The latest version of TRID provided the industry with much-needed clarification on a number of issues and practices facing lenders as they react and operationalize workflow to be in compliance with the revised rules of engagement. As a private-label fulfillment resource, my company has had the opportunity to speak with our clients in depth about our joint interpretation of the revised regulation and its impact on the origination process. As we all know, the original rule had many clear mandates, but left certain areas very gray.
From our viewpoint, the 2017 rule (TRID 2.0) broadly contained seven major changes and clarifications and five areas where the rule fell short of what the industry requested to be addressed.
Major Changes and Clarifications
- TOP (Total of Payments) Calculation
Under TRID 1.0, there were different opinions on how the TOP calculation should be calculated. The 2017 rule provides clarification that TOP can exclude charges for principal, interest, mortgage insurance, or loan costs that are offset by another party through a specific credit. However, general credits, may not be used to offset amounts for the purpose of TOP.
- Tolerance Guidance in Conjunction with Good Faith Requirements
TRID 2.0 validates that the best information reasonably available standards apply to fees subject to 10 percent tolerance and allowable variations. The 2017 rule explains that if a charge subject to the 10 percent cumulative tolerance standards was omitted from the loan estimate (LE) but charged at consummation, it’s allowable if the sum of all charges subject to the tolerance is in good faith. For example, the lender must disclose the fee for services the lender requires. However, the lender is not required to provide a detailed breakdown of all related fees that are not explicitly required by the creditor, but may be charged to the consumer that are needed to perform the settlement services required by the creditor.
TRID 2.0 also explains that this standard applies to property taxes, property insurance (including homeowner’s insurance), amounts placed in escrow, impound, reserve or similar accounts, prepaid interest, and third-party services not required by the creditor, so long as the charges (or omission of charges) were estimated on the best information reasonably available.
- Settlement Service Provider List (SSPL) Modifications and Good Faith Requirements
The 2017 rule provides that whether a consumer is permitted to shop is determined by the relevant facts and circumstances. It also identifies the tolerance standard for when the lender permits shopping for settlement services, but fails to provide the written SSPL. If a creditor fails to provide the written list to the consumer, but the facts and circumstances indicate the consumer was permitted to shop for the settlement service, the charges for which the consumer is permitted to shop are subject to 10 percent cumulative tolerance standard. However, if those charges are paid to the creditor or an affiliate, they are subject to 0 percent tolerance. Errors or omissions on the written list or untimely delivery of the written list may also impact tolerance standards. If the error or omission does not prevent the consumer from shopping, the charges are not to the creditor or an affiliate, and the consumer is otherwise considered to have shopped, the charges are subject to the 10 percent cumulative tolerance. If the error or omission does prevent the consumer from shopping, the charges are subject to the 0 percent tolerance standard.
- Total Interest Percentage (TIP)
When factoring per diem interest into the Total Interest Percentage (TIP) calculation, clarification is provided that prepaid interest, when disclosed as a negative number in the LE and closing disclosure (CD), should be included. This clarifies previous ambiguity as to whether per diem interest, which is credited to the consumer, should be included in the TIP, since TRID 1.0 specifies that only per diem interest paid by the consumer should be included.
- Construction Loan Disclosures
TRID 2.0 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 LE and the CD. Additional clarifications were also made regarding how construction costs, existing lien payoffs and unsecured debt payoffs are disclosed.
- Trust Disclosures
The 2017 rule clarifies which party of a trust should receive TRID disclosures. It states that a trust and its trustee are considered to be the same person for purposes of Regulation Z. When credit is extended to trusts established for tax or estate planning purposes, the LE and CD may be provided to the trustee on behalf of the trust. However, in rescindable transactions, the CD must be given separately to each consumer who has the right to rescind.
- CO-OP – TRID Disclosures
The 2017 rule creates a uniform rule that requires disclosures for closed-end consumer credit transactions (other than reverse mortgages) secured by a cooperative unit, regardless of whether state law classifies cooperative units as real property.
