Banking Compliance

Err on the Side of Caution when Disclosing Fees and Credits

No one knows everything. Decisions are usually based on incomplete information, assumptions, and guesswork to one degree or another. And that’s especially true when it comes to lending.

TRID can be rigid and unforgiving at times, unfairly demanding perfection from the human beings responsible for making the loans. But there are places where there is flexibility built into the system, and you should take advantage of those areas when you can.

Here’s how to look at fees, charges, and lender credits to take advantage of TRID’s flexibility.

Fees and Charges

When disclosing fees and charges, what do you do if you aren’t sure what the fee will be? When there is a range of possible costs to disclose on the LE, it’s tempting to automatically assume and disclose the highest since you can always adjust down on the CD. But you can’t always adjust up when the cost is higher than expected without a valid change of circumstance. So why not just assume and disclose the maximum fee possible across the board? Can you do that?

Creditors have the obligation to give good faith estimates of the costs of a loan to applicants. A disclosure is in good faith if it is based on the best information reasonably available to the creditor, and the creditor is required to exercise due diligence in obtaining information. 1026.19(e)(1). An estimated charge is also in good faith if the charge paid by the consumer does not exceed the amount originally disclosed.

The requirement to exercise due diligence to obtain the information suggests that you cannot simply disclose the maximum cost for fees on all applications. While in general it’s preferable to disclose an estimate on the high side of a possible fee, there still must be an effort to determine what is likely to be imposed on a borrower. Across the board disclosures of fees or charges does not suggest that proper due diligence was performed by a creditor, as it clearly would not be a fee that would be imposed on all borrowers and there would be many cases where it would be immediately apparent that the applicant would not have to pay the maximum fee. So across the board disclosures of maximum fees does not appear to meet the creditor’s due diligence requirement.


However, having a general policy of disclosing the maximum potential cost in cases of uncertainty is likely to be acceptable under the good faith requirement. The good faith requirement only concerns itself with actual charges exceeding the disclosed estimates. Thus the requirement itself suggests that the maximum possible charge should be disclosed as an estimate when the actual charge is not yet known.

What does this mean? It means you need to make some effort to provide accurate disclosures. Where there is ambiguity or questions, aim high for fees and charges. But where you know, or should know, with relatively reasonable certainty what the fee will be, then you need to be ready to disclose that charge instead of an artificially inflated fee hoping to get around tolerance issues.

Lender Credits

The flip side is that lender credits should be the opposite; you should disclose as few lender credits as possible.

Decreasing lender credits is seen as an increased cost to the consumer under 12 CFR 1026.19(e)(3)(i)—Comment 5. This can become an issue with “no cost” loans where the creditor agrees to cover the closing costs for the borrower. It can be a pitfall for creditors though who overestimate the costs on the LE, indicate that an equal amount of lender credits will be given to cover the costs, and then later try to decrease the lender credits when the original estimated costs turn out to not be so high. Even though those lender credits were earmarked for a particular fee, the regulation does not treat them that way on the LE; so if the fee decreases, you can’t also decrease the lender credits with it.

So what should you do? The opposite of what you should do for fees and charges. When there is ambiguity or uncertainty about how many lender credits you will have to provide, aim as low as possible. The good faith requirement still requires you to disclose the credits that are a practical certainty, but when it’s not a certainty, err on the low side.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Guide to Reporting Commercial HMDA Loans in 2018

The new HMDA rule changes are fast approaching. Are you ready for them all?

One area of concern I’ve seen a lot lately has been in regard to commercial lending, and when commercial transactions are HMDA reportable. Commercial transactions can be complicated and confusing, so keeping it as simple and streamlined as possible just makes life easier. I see commercial HMDA reportability as being a two-part test, the “security” test and the “business purpose exclusion” test.

The Security Test

This is step one in any new HMDA analysis. Old HMDA required the reporting of home purchase loans, home improvement loans, and refinancings. This required the lender to look at the purpose of loan first to determine if it’s HMDA reportable.

But not anymore.

New HMDA requires that lenders report “covered loans” meaning closed-end mortgage loans and open-end lines of credit (unless an exclusion applies, as we’ll get to). Covered loans are those secured by a dwelling. So it’s a simple first test:

  • Is the loan secured by a dwelling?
    • If yes, see if it’s excluded or exempt for some reason;
    • If no, stop. It’s not HMDA reportable.

