For years, the mortgage industry has urged the CFPB to issue informal written guidance on the TILA/RESPA Integrated Disclosure (TRID) Rule, as well as other rules.  The CFPB resisted, providing most guidance in the form of actual rules, webinars or oral statements.  The industry believed that it would be a cold day in Hades if the CFPB ever issued guidance similar to the FAQs that the Department of Housing and Urban Development issued to provide guidance on the 2010 Good Faith Estimate rule.  It may be more than a coincidence that the CFPB has issued the first four FAQs ever addressing TRID Rule issues on the heels of a severe cold wave.

Three of the four FAQs relate to corrected Closing Disclosures and the three business-day waiting period before consummation, topics that have proven a source of much confusion for creditors. The first FAQ provides that, in the event that there is a change to the disclosed terms after a creditor provides the initial Closing Disclosure, the creditor is required to ensure that the consumer receives a corrected Closing Disclosure at least 3 business days before consummation if:

  1. the change results in the APR becoming inaccurate;
  2. if the loan product information required to be disclosed under the TRID Rule has become inaccurate; or
  3. if a prepayment penalty has been added to the loan.

For other types of changes, the creditor can consummate the loan without waiting three business days after the consumer receives the corrected Closing Disclosure.

The FAQs also address how to handle a situation where an APR decreases (i.e., the previously disclosed APR is overstated). The FAQs state that if the overstated APR is accurate under Regulation Z (i.e., the difference between the disclosed APR and the actual APR for the loan is within an applicable tolerance in Regulation Z), the creditor must provide a corrected Closing Disclosure at or before consummation but a new three-business day waiting period is not required. An inaccurate APR, on the other hand, will trigger a new three-business day waiting period. The FAQ provides additional information related to APR accuracy, including a reference to the Federal Reserve’s Consumer Compliance Outlook. Please note that while the FAQs indicate that there is an APR overstatement tolerance that is tied to an overstated finance charge, various loan investors may not permit correspondent lenders to rely on the tolerance. It is advisable to check with your investor regarding their policy on this issue.

The CFPB’s FAQ clarifies that Section 109(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) does not affect the requirement for providing a revised Closing Disclosure with another three-business day waiting period in cases in which the APR in the prior Closing Disclosure becomes inaccurate based on a decrease in the APR. This section provides that if a creditor extends a second offer of credit to a consumer with an APR that is lower than the APR disclosed in the prior Closing Disclosure, the transaction may be consummated without regard to the 3-day waiting period with respect to the second offer. However, as previously reported, and as noted by the CFPB, Section 109(a) did not create an exception to the TRID rule waiting period because Section 109(a) amends TILA Section 129(b), which only applies to high cost mortgage disclosures. The CFPB adds that TILA Section 128 sets forth a waiting period requirement for other credit transactions, and that such section was not amended by the Act. Clearly, Congress intended to modify the waiting period under the TRID rule, and simply made a technical error. The CFPB should act immediately to reflect the intent of Congress by proposing a rule to eliminate the need for a second three-business day waiting period when the APR in the prior Closing Disclosure becomes inaccurate because of a new offer of credit with a lower APR.

The last of the CFPB’s FAQs states that a creditor’s use of a model form will provide a safe harbor even if the model form does not reflect the changes to the regulatory text and commentary that were finalized in 2017. An appropriate model form must be properly completed with accurate content in order to meet the safe harbor for TRID Rule compliance. In July 2016 the CFPB had proposed to amend the TRID rule to indicate that the industry could not rely on various sample forms included in Appendix H to Regulation Z, but did not adopt the proposal based on significant opposition from the industry, as well as Fannie Mae and Freddie Mac.

For more information on these FAQs, stay tuned for an upcoming episode of the Consumer Finance Monitor Podcast.

In today’s Federal Register the CFPB published a correction to the TILA/RESPA Integrated Disclosure (TRID) rule supplementary information as published on December 31, 2013 with regard to property taxes and certain similar charges.  The move apparently is intended to address an apparent oversight in the TRID rule regarding the treatment for tolerance purposes of property taxes and similar charges paid in advance, but not into an escrow or impound account.  However, it does not appear that the CFPB’s actions actually address the issue in the appropriate manner.