Where TRID 2.0 Fell Short
- Title Insurance
The revised rule did not address the odd method of disclosing split title insurance or procedures to avoid liability. The CFPB said it would not address or change the regulatory text or commentary regarding the simultaneous issuance of title insurance. The LE must disclose the full amount, but does not need to disclose the owner’s title insurance premium (OTIP) and lender’s title premium (LTP) at the discounted amount. As a result, there is still confusion as to how the LTP must be disclosed.
In addition, the itemized list of title-related fees required under state law may be displayed differently than the same fees on the LE or on the CD, which creates a situation where title and settlement service providers may need to issue a separate settlement statement. The statement would show consumers and regulators that the fees were properly charged, in accordance with the rate filing, despite what the disclosures show, and what actual amounts are due from the buyer and due to the seller. Should ancillary fees such as a title search and notary fees be aggregated? Currently, the borrower may perceive they are receiving incorrect information about the true cost of title insurance; hence, increasing the industry’s concern that consumers will feel they have been deceived or taken advantage of when the actual title fees are disclosed.
- “The Black Hole”
TRID 2.0 did not initially address the changes in fees between delivery and closing (a.k.a. “the black hole”). However, shortly after the 2017 rule was published, the CFPB issued a separate proposal to address “the black hole.” It removes the current four-day business limit before closing to reset tolerances with both the initial and corrected CD. This amendment is expected to be finalized soon.
- Sharing of the CD
TRID 2.0 did not expressly authorize sharing of CDs between seller and borrower. It simply stated that if the method of sharing complies with the requirements under the Gramm-Leach-Bliley Act (GLBA) and Regulation P, as well as other state and federal laws, then it is in compliance with the rule. Many lenders have elected not to prepare the seller’s CD because of potential liability and expect the settlement agent to prepare it.
- Clarification of “Good Faith” Efforts
The CFPB remained silent on extending the period in which compliance with the original TRID rule is satisfied by “good faith” efforts to comply. What this translates to is that future examinations could mandate “hard core” compliance with requirements of the original rule.
- Confusion Surrounding the Open Phase-In Period
TRID 2.0 is in effect now, though its mandatory effective date is October 1, 2018. This open phase-in period, which allows lenders to selectively comply with whichever individual requirements within TRID 1.0 and TRID 2.0 they prefer, could easily result in conflict with the current rule.
Here are a few instances of this conflict:
Co-ops: Under TRID 1.0, lenders that originated co-ops did not consider them TRID transactions and would use a Good Faith Estimate (GFE) in lieu of an LE. This instance would be a violation of TRID 2.0. because a co-op is now a TRID transaction; lenders cannot issue a CD if the initial disclosure was provided on a GFE. The lender would need to issue an LE followed by a CD. Lenders should phase this in based on the mortgage application date.
HELPFUL HINT: During the optional compliance period, lenders can either include negative prepaid interest into the TIP calculation as a negative value, OR, not include as a negative value because the preexisting rule and commentary did not restrict how a creditor factors negative prepaid interest into the TIP calculation.
Investors: If investors are purchasing loans from different sellers, there is added complexity in setting up their systems and processes. They can’t control what sellers will or will not implement prior to applications taken on October 1, 2018 or later, which will present challenges with pre-purchase compliance reviews.
To make the new 2017 rule implementation as efficient and as smooth as possible, we advise readers to create a formal project team and list all the changes contained in TRID 2.0, determine what the impact will be on operational workflow, technology and staffing, and develop a timeline to phase in each change, as well as internal education/training.
Finally, there will be continued focus on future revisions to TRID based on the change in leadership. Will the newly appointed CFPB director re-open the rules for public comment? There was a Washington, D.C., circuit case recently which held that any changes to existing rules would have to go through public notice and comment. The new director could order all pending rules to go through this process again and then re-draft the rules. Obviously, that would push out all the timelines and change the requirements. The problem is the lack of certainty around which, if any, rules will be revisited. Another complication is what happens after the mid-term elections and whether control of Congress shifts. While many feel this will cause TRID to be pared back or go away entirely, we believe there will continue to be more questions than answers.
Donna Clayton is Chief Compliance Officer at LenderLive Holdings, Inc.