TRID

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
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2772
781-356-2837 (fax)
www.scapartnering.com

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
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2772
781-356-2837 (fax)
www.scapartnering.com

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
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2772
781-356-2837 (fax)
www.scapartnering.com