While there has been a fair amount of turmoil lately about the leadership of the Consumer Financial Protection Bureau, most observers believe that no matter who is heading up the agency, the new amendments to the Know Before You Owe / TILA-RESPA Integrated Disclosure rule or, as they are commonly referred to: TRID 2.0, most likely will take effect as planned next October.
The reasoning goes like this: the mortgage industry has already re-tooled for TRID; TRID 2.0 clarifies many of the gray areas that have perplexed lenders; and going back to the good old days of “Good Faith Estimates” would create more cost and confusion than staying the course.
So, with just ten months to go, we thought it would be helpful to recap what you “better watch out” for.
In July, the CFPB published the new TRID 2.0 rules and said they would take effect on October 1, 2018. Until then, lenders have the option of following the new rules, sticking with the old ones, or deciding on some combination of both. (Yes, Virginia, this is a little confusing and somewhat unusual, but hasn’t that been the story of TRID all along?)
Separately, the CFPB also proposed a fix for the so-called “Black Hole” problem that had prevented lenders from re-setting fee tolerances when a Closing Disclosure (CD) has been issued prematurely. The comment period for that proposal closed this past fall.
Here is a summary of what we see as the most significant changes:
- Closing the “Black Hole”—The Bureau has removed the four business day limit for providing CDs for purposes of resetting tolerances and determining if an estimated closing cost was disclosed in good faith. This will allow creditors to reset tolerances by providing a CD (including any corrected disclosures) within three business days of receiving information sufficient to establish that a reason for revision applies.
- Clarification of “no tolerance fees”—The new rule makes it clear that certain products and services, such as property insurance, impound and escrow amounts, are still excluded from zero and 10 percent tolerances, even if they are paid to an affiliate of the lender. The only caveat is that the original estimates can’t be unreasonably low. Also, the preamble to the amended rule reaffirms that “typographical errors regarding a settlement service…do not subject the charges for such a service to the zero percent tolerance category…” in most instances.
- Construction loan disclosures—The Bureau made a number of additions to Appendix D and clarified how construction loan inspection and phase-specific fees should be disclosed before and after the project is completed. If the fees are collected after the project is completed, they must now be disclosed in an addendum to both the Loan Estimate (LE) and the CD. Additional clarifications were also made regarding how construction costs, existing lien payoffs, and unsecured debt payoffs are disclosed.
- Written List of Providers (WLP)—The CFPB said that changes could be made to Form H-27 without losing safe harbor protections. The amended rule also clarifies when a service is considered “shoppable.” In addition, the Bureau said that a WLP may exclude a list of fee estimates not required by the lender, such as title search, notary, and fees for other administrative services.
- Re-disclosures after Rate Lock—A lender must issue a revised LE after the interest rate has been initially locked if no CD has been issued. Once a CD has been issued, the lender must issue a revised CD if the rate lock makes the CD inaccurate.
- Cost reductions after initial LE—The Bureau clarified that cost reductions of certain items don’t automatically reset tolerances. Tolerance determinations are based on comparisons between “the charge paid by or imposed on the consumer” versus “the amount originally disclosed” or a revised estimate.
Between now and next October, lenders and their vendor partners will still have a fair amount of work to do to prepare for TRID 2.0. Much of this is only just getting underway, because the industry has been focused on hard year-end deadlines for Uniform Closing Dataset (UCD) and the new Home Mortgage Disclosure Act (HMDA) reporting rules. To help lenders during this interim phase, our company has developed a white paper: 5 Things You Need to Know (and Do) to Get Ready for TRID 2.0.
Here’s wishing you all a happy, healthy, and compliant new year!