On July 7, 2017, the CFPB issued its awaited amendment (the “2017 TRID Rule”) to the TILA-RESPA Integrated Disclosure rule that came into effect on October 3, 2015, aka Know Before You Owe rule (the “TRID Rule”). The 2017 TRID Rule contains substantive revisions, clarifications and technical corrections to the TRID Rule. The 2017 TRID Rule will be effective 60 days after it is published in the Federal Register, from which date an optional compliance period will commence until October 1, 2018, when mandatory compliance will be required. Importantly, however, the CFPB did not finalize rules addressing the ‘black hole’ concern but instead concurrently issued a new notice of proposed rule on the issue and invited comments within 60 days of publication in the Federal Register.
Since the 2017 TRID Rule is a voluminous document containing many technical amendments, the following summary highlights several of the key changes it made:
Complete Coverage of Cooperatives
The new amendment expands coverage of the TRID Rule to cover units in cooperatives regardless of whether such units are classified as real property under the state law where they are located. It therefore requires creditors to provide TILA-RESPA integrated disclosures to borrowers of closed-end loans (other than reverse mortgages) secured by cooperative units.
Expand Consumer Definition to Include Certain Trusts
The 2017 TRID Rule expands the definition of “consumer” to include certain trusts established for tax or estate planning (e.g. inter vivos trust or living trust). The preamble contains discussion regarding how disclosures must be provided and to whom, including if the transaction is rescindable.
Tolerances for Accuracy of Total of Payments
The 2017 TRID Rule includes new tolerances for accuracy with respect to the calculation of the “total of payments” disclosure required on the Closing Disclosure. These new tolerances are important to facilitate compliance under TILA because the “total of payments” is a material term and failure to accurately disclose it triggers TILA liability and rescission, if a refinance. The new tolerances are the same tolerances applicable to the finance charge. These new tolerances were needed because the TRID Rule changed the calculation of total of payments, from the total of the amount financed plus the finance charge as stated under TILA, to the total of principal, interest, mortgage insurance and loan costs, resulting in an amount that was only partially affected by the finance charge making the existing finance charge tolerances insufficient.
Good Faith Standard Clarification
The 2017 TRID Rule amends and clarifies the application of the good faith standard under section 12 C.F.R. § 1026.19(e)(3). Specifically, the commentary states that if a creditor permits the borrower to shop for services but fails to provide the written list of providers (“WLP”), good faith estimate would still be determined under the 10% tolerance, unless the settlement service provider is the creditor or its affiliate in which case the 0% tolerance would apply. Whether a creditor permits the borrower to shop will be determined based on all relevant facts and circumstances. The CFPB also stated in the preamble that a creditor may provide the consumer a revised WLP when a settlement service is added due to any reason allowing the creditor to use a revised loan estimate.
Extending Expiration of Loan Estimate
The 2017 TRID Rule allows creditors to voluntarily extend the expiration of time within which a borrower can indicate an intent to proceed, by communicating to the borrower either orally or in writing, a longer period to indicate an intent to proceed. If the borrower indicates an intent to proceed within the longer extended period, creditors must use the fees disclosed in the extended Loan Estimate for tolerances purposes when determining compliance with the good faith requirements, unless tolerances can be reset under the TRID Rule.
Note – Creditors should consider whether to allow extension of expiration both orally and in writing as part of their policies and procedures. Creditors interested in limiting exposure to liability would likely opt for only allowing written extension of expiration, in their policies and procedures.
Written List of Providers Safe Harbor
The 2017 TRID Rule made several clarifications to the rules relating to consumer shopping for settlement service providers. Importantly, if the borrower is allowed to shop for a settlement provider, a creditor is required to provide him with a written list of providers. The new rule provides a safe harbor for creditors who use sample form H-27 in Appendix H to comply with the requirement to provide a written list of providers. The new rule allows creditor to make changes in the format or content of form H-27, e.g. deleting the column for estimated fee amounts, without affecting the safe harbor, provided that the changes do not affect the substance, clarity or meaningful sequence of the form.
Calculating Cash to Close
The new rule amends and clarifies several provisions used to complete the Calculating Cash to Close table.
Revised Loan Estimate
The 2017 TRID Rule allows creditors to provide a revised Loan Estimate for informational purposes, or if applicable to reset tolerances. If the revised Loan Estimate is provided after the borrower indicated intent to proceed, the expiration date should remain blank on revised Loan Estimate.
However, the commentary clarifies that a creditor may not provide a revised Loan Estimate after it issues a Closing Disclosure, even if the rate is locked on or after the date the Closing Disclosure is provided to the borrower. Instead the creditor must provide a corrected Closing Disclosure at or before consummation, unless the change triggers a new 3 business day review in which case the creditor must provide it at least 3 business days before consummation.
The 2017 TRID Rule clarifies that in transactions without a seller (e.g. refinance), the appraised value or estimated value disclosed on the Loan Estimate must be based on the best information reasonably available. The creditor may use an estimate provided by the borrower, unless it performed its own estimate of the property value or has obtained an appraisal or valuation. If the creditor has multiple appraisal or valuations, the creditor must disclose the appraised value it reasonably believes may be used for underwriting the loan.
The value disclosed on the Closing Disclosure in transactions without a seller (e.g. refinancing), must include the value of the property used to determine the approval of the loan. If the creditor has not obtained an appraisal when the Closing Disclosure is provided, the creditor can provide an estimated value (as provided in the Loan Estimate, unless the creditor performed its own estimate) and must change the label of the disclosure to “Estimated Prop. Value”.
