CFPB fixes TRID “black hole,” amends Know Before You Owe

Amendment provides clarity for closing cost increases

The Consumer Financial Protection Bureau announced it fixed what those in the mortgage industry have taken to calling the “black hole” in the Know Before You Owe rule.

The CFPB announced it finalized an amendment to its Know Before You Owe rule, also called the TILA-RESPA Integrated Disclosure rule, that addresses when mortgage lenders with a valid justification can pass on increased closing costs to consumers and disclose them on a Closing Disclosure.

After the rule went into effect on Oct. 3, 2015, there were initial hiccups and headaches centered on how long loans would take to close, potentially causing a lot of problems for consumers who are strapped for time. Now, however, a lot of these have passed.

Then, in July last year, with the support of the housing industry, the CFPB announced it was seeking comments for and looking to resolve the “black hole” issue under TRID.

As it stood, the rule contained no provision that allowed creditors to use a Closing Disclosure to reflect the revised disclosures if there are four or more days between the time the revised disclosures are required to be provided and consummation. As a result, it created a situation where creditors are unable to provide either a revised Loan Estimate or a corrected Closing Disclosure to reset tolerances.

The CFPB closed comments on the proposal in October 2017. Now, it announced its final rule.

So, here’s what it did, from the CFPB’s final rule:

The Bureau proposed to allow creditors to reset tolerances using a Closing Disclosure without regard to the four-business day limit. Under the proposal, as under the current rule, to reset tolerances with a Closing Disclosure, creditors would have been required to provide the Closing Disclosure to the consumer within three business days of receiving information sufficient to establish that a reason for revision applies. Further, as under the current rule, creditors would have been allowed to reset tolerances only under the limited circumstances described in § 1026.19(e)(3)(iv).

Therefore, under certain circumstances, lenders will now be allowed to reissue a Closing Disclosure without regard to the four-day rule, as long as it has already issued the disclosure to the borrower within four days of closing.

The bureau explained that there are two reasons it took this approach to resolving the “black hole” problem. From the final rule:

The proposal cited two reasons for this approach. First, the proposal noted a concern that applying the four-business day limit to initial Closing Disclosures but not corrected Closing Disclosures could incentivize creditors to provide consumers with initial Closing Disclosures very early in the lending process, which in some circumstances might be inconsistent with the description of the Closing Disclosure as a “statement of the final loan terms and closing costs,”35 and the requirement under § 1026.19(f)(1)(i) that the disclosures on the Closing Disclosure are to be a statement of “the actual terms of the transaction.” Second, the proposal noted that applying the four-business day limit to initial Closing Disclosures but not corrected Closing Disclosures could create operational challenges and burden for creditors.

But lenders can’t simply issue a new Closing Disclosure for any reason they choose. In fact, the bureau allows for six reasons why lenders can issue a new disclosure within the four-day time period.

1. A defined set of changed circumstances that cause estimated charges to increase or, in the case of certain estimated charges, cause the aggregate amount of such charges to increase by more than 10%.

2. The consumer is ineligible for an estimated charge previously disclosed because of a changed circumstance that affects the consumer’s creditworthiness or the value of the property securing the transaction.

3. The consumer requests revisions to the credit terms or the settlement that cause an estimated charge to increase.

4. Points or lender credits change because the interest rate was not locked when the Loan Estimate was provided.

5. The consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires, after the Loan Estimate was provided to the consumer.

6. The loan is a construction loan that is not expected to close until more than 60 days after the Loan Estimate has been provided to the consumer and the creditor clearly and conspicuously states that a revised disclosure may be issued.

The final rule will take affect within 30 days of being published in the Federal Register.

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