generally it is when the consumer signs the debt instrument (promissory note, loan agreement, etc.) 3
Duty to Give Loan Estimate Creditor s Responsibility Creditor is responsible for providing Loan Estimate Within 3 business days of receipt of application General business day definition A day your institution is open to the public for carrying on substantially all of its business functions 4
Mortgage Brokers Mortgage broker may give LE but creditor is still responsible for it Creditor may not issue a revised LE to correct broker s errors But may issue a revised LE if an event occurs which permits creditor to issue one (more on this later) Application Defined Application consists of 6 items of information ALIENS A = Address of property L = Loan amount I = Income of consumer E = Estimated value of property N = Name of consumer S = Social security number 5
May Request Additional Info & Documentation Creditor is allowed to request more information than just ALIENS E.g., general application form, FNMA 1003, etc. Creditor may also request documentation to verify consumer s information Pay stubs Tax returns Signed verification forms But... creditor must provide LE once it has ALIENS, even if it hasn t received the additional information or documentation it requested Preapprovals Are Not Dead When consumer is shopping for a new home, usually he has not identified a property or have an estimated value of the property (the purchase price) When consumer applies for a preapproval, you don t have the A or E in ALIENS Thus the request for preapproval is not considered an application under TRID, so you don t have to provide an LE yet When you get the A and E, give Loan Estimate within 3 business days 6
Manner of Delivery In person By regular mail Overnight delivery (USPS, UPS, FedEx, etc.) Creditor may deliver Loan Estimate electronically, but must comply with E- Sign Act first E-Sign disclosure Consumer s consent given electronically 7-Business-Day Waiting Period There must be 7 business days between when Loan Estimate is mailed or delivered and consummation 7-business-day waiting period starts when LE is mailed or delivered Consummation can occur on 7th business day Precise business day definition applies All calendar days except Sundays and 10 legal holidays 7
When Consumer is Deemed to Receive LE Hand delivered: same day By mail: 3-business-day mailbox rule You may instead rely on evidence (documentation) of earlier receipt By email: Must comply with E-SIGN Act 3-business-day mailbox rule You may instead rely on evidence (documentation) of earlier receipt Why Do We Care When Consumer Receives LE Two Reasons Reason #1: Creditor/broker may not impose a fee (except for credit report fee) until consumer Receives LE; and Indicates an intent to proceed with the loan Reason #2: If creditor issues a revised LE, consumer must receive it at least 4 business days prior to consummation We ll discuss issuing revised Loan Estimates later 8
Waiver of Waiting Period Permitted Consumer may waive 7-business-day waiting period Needs bona fide personal financial emergency Creditor must decide if emergency qualifies Still must give Loan Estimate first Waiver must be in writing Signed and dated by all consumers Must expressly waive waiting period No preprinted forms Example #1 Loan Estimate Timing ABC Bank receives a consumer s application for a home improvement loan on Monday, October 5, 2015. ABC Bank is closed on Saturdays and Sundays. 1. ABC Bank must deliver or place the Loan Estimate in the mail by. 2. If ABC Bank hand delivers or places the Loan Estimate in the mail on October 7, 2015, then loan consummation may occur on or after. SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY 1 2 3 4 5 6 7 8 9 10 Application Received 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 9
Restrictions on Charging Fees No one can collect any fees until Loan Estimate is delivered AND Consumer expresses intent to proceed Only exception Bona fide and reasonable credit report fee Good Faith Determination (aka Tolerances) 10
Good Faith Determination of Charges Closing costs deemed to be made in good faith if charge consumer pays at closing doesn t exceed the amount disclosed on the Loan Estimate So consumer must be charged the same as what was stated on Loan Estimate, unless the increase is within the applicable tolerance Three Categories of Tolerances Zero tolerance items Origination charges Fees charge by service providers the creditor controls 10% aggregate tolerance items Fees charge by service providers consumer selects from provider list or doesn t select at all Items not subject to limit at all Unlimited variations permitted for certain fees 11
Zero Tolerance These fees are always subject to a zero tolerance Fees paid to creditor or mortgage broker Fees paid to affiliate of creditor or broker Transfer taxes Fees paid to unaffiliated third party if the creditor did not permit the consumer to shop for the third-party service provider Zero Tolerance Examples Examples of services consumers typically cannot shop for: Appraisals Credit reports Flood determinations Therefore these fees are subject to a zero tolerance 12
10% Aggregate Tolerance Recording fees Third-party fees where consumer: Can shop for service provider and Chose one from creditor s provider list or made no selection at all This tolerance doesn t apply to fees paid to creditor or broker, or their affiliates These would be zero tolerance fees 10% Aggregate Tolerance (cont d) Examples of service providers consumers usually can shop for: Settlement agents Title companies Therefore, these fees are eligible for 10% tolerance 13
