Dire warnings to prepare for implementation of the Consumer Financial Protection Bureau’s (CFPB) integrated TILA-RESPA disclosures are largely ignored. Most of the mortgage industry appears oblivious to the pending implementation debacle awaiting the industry. There are plenty of webinars and seminars outlining the requirements of the rule, but few programs point out changes in policies and procedures needed to implement the rule. There is no messiah that will reverse this rule, and there is no guardian angel to lead you through the jungle of integrated mortgage implementation. Mortgage brokers and lenders that are adrift in a sea of rules need to find land in a hurry.
There are two issues on the surface that perplex most lenders: (i) whether the lender will trust mortgage brokers to properly prepare and deliver the initial disclosure, and (ii) whether the lender will trust the closing agent to prepare and deliver the final disclosure. A number of thorny communications issues are imbedded in the choice of who prepares these disclosures; however, mortgage brokers and lenders must remember that most of the iceberg is below the surface. There are a host of practical policy and procedure items that each mortgage broker and lender will need to nail down. The following is a sampling of issues that you need to address with your loan officers and other staff, and then with your mortgage brokers and loan correspondents.
Learn the lingo
The government calls the new disclosure a “TRID,” which stands for “TILA-RESPA Integrated Disclosure.” Make sure that every employee knows this new term. You do not want to be caught off guard when a consumer asks for your “TRID” or an examiner asks for your “TRID policies and procedures.” A blank stare is a sure fire way to ask for a more thorough examination of your compliance efforts.
Discuss the definition of “business day” with your staff. In general, a “business day” for purposes of counting the time period between application and mailing a disclosure, or between a change in circumstance and redisclosure, is any day that the mortgage broker or lender is open to conduct business. A “business day” for purposes of determining how long the lender must wait before assuming that the applicant received the disclosure is generally any day that the post office is open for business. A loan officer who receives an application on Friday might need to mail disclosures to the consumer on Monday if his/her company conducts business on Saturday and Sunday. However, the loan officer who mails a disclosure to the consumer on Friday may not count Sundays and Monday holidays as “business days.”
The TRID includes a new number – TIP – which means “Total Interest Percentage.” TIP is the total interest paid over the life of the loan expressed as a percentage of the loan amount. Make sure that all mortgage loan originators can explain this term. An uninformed loan officer cannot tell the consumer to forget about it or that the TIP is not important. Downplaying required disclosures violates the requirement to make disclosed terms “clear and conspicuous.”
Revise exemption policies
Exemption policies need to be revised and implemented to make sure that loan applicants are receiving proper disclosures. Several current RESPA disclosure exemptions do not apply to the TRID. Consumers looking for construction loans, lot loans, temporary loans, and loans secured by more than 25 acres must receive a TRID.
Exemptions for the TRID include:
(i) reverse mortgages;
(ii) mobile homes/dwellings not attached to property; and
(iii) extensions of credit primarily for business, commercial or agricultural purposes.
Furthermore, certain loans — such as second mortgage loans —require the current form of TILA and RESPA disclosure rather than the TRID. (See Section 3(h) of Regulation Z.) Lenders must determine who is going to decide which disclosure set is needed for each transaction. Proper disclosures must be provided within three business days of receipt of an application. No extra time is permitted if the wrong disclosure forms are used.
Revising the TRID when a rate lock agreement is signed
A revised TRID must be provided on the same day that an applicant signs (enters into) a rate lock agreement. The CFPB is proposing to allow one day to provide a revised TRID, but the rule now requires same-day disclosures. The revised TRID cannot be provided before the consumer signs the rate lock agreement because the revised TRID is only accurate if the rate lock agreement is signed. If the applicant signs a rate lock agreement late on Friday, or over the weekend, which employee is available to prepare and mail the revised TRID? Communication between the loan originator and processor, and processor priorities, are critical issues in developing work flow procedures for preparing disclosures.
Adding time zone information
The TRID must indicate the time zone applicable to the time limit to lock the interest rate. The rate lock agreement must include the matching time zone to make the TRID accurate. Mortgage companies must develop time zone policies. Will time limits be based on the office location of central processing, or will time limits be based on the office location of the mortgage loan originator? If the mortgage loan originator is working across state lines, should time limits be based on the property location? Choose a procedure, communicate that procedure to all employees, and enforce the procedure.