A few points about what a “dwelling” is though. A “dwelling” is a residential structure. That’s it. It includes condos, detached homes, manufactured homes, multifamily buildings, etc. It doesn’t include recreation vehicles, boats, or temporary housing (like dorms, hotels, or hospitals). It doesn’t have to be the principal dwelling of the borrower either; investment properties and vacation homes count as dwellings also for HMDA purposes.

What about mixed use properties that have both commercial and residential space? It’s a dwelling if its primary use is residential. HMDA permits the lender to set their own reasonable standards for how to determine what the primary use is, and that standard can apply on a case-by-case basis. In some cases, it might make more sense to base it off of square footage of the property; in others, it might make more sense to compare the income generated. Or perhaps the residential units are filled and the commercial space has been vacant for a while. Different situations apply to different loans, hence the flexibility given to the lender to make a reasonable judgment call.

The Business Purpose Exclusion Test

Once it’s determined the loan is secured by a dwelling, you should check to see if an exemption applies. We’re focusing on the business or commercial purpose exclusion. (12 CFR 1003.3(c)(10)). Here’s the rule:

If the loan is secured by a dwelling, but will go towards a business or commercial purpose, then it is not HMDA reportable UNLESS it is also a home purchase loan, home improvement loan, or refinancing.

In other words:

  • Is the loan primarily for a business or commercial purpose?
    • If no, then it is HMDA reportable (unless another exclusion applies).
    • If yes, then
      • Is it for a home purchase, home improvement, or refinancing?
        • If no, then it is not HMDA reportable
        • If yes, then it is HMDA reportable.

Again, an institution can determine for itself what the primary purpose of the loan is.

Also, as with the security test, the home purchase, home improvement, or refinancing purpose does not need to be on the borrower’s principal dwelling. So, for example, it’s still a HMDA reportable loan to purchase an investment property.

Commercial lending can be tricky, so there are going to be situations where it’s not immediately clear whether a transaction is HMDA reportable. Hopefully this makes it just a little easier though. Of course, at the end of the day it’s always better to be sure of the answer, so if you still have questions on a tricky case, please don’t hesitate to reach out.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Validation of Debt Requirements: Debt Collectors vs. Creditors

One of the biggest lessons you learn when studying the law is that the definition of everything matters, and you should not assume that you know what a term means. Take, for example, the validation of debts requirements under the Fair Debt Collection Practices Act (FDCPA) and Massachusetts regulations.

Under the Fair Debt Collection Practices Act, “debt collectors” are required to provide certain information to the consumer regarding the validation of the debts. The FDCPA defines who a “debt collector” is under its provisions. It expressly exempts any person who collects or attempts to collect a debt owed from being considered a “debt collector” if: 1) the debt was originated by such person, or 2) the debt was not in default at the time it was obtained by the person attempting to collect. (See 15 USC 1692a(6)(F)(ii) and (iii)). Mortgage lenders appear to fall within this exemption, as they either originate the loans they service or purchase loans which are not in default. Thus, mortgage lenders are not considered a “debt collector” under the provisions of the FDCPA.

Massachusetts has a similar debt validation requirement for debt collectors under Division of Banks regulations, 209 CMR 18.18. That too exempts “debt collectors” from including those who originated the debt and those who obtained the debt when it was not in default. (209 CMR 18.02.) So even though the regulation is under the Division of Banks’ regulations, by its definition mortgage lenders do not fall under the provisions of the regulation if they originate the debt or purchase debt not in default.

BUT there is another Massachusetts validation of debts requirement that comes under the Office of the Attorney General regulations of 940 CMR 7.08.  It says that: “It shall constitute an unfair or deceptive act or practice for a creditor to fail to provide to a debtor or an attorney for a debtor the following within five business days after the initial communication with a debtor in connection with the collection of a debt…” It doesn’t fall under the Division of Banks regulations because it is much broader and encompasses creditors other than banks as well. “Creditor” is defined in 940 CMR 7.03 and it means “any person and his or her agents, servants, employees, or attorneys engaged in collecting a debt owed or alleged to be owed to him or her by a debtor and shall also include a buyer of delinquent debt who hires a third party or an attorney to collect such debt…” This is a much broader definition, and one which would encompass a mortgage lender servicing its own loan.