The 2017 TRID Rule amends and clarifies several provisions related to construction, including the following:
- Construction to permanent loan disclosed as two separate transactions:
- The creditor must provide a Loan Estimate for both the construction loan and the permanent loan within 3 business days of receiving each application. The same is true if the creditor receives a single application for both construction and permeant loan but choose to disclose them separately.
- The creditor must allocate to the construction loan the amounts for finance charges and points and fees that would not be imposed but for the construction loan, and that other amounts for finance charges and points and fees must be allocated to the permanent loan. The creditor is allowed to determine how to allocate between the construction loan and permanent loan, fees and charges that are not finance charges or points and fees.
- The Loan Term for the permanent phase begins on the date that interest for the permanent phase’s periodic payments begins to accrue.
- Construction to permanent loan disclosed as a single transaction:
- Loan Term – requires the Loan Term to be the combined terms of both the construction and permanent phases of the loan (e.g. 12 months construction phase followed by permanent 30 year loan = the Loan Term disclosed is 31 years). The term for the permanent loan begins on the date that interest for the permanent loan’s periodic payments begins to accrue.\
- Loan Product – if the interest rate may increase under the loan agreement or note then the Loan Product must be disclosed as an “Adjustable Rate” even if the interest rate is fixed for the permanent loan term. Also in this case, if the rate will be fixed at conversion from construction to permanent and result in a payment change, the creditor would have to provide the ARM disclosure upon conversion of the loan to a fixed loan, but is not required to provide initial rate adjustment disclosure if the construction loan phase is one year or less.
- Property value – transaction without seller – on the Loan Estimate, at creditor option, it may include the estimated value of the improvements to be made on the property in total estimated value – i.e. use estimated post construction value. However, on the Closing Disclosure, the value of the property must be the value used to approve the loan, including the value of improvements to be made on the property if the improvements’ value was used to approve the loan.
Simultaneous Subordinate Financing
The 2017 TRID Rule allows creditors to disclose simultaneous subordinate purchase loans with an optional alternative calculating cash to close table if the first-lien Closing Disclosure will record the entirety of the seller’s transaction. Also, in a purchase transaction with a simultaneous subordinate financing, a settlement agent has the option to provide the seller with only the seller’s Closing Disclosure for the first-lien transaction, if the first-lien Closing Disclosure discloses the entirety of the seller’s transaction. However, if the first-lien Closing Disclosure does not record the seller’s transaction, the settlement agent would need to provide the seller both the first-lien and the simultaneous subordinate lien financing Closing Disclosures.
The rule also requires disclosure of the proceeds from a simultaneous subordinate financing on the first-lien’s Loan Estimate and the Closing Disclosure, and explains how the proceeds should be disclosed on both the first-lien and the subordinate lien Loan Estimate and Closing Disclosure.
Options for Sharing Closing Disclosure with Parties to the Origination Process
The 2017 TRID Rule provides permissible methods through which creditors may modify the Closing Disclosure prior to sharing it with seller, consumer or other third parties to the origination process, which include: (i) leaving applicable disclosure concerning the seller or consumer blank on a form provided to third-parties; (ii) omitting the applicable table or label on a form provided to third-parties; or (iii) assist the settlement agent (or provide if acting as settlement agent) in providing the seller a modified version of the Closing Disclosure form, as illustrated by Form H-25(I). The preamble to the 2017 TRID Rule also contains a discussion concerning the creditor and settlement agent responsibilities under the Gramm-Leach-Bliley Act (GLBA) and Regulation P, and emphasizes creditor’s responsibility for the delivery of the Closing Disclosure as required under the TRID Rule.
Closing Disclosure Revisions Post-Closing
The 2017 TRID Rule clarifies that if the only changes that would be required to be disclosed in the corrected disclosure are changes to per-diem interest and any disclosures affected by the change in per-diem interest, a post-closing corrected Closing Disclosure is not required. It also clarifies methods of providing refund for good faith tolerance violation and performing principal reduction shortly after closing.
Expansion of the Exemptions for Housing Assistance Loans
The 2017 TRID Rule revises two of the six criteria for eligibility for the housing assistance exemption from the TRID Rule requirement. First, it revises and allows two types of costs to be paid by the consumer without loss of eligibility, namely: transfer taxes and recording fees. It also allows the creditor to provide the Loan Estimate and Closing Disclosure as an alternative to providing a disclosure of the cost of credit under 12 CFR 1026.18, special information booklet, Good Faith Estimate and HUD-1 Settlement Statement.
Partial Payment Disclosures and Escrow Closing Notices
The 2017 TRID Rule amends the provisions concerning the creditor, assignee or servicer requirement to provide a consumer with an escrow closing notice before an escrow account is canceled or to notify the consumer of the partial payment policy applicable to the mortgage loan. Specifically, it provides that until October 1, 2018 (i.e., the 2017 TRID Rule’s mandatory compliance date), a creditor, assignee or servicer has the option to either provide the escrow closing notice for covered escrow accounts established in connection with a mortgage loan for which an application was received on or after October 3, 2015 or provide the notice in connection with all covered escrow accounts without regard to when the mortgage loan application was received. Similarly, a creditor, assignee or servicer has the option to provide the partial payment disclosure for closed-end consumer mortgage loans for which an application was received on or after October 3, 2015 or to provide the disclosure for all such loans without regard to when the application was received. However, starting October 1, 2018, the escrow closing notice and partial payment disclosure requirements apply without regard to when the application for the covered loan was received.
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