On July 7, 2017, the CFPB issued a proposed rule to amend the provisions applicable to providing revised disclosures for the purpose of resetting tolerances applicable for determination of good faith estimation of closing costs under TILA-RESPA Integrated Disclosure rule that came into effect on October 3, 2015, aka Know Before You Owe rule (the “TRID Rule”). The proposed amendment is directed at fixing the so called ‘black hole’ or ‘gap’ concern (“Black Hole”) under the current TRID Rule. Comments are due within 60 days after the date of publication of the proposed rule in the Federal Register.
This proposed rule was issued concurrently with the July 7, 2017 final rule amending the TRID Rule (the “2017 TRID Rule”). The CFPB initially intended to fix the Black Hole with its 2016 TRID Rule amendment proposal. However, after receiving comments to the proposed amendment it acknowledged that there was ambiguity in its proposed amendment and it decided not to proceed with the proposed amendment and instead amend the relevant regulation and commentary with the issuance of this proposed rule.
The Issue Addressed – The Black Hole
Under current TRID Rule, if a reason occurs that allows the creditor to issue a revised estimate to reset tolerances for determination of good faith estimate of closing costs, the creditor could do so within 3 business days of learning of such reason. Generally, the revision could be accomplished using a revised Loan Estimate. However, under the current TRID Rule there are two limitations that could prevent a creditor from providing a revised Loan Estimate: (i) a revised Loan Estimate cannot be provided if there are less than four business days before consummation; and (ii) a revised Loan Estimate cannot be provided after the creditor provided a Closing Disclosure. With respect to these limitations, the current TRID Rule provides that the revised disclosure to reset the tolerances can be an initial Closing Disclosure or a revised Closing Disclosure (per informal guidance by the CFPB) if there are less than four business days before consummation. The Black Hole issue can result in a situation where the reason occurs after the creditor had already provided a Closing Disclosure and there are four or more business days between the time the revised version of the disclosures is required (i.e. within 3 business days of learning about the reason) and consummation. In such circumstance, the current TRID Rule does not allow the creditor to reset tolerance using the Closing Disclosure because the revised disclosure will not be provided to the borrower less than four business days before consummation. As a result of the Black Hole, a creditor is faced with hard choices, such as whether to: absorb the additional cost, pass such costs to all future applicants, or reject the loan application due to the increase in cost.
The Proposed Rule
The CFPB proposes to fix the Black Hole by amending the rules and commentary governing provision of revised disclosures to allow creditors to reset tolerances for good faith estimation using the initial Closing Disclosure or for any corrected Closing Disclosures, without regard to the four-business day limit. In other words, the CFBP proposes to remove the current four business day limit for resetting tolerances.
The CFPB is requesting comments on the proposed new rule, including timeframe for implementation. Comments must be provided within 60 days after the date of publication of the proposed rule in the Federal Register.
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