Now, this doesn’t mean that the validation of debts requirements themselves are all the same; they do share many similar requirements though. But just because two different terms may seem similar or mean similar things in common language, doesn’t mean that regulatory agencies or legislatures can’t redefine the terms to create the outcome they want.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

The New TRID Rules Cheat Sheet (Part 3)

Continuing with the TRID cheat sheets, here’s the next batch of summaries regarding the new updates that will take effect in October 2018.

Good Faith and Revised Disclosures

This is another long list, as there is a lot in it. Here we go.

  1. There is some new commentary on the good faith standards when third-party services are left off the settlement service provider list. Just new commentary, not a change to the actual rules.
  2. Clarifies the standard that applies if the borrower is permitted to shop and selects a provider not on the SSPL.
  3. A revised LE can be provided for either informational purposes or to reset tolerances if applicable, and it must be based on the best information reasonably available.
  4. Clarifies that an LE cannot be issued after a CD if the interest rate changes. If the rate requires re-disclosure, the CD must be used. This doesn’t appear new, just additional commentary.
  5. Extending the expiration date of an LE extends the time the consumer has to indicate an intent to proceed. If the consumer indicates intent to proceed during the extended period, the creditor must use the original charges disclosed in the LE for good faith and tolerances.
  6. If a revised LE is issued after the Intent to Proceed, the expiration date and time for the disclosed costs are left blank.
  7. Per-diem interest changes post-consummation do not require a re-disclosed CD.
  8. There are new options for disclosing a refund for a tolerance violation, and there is new guidance on properly disclosing principal reductions.

Decimal Places and Rounding

Prepaids per-diem & monthly amounts for Initial Escrow = rounded to nearest whole cent

Percentages = rounded to 3 decimal places, but zeroes don’t count

Calculating Cash to Close

The Calculating Cash to Close table receives a list of updates and clarifications.

  1. Clarifies that the loan amount used for the Closing Costs Financed is the face amount of the note.
  2. Clarifies the disclosure of the amount disclosed as the Down Payment/Funds from Borrower.
  3. Provides guidance on the amount disclosed as the Down Payment /Funds from Borrower in cash-back purchase transactions, simultaneous subordinate financing purchase transactions, and construction transactions.
  4. Provides guidance on when the integrated disclosures should include an amount for the Down Payment/Funds from Borrower.
  5. Provides guidance on Adjustments and Other Credits in the integrated disclosures.
  6. Provides further guidance on how to disclose lender credits.
  7. Says to use the most recent LE when completing the LE column in the Calculating Cash to Close table.
  8. Provides additional guidance on calculating the Closing Costs Financed on the CD.
  9. Provides additional options for disclosing the seller credits statement on the CD.
  10. Gives details on which amounts are included in the Adjustments and Other Credits.

I thought this would be the last one of these, but looking at what’s left I think there enough for one more. So look out for that coming soon!

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

The New TRID Rules Cheat Sheet (Part 1)

The new TRID rules are out, though they don’t fully take effect until October 1, 2018. Starting in about 60 days, compliance with them are optional. Even though they are optional, it’s always smart to be ahead of the curve and prepared for when they are mandatory.

Still, not all the rules will all apply to everyone. So here’s a cheat sheet, a quick reference for what rules are changing. Use it to evaluate what will apply to your institution so you can start planning and prioritizing what you need to do to be compliant by October 2018.

Post-Consummation Notices

Currently, the TRID rules requires a creditor or servicer to provide certain disclosures after the loan is closed. The new rule applies to 2 disclosures: the notice when an escrow account is closed, and the partial payment policy of a new owner of loan. Those notices aren’t changing.

Under the old rules though, the notices only applied to mortgage applications received on or after October 3, 2015. The new rules say the notice requirements will apply now regardless of when the application was received.

Loan Secured by a Cooperative

Currently, whether certain disclosures need to be provided on loans secured by cooperatives depends on how state property law classifies the cooperative (that is, whether it’s treated as real property or personal property). The new rule takes away the state law requirement, and requires the disclosures to be made on all loans secured by cooperatives (closed-end consumer loans, of course).