Adding deficiency judgment information
The closing TRID includes a new section titled “Liability after Foreclosure” that requires the lender to disclose whether state law permits a deficiency judgment after foreclosure. In some states, deficiency judgments are permitted under very limited circumstances of which lenders rarely take advantage. Obtaining state law information about deficiency judgments, and keeping up to date on changes in enacted laws and court decisions, is difficult. Lenders may need to retain an attorney or compliance service to provide this information, and appoint a specific person to immediately change the loan origination system programming to reflect changes in law.
Service provider lists
A list of service providers for settlement services that the applicant can shop for must accompany the TRID. The creditor must identify at least one available provider for each settlement service for which the consumer is permitted to shop. If a mortgage broker provides the TRID to the loan applicants, the mortgage broker will provide the list of settlement services that their creditors will allow the applicant to shop for, and identify at least one service provider that is acceptable to each lender that might receive the application. Lenders must coordinate the delivery of their list of settlement service providers with their brokers so there are no unapproved providers at closing.
Disclosing accurate settlement service provider fees
TRID rules do not permit any tolerance for fees charged when the lender or mortgage broker selects the service provider, when the service provider is an affiliate of the lender, or when the applicant selects a service provider on the list provided with the TRID. Sometimes settlement service fees are added at the closing, or raised without prior notice. Lenders cannot disclose higher settlement costs on their list of providers to account for potentially higher fees because the disclosure would not be made in good faith.
It is imperative that lenders keep track of fees charged by title agencies, appraisers and other service providers that regularly vary their fees. Absent a legitimate “change in circumstances” to permit a revised TRID, that extra $200 charged by the appraiser for a complex appraisal might need to be absorbed by the lender. Do not think that changes in fees can be passed down to mortgage brokers or loan officers. A mortgage broker or loan officer may only absorb the difference between the disclosed and actual fee if the lower fee disclosed by the mortgage broker or loan officer was not based on the best information available at the time that the initial TRID was provided. Lenders must instruct their staff, brokers and correspondents to contact service providers on a regular basis to ask about changes to fees.
Tracking license numbers
The closing TRID requires disclosure of contact information and license numbers for the lender, mortgage broker, buyer and seller real estate brokers, and closing agent. Email addresses, persons to contact at each licensee, phone numbers, and mailing addresses change regularly. Mortgage brokers and lenders may need to subscribe to a national database to make sure that their information is up to date when the closing disclosure is prepared.
Coordinating servicer policies
The closing TRID requires disclosure of the loan servicer’s policies regarding receipt of partial payments and establishing escrow accounts. Most loan sale agreements require the originating lender (the correspondent lender) to service a loan prior to sale of the loan. Some lenders retain a subservicer for interim servicing. Ask your subservicer for its written policies on acceptance of partial payments and establishing/maintaining escrow accounts, and make sure that your subservicer is actually following its own policies. Never assume that you know your servicer’s policies and procedures.
Record retention periods are longer under the new rule, evidence of whether service providers are affiliated or not must be retained, and lenders or their servicers are expected to implement a record retrieval system. Evidence of compliance with TRID requirements must be retained for at least three years; however, the final TRID and all other closing documents related to the TRID must be retained for five years. The three-year record retention rule also applies to mortgage brokers who issue the initial TRID. The assignee of a loan or its servicer must retain these documents for the remainder of the lender’s five year record retention period. The CFPB may request copies of these documents at any time. Lenders and servicers may need to purchase and/or implement a document control and tracking system to comply with CFPB document requests. The CFPB is not going to hand-select records it wants from lender files, and the CFPB is not going to pay the lender’s document search and copying costs.
It is getting late to start thinking about how to meet these requirements. Your thought process should have begun months ago. Policies, procedures, and action plans for compliance with TRID requirements should be drafted no later than January or February 2015. Training and procedures manuals should be complete by April 2015. Staff and mortgage loan originators should be trained and tested by the beginning of summer. Implementation of back office procedural changes should be complete by July 2015. Loan officers should experience using the TRID in training exercises, and be ready to distribute and explain the TRID to applicants by August 1, 2015.
Mr. Lax concentrates his practice in financial institutions consumer compliance and regulatory affairs and real property law. Howard can be reached at: firstname.lastname@example.org
This message is not intended to provide legal advice. You are advised to consult an attorney regarding your specific issues, and not rely on hypothetical discussions to guide your decisions and actions.