In the pre-TRID rule environment, property taxes, homeowner’s association dues, condominium fees and cooperative fees that a borrower was required to pay in advance to the applicable parties (and not into an escrow or impound account) were not subject to a specific percentage tolerance.  However, based on a typographical error in the supplementary information to the TRID rule, such charges were referred to as charges that were subject to tolerances in both the TRID rule and pre-TRID rule worlds.  While that was unfortunate, the bigger problem was the TRID rule itself.

In the pre-TRID rule environment, fees and charges were not subject to any tolerance unless Regulation X under RESPA specifically provided that the fee or charge was subject to the 0% tolerance or the 10% aggregate tolerance.  The TRID rule takes a different approach in that every fee and charge is subject to the good faith standard, unless there is an express exception.  The good faith standard effectively imposes a 0% tolerance on fees and charges, unless an exception applies.  Due to an apparent oversight, in identifying fees and charges that are not subject to a tolerance the CFPB neglected to list property taxes, homeowner’s association dues, condominium fees and cooperative fees that a borrower is required to pay in advance to the applicable parties (and not into an escrow or impound account).  Thus, it appeared to many in the industry that such items are subject to an effective 0% tolerance.

After this issue was raised with the CFPB with regard to property taxes, the CFPB staff informally advised that property taxes are charges paid for third party services not required by the creditor.  Under the TRID rule, charges paid for third party services not required by the creditor are not subject to any specific percentage tolerance.  The CFPB now states in the Federal Register release that property taxes, homeowner’s association dues, condominium fees and cooperative fees are charges paid for third party services not required by the creditor.  The CFPB also corrects the typographical error in the supplementary information to the TRID rule to provide that property taxes, homeowner’s association dues, condominium fees and cooperative fees are not subject to tolerances.  The CFPB, however, does not actually amend the TRID rule.

It is questionable if the CFPB’s actions address in the appropriate manner the issue regarding property taxes, homeowner’s association dues, condominium fees and cooperative fees that a borrower is required to pay in advance to the applicable parties (and not into an escrow or impound account).  Although the CFPB states that property taxes, homeowner’s association dues, condominium fees and cooperative fees are charges paid for third party services not required by the creditor, often a creditor will require that such items due within a certain period of time after closing be paid by the borrower.  So, in many cases these items are in fact charges that the creditor requires to be paid.  Also, in addressing recording fees, the TRID rule commentary provides that “Recording fees are not charges for third-party services because recording fees are paid to the applicable government entity where the documents related to the mortgage transaction are recorded . . . .”  If recording fees are not charges for third party services, how are property taxes charges for third party services?

The definitive way to address this issue is to simply amend the TRID rule to add an item (F) to section 1026.19(e)(3)(iii) to read as follows: “(F) Property taxes, homeowner’s association dues, condominium fees and cooperative fees, whether or not paid into an escrow, impound, reserve or similar account.”  We hope that the CFPB will act promptly to propose amendments to the TRID rule to address this and other important issues.

 

The CFPB has posted on its website an index to the various questions regarding the TILA/RESPA Integrated Disclosure (TRID) rule that were addressed during the five webinars on the rule conducted by CFPB staff.

The index includes a link to the CFPB webpage that has links to the recordings of the five webinars.  Also, the reference date of the applicable webinar that addresses each question is a link to the Table of Contents for that webinar.

Two of the questions in the index were answered by the CFPB in the August 26, 2014 webinar, and the TRID rule was later amended to address the issues presented by the questions:

  • “Are creditors required to provide revised Loan Estimates on the same business day that a consumer or loan officer requests a rate lock?”
  • “Where on the Loan Estimate form is the creditor supposed to provide the language described in 1026.19(e)(3)(iv)(F) for construction loans where settlement may be delayed?”

At the time, the TRID rule provided for the issuance of a revised Loan Estimate on the same date that the creditor locked the interest rate.  In January 2015, the TRID rule was amended to provide for the issuance of a Loan Estimate no later than three business days after the rate is locked.