Loans to Trusts

Commentary is being added to clarify that loans to certain trusts established for tax or estate planning purposes is treated as though they are extended to natural persons.

Exemptions for Housing Assistance Loans

TRID rules provide disclosure exemptions to certain housing assistance loans (the details are outside this post; it’s supposed to be a cheat sheet, remember?) The new rules say:

  1. Transfer taxes can now be payable by the consumer, and
  2. Recording feeds and transfer taxes are excluded from the 1-percent cap on total costs payable by the consumer.

It also changes the disclosures required.

I want this to be a quick reference, so I’m going to keep it relatively short. The next part of the new rule will get into some deeper and more pertinent subjects, such as significant construction loan rules, tolerances, and good faith and revised disclosures. I don’t want them to get buried here, so I’m going to leave this as it is.

Remember though, this is just scratching the surface. We’ll be learning a lot more about the new rules in the next few months.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Open-End Lines of Credit Under the New HMDA Rules

I wrote previously about the new HMDA rules, and how they are changing our vocabulary a bit. The new vocabulary includes new, broader definition of what’s included in HMDA, and that’s how it’s expanding the scope of HMDA. Some loans that were previously not covered by HMDA now are covered, such as HELOCs.

Here’s a quick refresher/reference of what’s covered under the old and new rules:

  • Old HMDA: Home purchase loans, home improvement loans, and refinancings.
  • New HMDA: “Covered loans,” meaning closed-end mortgage loans and open-end lines of credit, not otherwise exempt.

Let’s look at the open-end lines of credit definition because it is a bit clunky and awkward. “Open-end lines of credit” have their own special meaning under the new HMDA rules, and the rules refer to and semi-incorporate the definition of “open-end credit” in Reg. Z (TILA).

Under HMDA, an open-end line of credit is an extension of credit that:

  1. Is secured by a lien on a dwelling, and
  2. Is an open-end credit plan as defined under Reg. Z, but without regard to whether the credit is
    1. consumer credit,
    2. extended by a creditor, or
    3. extended to a consumer.

(12 CFR § 1003.2(o))

Just looking at that definition requires some mental gymnastics, not to mention simultaneous references to two different regulations, just to determine whether or not a loan is HMDA reportable or not. So I’m going to try to combine the rules for a slightly simpler, easier to reference rule. But first, what’s an “open-end credit” plan under Reg. Z?

Under Reg. Z, “open-end credit” means consumer credit extended by a creditor under a plan which:

  1. The creditor reasonably contemplates repeated transactions;
  2. The creditor may impose finance charges on an outstanding balance; and
  3. The credit extended to the consumer during the term of the plan (up to a limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

(12 CFR § 1026.2(a)(20).

Reg. Z and HMDA have their own distinct definitions for terms, hence the part about disregarding the Reg. Z definitions of “consumer credit,” “creditor,” and “consumer.” So HMDA, in the final part of its definition, is trying to a Reg. Z definition without all the other Reg. Z terminology as well.


But you can essentially substitute “consumer credit” for just “credit,” and “creditor” for “financial institution,” and “consumer” with “applicant” and plug it back into the HMDA definition for open-end line of credit.

So to put it together into one HMDA rule, for HMDA an open-end line of credit is an extension of credit that:

  1. Is secured by a lien on a dwelling, and
  2. Is credit extended by a financial institution which,
    1. The institution reasonably contemplates repeated transactions;
    2. The institution may impose finance charges on an outstanding balance; and
    3. The credit extended to the applicant during the term of the plan (up to a limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

Some final notes: I didn’t go into the first part of the HMDA definition because it’s fairly self-explanatory, but it’s very important and distinguishes between a HMDA reportable line of credit and a non-reportable line. This goes to the new dwelling-secured standard of HMDA.

Also the last requirement for the credit being generally available during the term of the plan means the plan must have a reusable line, even if it has a termination date. (See 12 CFR § 1026.2(a)(20)—Official Interpretation 5). This means the total credit lent under the plan is theoretically unlimited for the term of the plan as long as the borrower continues to repay the credit used.