10% Aggregate Tolerance Example Total fees disclosed on LE subject to 10% aggregate tolerance = $750 So the tolerance is $75 If one or more fees increase by a total of $70, creditor made a good faith determination But if one or more fees increase by a total of $80, there would be a tolerance violation Unless creditor takes corrective measure That is, issue a revised Loan Estimate if permitted Or refund the difference Certain Variations Permitted Without Limit Prepaid interest Property insurance premiums Amounts placed in escrow account Charges paid to third-party service providers selected by consumer not on creditor s list E.g., consumer purchases title insurance from a company not on creditor s written provider list Charges paid for third-party services not required by the creditor These can be paid to creditor s affiliates Property survey fee Real estate agent s commission These aren t really subject to an unlimited tolerance The original estimate still must have been based on the best information reasonably available You can t just guess or wildly over inflate the figures 14
ABC Bank discloses a $400 escrow (settlement agent) fee on the Loan Estimate Assume the consumer is allowed to shop for the escrow agent and ends up choosing an escrow agent (not affiliated with ABC Lender) from ABC s Written Provider List Is the $400 escrow fee subject to a Zero tolerance (no deviation allowed)? 10% aggregate tolerance? An unlimited variation? Exercise #2 Same facts as above but the consumer instead chooses an escrow agent that is not listed on ABC s Written Provider List Is the $400 escrow fee subject to a Zero tolerance (no deviation allowed)? 10% aggregate tolerance? An unlimited variation? Exercise #3 15
Avoiding Tolerance Violations Issue Revised LE Tolerance violations can be avoided in certain circumstances by issuing a revised Loan Estimate Issuing revised Loan Estimate is optional in all cases except... Creditor must issue a revised LE when the creditor and consumer agree to lock the interest rate or the rate is relocked Timing for Revised LEs Creditor is to issue revised LE within 3 business days (general definition) of receiving info that allows the creditor to issue a revised LE Consumer must receive the revised LE at least 4 business days (precise definition) prior to consummation 16
When Creditor May Issue Revised LE Changed circumstances Consumer s eligibility is affected Consumer requests a change Interest rate is locked (or relocked) Loan estimate expires after 10 business days Delayed settlement date in connection with initial construction loan Interest Rate Lock If interest rate is locked (or relocked), creditor is required to issue a revised LE Timing within 3 business days following the date the interest rate is locked Revised Loan Estimate to include Revised interest rate Points disclosed Lender credits Any other interest rate dependent charges and terms 17
Loan Estimate Expires in 10 Business Days If consumer indicates intent to proceed more than 10 business days (general definition) after original Loan Estimate was issued, creditor is not bound by the original LE Creditor may Continue to use original Loan Estimate or Issue a completely new Loan Estimate or Issue a revised Loan Estimate No justification other than the passage of time is needed to issue a new or revised Loan Estimate Delayed Consummation Date on New Construction Loans Rule applies to new (initial) construction loans If creditor reasonably expects consummation to occur more than 60 days after providing Loan Estimate Then creditor may provide revised Loan Estimate at any time up to 60 days before consummation 18
Delayed Consummation Date on New Construction Loans (cont d) Creditor must include required statement on page 3 of the original Loan Estimate in Other Considerations section You may receive a revised Loan Estimate at any time prior to 60 days before consummation Scope of Special Construction Loan Rule Coverage limited to Loan for the purchase of a home that has yet to be built, or Loan to purchase a home currently under construction Does not apply to Home improvement or remodeling loans Loan if use and occupancy permit issued before Loan Estimate issued 19
Consider Whether You Should Use This Exception Note that construction lenders are not required to use this exception in order to issue a revised Loan Estimate because there is a downside to using this exception If creditor provides a Loan Estimate that would not otherwise be permitted by the other five exceptions, the creditor must wait at least 60 days after issuing the revised Loan Estimate before it can consummate the loan Creditors instead may choose to issue a revised Loan Estimate only if permitted by the other five exceptions in which case the creditor is not required to wait 60 days before consummating the loan Timing After Issuing Revised Loan Estimate Consumer must receive revised LE at least 4 business days prior to consummation Precise definition of business day applies If LE not delivered in person, consumer deemed to receive revised LE 3 business days after it is mailed So 3 + 4 = 7 business days At least 7 business days must elapse between when Loan Estimate is mailed and when consummation can occur 20