The second question addressed situations in which a new home is under construction, or will be constructed, and as a result the closing of the loan will occur more than 60 days after the initial Loan Estimate is provided.  In such a situation, the TRID rule allows the creditor to reserve the right to issue a revised Loan Estimate no later than 60 days before closing without regard to the standard restrictions on fee increases, as long as the creditor provides a statement to this effect in the initial Loan Estimate.

In a transaction subject to both TILA and RESPA, the Loan Estimate is a standard disclosure and may not be modified except as provided in the TRID rule.  However, the original TRID rule did not address where the statement could be included in the Loan Estimate and, as a result, a creditor was not authorized to include the applicable statement in the Loan Estimate.  In January 2015, the TRID rule was also amended to provide for the inclusion of the following statement in the “Other Considerations” section on page three of the Loan Estimate:  “You may receive a revised Loan Estimate at any time prior to 60 days before consummation.”

For future reference, parties may want to annotate these questions in the index to note the applicable amendments that were made to the TRID rule.

Yesterday, the following four CFPB-related bills were passed by the House Financial Services Committee:

  • H.R. 3192, the “Homebuyers Assistance Act”: The bill would provide a hold harmless period for the TILA/RESPA Integrated Disclosure (TRID) rule that is scheduled to go into effect on October 3, 2015.  Although the CFPB recently delayed the effective date of the TRID rule until such date, it declined to adopt a formal hold harmless period, despite industry calls for such a period.  H.R. 3192 provides that the TRID rule may not be enforced against any person until February 1, 2016, and that no suit may be filed against a person for a violation of the TRID rule occurring before such date, so long as the person has made a good faith effort to comply with the rule.  Passed by a vote of 45 to 13, the bill’s bi-partisan support in the Committee likely signals passage by the full House. Prospects in the Senate, however, are less clear.  An existing bill, S. 1711 (which is a companion bill to H.R. 2213), would provide for a TRID rule hold harmless period until January 1, 2016.  The bill was introduced on July 7, 2015 and referred to the Committee on Banking, Housing and Urban Affairs, but no further action has been taken.
  • H.R. 1210, the “Portfolio Lending and Mortgage Access Bill”: The bill would modify the TILA ability to repay provisions by creating a safe harbor for depository institutions without regard to their size for loans that the institution retains in portfolio from origination where any prepayment penalties comply with the phase-out requirements for prepayment penalties on qualified mortgages.  The bill would also create a safe harbor from the TILA anti-steering provision (for which the CFPB has not yet proposed implementing regulations) that prohibits a mortgage originator from steering a consumer from a qualified mortgage for which the consumer is qualified to a mortgage that is not a qualified mortgage.  The conditions for the safe harbor are that the creditor on the loan is a depository institution that has informed the mortgage originator that it intends to retain the loan in portfolio for the life of the loan and the originator informs the consumer that the creditor intends to do so.  The bill also had bi-partisan support in the Committee, passing by a vote of 38 to 18.
  • H.R. 1737, the “Reforming CFPB Indirect Auto Financing Guidance Act”: The bill would nullify the CFPB’s indirect auto finance guidance issued in March 2013 and require the CFPB to provide for a notice and comment period before issuing any new guidance onindirect auto finance.  The bill also includes requirements for the CFPB when proposing and issuing such guidance to (1) make publicly available “all studies, data, methodologies, analyses, and other information” it relied on, (2) consult with the Fed, FTC and DOJ, and (3) conduct a study of the guidance’s impact on consumers and “women-owned, minority-owned, and small businesses.”  The bill passed by a vote of  47 to 10.
  • H.R. 1941, the “Financial Institutions Examination Fairness and Reform Act”: The bill would establish deadlines within which the banking regulators and CFPB must hold exit interviews after an examination and issue final examination reports.  The bill would also establish an Office of Independent Examination Review from which financial institutions can seek an independent review of a material supervisory determination contained in a final examination report.  The bill passed by a vote of 45 to 13.