Finally, for real estate, open-end real estate mortgages must be evaluated independently under the definition regardless of what it’s called in the industry. “The fact that a particular plan is called an open-end real estate mortgage, for example, does not, by itself, mean that it is open-end credit under the regulation.” (See 12 CFR § 1026.2(a)(20)—Official Interpretation 7.) In other words, don’t be fooled by a name; just because something may be called an “open-end mortgage” doesn’t meet it necessarily meets the regulatory definition for open-end credit.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Identifying Your Loans Under the New HMDA Rules

The Universal Loan Identifier

You don’t nearly triple the amount of reportable data by keeping things simple. The new HMDA rules expand on nearly everything that needs to be reported on the LAR, including how loans are identified for reporting purposes. The current rules require an “identifying number for the loan or loan application” and each institution “must ensure that each identifying number is unique within the institution.” (12 CFR 1003.4(a)(1) and Comment 4). The new rules though require a “universal loan identifier (ULI),” which has its own specific requirements now.

There are now 3 parts to a ULI:

  1. A Legal Entity Identifier (LEI);
  2. A 23 character identifier that’s “unique within the financial institution;” and
  3. A 2 character check digit.

The first part is likely to be the most confusing and newest, so let’s break it down.

The Legal Entity Identifier

History and Regulation

The LEI is a unique identifier for financial institutions internationally, like an international social security number for banks. It was first introduced around the beginning of 2013 as part of an international effort with the G20 nations as a reaction to the financial crisis. It established the LEI Regulatory Oversight Committee (ROC), which helped establish the Global LEI Foundation (GLEIF), whose goal was to help oversee the issuing of LEIs. The GLEIF accredit Local Operating Units (LOUs), which are the organizations that are authorized to issue LEIs. But before GLEIF was established, the ROC was endorsing organizations who were also issuing LEIs, and these are called “LEI ROC-Endorsed pre-LOU.” These organizations can be international or national; in fact, at the moment there does not appear to be any organization issuing LEIs that is based in the United States. They also have multiple purposes and functions; for example, the London Stock Exchange is a pre-LOU LEI issuer.

That history is to put into context the following regulatory language: Section 1003.4(a)(1)(i)(A)(1) and (2) requires the LEI be issued by “ a utility endorsed by the LEI Regulatory Oversight Committee” or “a utility endorsed or otherwise governed by the Global LEI Foundation (GLEIF) (or any successor of the GLEIF) after the GLEIF assumes operational governance of the global LEI system.” Or, in other words, a “LEI ROC-Endorsed pre-LOU” or a LOU.

There are about 30 total pre-LOUs and LOUs, and the list can be found here: As of October 2015, if an institution wishes to issue LEIs, they must be a GLEIF-accredited LOU.

Getting a LEI

Financial institutions need to register to receive an LEI. There is a lot of discretion on which pre-LOU or LOU to register with, though when selecting where to register to receive an LEI, take into account such things as language, currency, and time zones. Each LEI charges its own fees, usually a larger initial fee (about $200 at the moment) and annual re-registration fees (about $100).

After selecting an organization and applying, the LOU needs to collect a “minimum set of reference data,” such as the official name of the entity, headquarters address, and the address of legal formation to name a few. The LOU is required to check each entry against reliable sources such as official public records to verify the provided information.

The wait time can vary depending on the LOU.

I reached out to the GLEIF to ask about LEI issuers in the US, and the three biggest LEI issuers in the US are:

  1. Business Entity Data B.V. ( (Netherlands)
  2. London Stock Exchange ( (U.K.)
  3. WM Datenservice ( (Germany)

The LEIs and associated data submitted to the LOU about the institution are public record, and made available to regulations and the public continuously and for free.

Portability of LEIs

The good news is that LEIs can be transferred or “ported” from one LOU to another. Like keeping your cell phone number when switching carriers, once an organization is given an LEI, it will not change depending on which LOU is maintaining it. This means you won’t be stuck with your original LEI issuing LOU. So you can register now with the London Stock Exchange, and later transfer it to a more local LOU if a new one is established.

The upcoming changes to HMDA will take some time to really understand and get used to, but one big step is understanding and preparing for the new LEI requirement. Getting the issue of obtaining an LEI down is likely something that is better handled sooner rather than later though, as applications are sure to spike soon. Best of luck!

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)