Closing Disclosure Duty to Provide Closing Disclosure Creditor has the responsibility to provide Closing Disclosure Creditor may divide up responsibility with settlement agent Creditor must provide Closing Disclosure at least 3 business days before consummation Precise business day definition 21
Duty to Provide Closing Disclosure Consumer may waive the 3-day waiting period, according to the same rules as the Loan Estimate waiver You cannot issue a revised Loan Estimate once you issue the Closing Disclosure When Consumer is Deemed to Receive CD Same as Loan Estimate receipt rules Hand delivered: same day By mail: 3-business-day mailbox rule You may rely on evidence (documentation) of earlier receipt By email: Must first comply with E-SIGN Act 3-business-day mailbox rule You may rely on evidence (documentation) of earlier receipt 22
Example #4 ABC Bank receives a consumer s application for a home improvement loan on Monday, October 5, 2015. ABC Bank is closed on Saturdays and Sundays. The lender must deliver or place the Loan Estimate in the mail by Thursday, October 8, 2015, in which case consummation can occur on or after Saturday, October 17. SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY 1 2 3 October 2015 4 5 6 7 8 9 10 Application Received Loan Estimate mailed or delivered in person 11 12 13 14 15 16 17 Columbus Day Consummation can occur 18 19 20 21 22 23 24 Consummation scheduled 25 26 27 28 29 30 31 Example #4 (cont d) 1. If consummation is scheduled for Monday, October 19, 2015, and ABC Bank will be delivering the Closing Disclosure in person, ABC must hand deliver the Closing Disclosure by October. 2. If consummation is scheduled for Monday, October 19, 2015, and ABC Bank will be mailing the Closing Disclosure, ABC must place the Closing Disclosure in the mail by. 3. On Thursday, October 15, the consumer requests a change to the loan, going from an adjustable-rate mortgage to a fixed-rate loan, which increases several charges beyond the applicable tolerances. a. In order to avoid tolerance violations, ABC would have to issue a revised Loan Estimate by October. b. If ABC issues a revised Loan Estimate on that date, the earliest consummation may occur is October. c. In that case, ABC must issue the Closing Disclosure by October. 23
Basis for Closing Disclosure Based on actual terms No markups are allowed ( 1026.19(f)(3)(i)) Exception: Charging the consumer for the average charge of the settlement service Creditor required to comply with the average charge rules in Section 1026.19(f)(3)(ii) Creditor must exercise reasonable diligence to get best information reasonably available May rely on third parties May do so even if the creditor knows that more precise info will be available Don t label anything as an estimate Transactions Involving Sellers In the case of a purchase-money loan involving a seller, the settlement agent must provide the seller with the portions of the Closing Disclosure that relate to the seller s transaction Timing the settlement agent must provide the seller s portions of the Closing Disclosure no later than the day of consummation (and send a copy to the creditor) If there are changes to the amounts paid by the seller within 30 days following consummation, the settlement agent is required to deliver or place in the mail a corrected Closing Disclosure within 30 days of learning of the change (and send a copy to the creditor) 24
Corrected Closing Disclosures Issuing Corrected Closing Disclosures Creditor is required to issue a corrected Closing Disclosure if CD doesn t reflect Actual terms of the transaction or Actual costs associated with settlement Two categories Pre-consummation corrected CDs Post-consummation corrected CDs 25
Issuing Corrected Closing Disclosure Pre-Consummation Some changes trigger corrected CD and new 3-business-day waiting period 1. APR out of tolerance Regular transactions: 0.125% Irregular transactions: 0.250% Also other APR tolerances in Section 1026.22 2. Change to loan product 3. Creditor adds a prepayment penalty Other Changes to Closing Disclosure Pre-Consummation Other types of changes don t trigger new 3-day period For example, seller credit increases by $500 the day before loan signing But creditor must still provide corrected CD at or before consummation And creditor must make corrected CD available for consumer s inspection one business day (general definition) before consummation 26
Post-Consummation Changes If an event occurs within 30 days following consummation that changes the amount the consumer actually paid For example, recording fee Creditor is required to issue a corrected Closing Disclosure Provide corrected CD within 30 days of learning of event Non-numeric Clerical Errors A creditor does not violate the Closing Disclosure requirements if it corrects non-numeric clerical errors within 60 days after consummation by sending a corrected Closing Disclosure For example, typo in name of settlement service provider or mortgage broker 27
Correcting Tolerance Violations If actual costs paid by the consumer exceed Loan Estimate amounts (beyond tolerance), refund overcharge within 60 days Deliver corrected CD (reflecting refund) too Questions? Contact Information Janet M. Bonnefin Principal Aldrich & Bonnefin, PLC 18500 Von Karman Ave., Suite 300 Irvine, CA 92612 949-474-1944 JBonnefin@ABLawyers.com 28