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Community lenders warn CFPB on TRID ‘black hole’

Potential for conflict stems from Loan Estimate and Closing Disclosure timelines

The Community Home Lenders Association is calling on the Consumer Financial Protection Bureau to address a potential “black hole” for lenders that could arise when the new Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures rule, takes effect on Oct. 3.

According to the CHLA, the supposed “black hole” could occur because of a potential conflict in the timing requirements for the TRID-stipulated Loan Estimate and Closing Disclosure that could leave lenders exposed to an unavoidable and costly situation.

The CHLA sent a letter to CFPB Director Richard Cordray addressing its concerns with the Loan Estimate and Closing Disclosure timelines, writing that the “black hole” could take place when a borrower requests a change in the loan or an extension of the closing.

According to the CHLA’s letter, the TRID rules stipulate that a that a lender deliver the Loan Estimate to the borrower within 3 days after receipt of a loan application and at least 7 days before consummation, which is defined as when the loan documents are signed.

The CHLA warns that after the Loan Estimate is delivered to a borrower, a change in in circumstances like the borrower needing to push the closing date could place lenders between a rock and a hard place.

“Specifically, when a borrower makes a request to delay the closing after the Closing Disclosure has been made, but more than seven business days before the new closing date, that there is no apparent legal way for the lender to disclose an increase in costs, for example in conjunction with a loan lock extension fee,” the CHLA said. “The timing of the requirements could create a Black Hole.”

According to the CHLA, after the Closing Disclosure has been delivered the Loan Estimate cannot be revised. Therefore, the changes must be reflected in a revised Closing Disclosure.

“However, if the change in circumstances occurs more than seven business days before consummation, there are concerns that a lender cannot effectively comply with both the requirement to provide the revised Closing Disclosure (in lieu of a revised Loan Estimate) within 3 business days of the change AND provide it within 4 business days of consummation,” the CHLA said.

The CHLA said that in such a situation, it appears that the lender’s only option may be to absorb the increased cost, since the permitted tolerance would be exceeded and the lender cannot comply with requirements relating to a revised Loan Estimate. 

The CHLA said that this is true even if the change or extension is requested or precipitated by the borrower.

“We do not believe that TRID rules are intended to put lenders and borrowers in such a situation, where loan changes or closing extensions are rendered problematic and lenders may have to absorb increased costs incurred as a result of a borrower’s actions or requests,” the CHLA said in its letter.

“However, in the absence of clear clarification from the CFPB, we are concerned that this is the result,” the CHLA continued. “Therefore, we respectfully request that CFPB take action to provide more specific guidance on this point, and to remedy the situation if a problem exists.”

The CHLA said that issues such as this one are good examples of why the CFPB needs to institute a hold-harmless period for the enforcement of TRID for those that make good-faith efforts to comply with the complex rules.

“(This issue) illustrates how easy it might be for a party to be making a good faith effort to comply with the new TRID requirements, but either slip up on some technical point or not fully understand precisely how the CFPB will interpret how these new requirements should be complied with,” the CHLA said in its letter.

“Therefore, CHLA renews its call for the CFPB to provide, through at least the end of this year, a formal hold harmless provision to entities that are complying with new TRID requirements in good faith.”

When contacted by HousingWire, a CFPB spokesperson said that the CFPB has received the CHLA’s letter and is reviewing it.

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