TRID Rachel Cahill What is TRID? How will you build your house? - - PDF document

NTXAMP LUNCHEON 06/10/2015 1

TRID

Rachel Cahill

Who’s Afraid of the Big Bad Wolf? How will you build your house?

Bricks

“We’re actively building our plan and training now!”

Straw

“I’ve heard of TRID, but we’ve still got time”

Sticks

“I’ve heard of TRID and I’ve started thinking about it but don’t have anything concrete yet.”

What is TRID?

TILA RESPA Integrated Disclosure AUGUST 1, 2015

• Provide easier to use mortgage disclosure forms
• Help and encourage shopping
• Protect borrowers from surprises at closing
• Help borrowers understand their loans

www.AllianceAcademy.org

Revised Effective Date is October 3, 2015

NTXAMP LUNCHEON 06/10/2015 2

Will TRID impact MY business?

ORIGINATORS

• New loan app def = no required docs before LE
• No collection of payments or methods until Intent to

Proceed

• Need more accurate data for estimates of taxes, ins, etc.
• Charge rate lock extension fees? Maybe….
• New booklet “Your Home Loan Toolkit”

Will TRID impact MY business?

EVERYONE (Lenders, Real Estate, & Title)

• Managing different forms for applications before & after

effective Date of Aug 1

• Effect of LE & CD delivery dates on contract deadlines
• HUD Line numbers removed
• Contact information needed for CD
• Multiple copies of disclosures to borrower
• Creditor prepares CD instead of Title

Coverage

Loan Types Affected: Does NOT Apply To:

• 1-4 Family residential
• 25-Acre loans
• Vacant land loans
• Reverse mortgages
• HELOCs
• Chattel-dwelling loans
• Creditors that make 5 or fewer

• Jr liens for housing assistance

JUNE 3: CFPB FINALLY AGREES TO SOFTER ENFORCEMENT IF WORKING IN “GOOD FAITH” TO COMPLY WITH THE TRID RULE

Keep in mind... this is a very soft “understanding” from Cordray and is NOT a “hold harmless” period.

Recommended Reading

Full Final Rule plus Staff interpretations

http://goo.gl/vooCde

What is changing?

• Definition “Loan App”
• New Forms
• Timing & Processes
• Variances (fka tolerance)

www.AllianceAcademy.org

Oct 3

NTXAMP LUNCHEON 06/10/2015 3

New Definition of Loan Application

1.

Address of subject property

2.

Loan Amount requested

3.

Income of the consumer

4.

Estimated value of the property

5.

Name of the consumer

6.

Social Security number to obtain credit report

7.

Tighter RESPA Triggers for 3 Day Disclosures

New strict definition of “Loan App”

New Forms

Early TIL Initial GFE

“Pre-TRID” 3 Day Disclosures New “Loan Estimate”

Replaces GFE & early TIL Includes new terminology required under Dodd-Frank Covers key features, costs, cash to close and risks Clearer breakdown of costs than lump-sum GFE blocks

LE

“Pre-TRID” Disclosures for Closing

Final TIL HUD-1

www.AllianceAcademy.org

NTXAMP LUNCHEON 06/10/2015 4 New “Closing Disclosure”

Replaces HUD-1 & Final TIL 3 Days to Review Easier for consumers to locate key information

• Closely lines up with LE
• Interest rate & pmts
• Closing Costs broken down
• Loan affordability & cost of loan over time

CD

How do I know which form to use?

Applications taken on or BEFORE July 31, 2015

• Use the GFE, TIL and HUD-1 all the way
• through. (Do not switch or combine!)

Applications taken on or AFTER August 1, 2015

• Use the LE and CD all the way through

New Timing Requirements

Timing Changes

TILA-RESPA merge means TWO definitions of “business day” for timing requirements

General: Days when the creditor’s offices are open to the public doing most normal business functions (Company Calendar) Specific: All calendar days except Sundays & legal public holidays (when the mail runs)

Mailbox Rule & Received Dates

Mailbox rule didn’t go away Considered “received” on 3rd specific day after mailing Email considered “mail” so apply mailbox rule, unless there is proof of receipt

Loan Estimate Timing

Initial LE:

• Provided or placed in mail no later than 3 general

business days from app date

• Provided or placed in the mail no less than 7 specific

business days prior to closing (same 7 day waiting period) www.AllianceAcademy.org

Oct 2 Oct 3

NTXAMP LUNCHEON 06/10/2015 5 Loan Estimate Intent to Proceed

MUST receive “Intent to Proceed” from at least one borrower before collecting any fees other than a credit report fee.

• Signature on Loan Estimate is not I2P
• Silence from borrower is not I2P
• Cannot collect even payment method

Loan Estimate Timing

Revised LEs:

• Must be sent within 3 general days of Rate Lock or COC
• STILL must have valid Change of Circumstance
• Last version RECEIVED by the consumer no less than 4

specific business days prior to closing (mailbox rule)

• Cannot be sent out after Closing Disclosure is issued

Closing Disclosure Timing

Pre-Close CD:

• Must be RECEIVED by the consumer no less than 3

specific business days prior to closing (mailbox rule applies)

• Limits on Closing Cost Increases (nearly identical to current

Closing Disclosure Timing

Revised CDs:

• May be delivered at or before closing
• If certain changes are made, 3-day wait might start again

Closing CD:

• Delivered and signed at closing

Changes trigger another 3 business-day wait

• APR increase or decrease more than 0.125%

• Loan Product change
• Prepayment penalty added
• Less-significant changes disclosed on updated CD without

additional 3-day waiting period

Closing Disclosure Changes

New Processes

www.AllianceAcademy.org

NTXAMP LUNCHEON 06/10/2015 6 Preparing the CD

• Most creditors are going to prepare and provide the CD
• Creditor is accountable for the on-time delivery of an accurate

CD to consumer

• Creditor and Settlement Agent need to collaborate to complete

and deliver the CD

• Settlement Agent is responsible for delivering a CD to seller

“Total Interest Percentage”

• “Represents the total amount of interest that you will pay over the

• Loan Amount $100,000 with total amt of interest paid over the loan

• Industry Feedback

Ready to leave a “TIP”?

Variances

ZERO Tolerance → “Variations”

These fees may NOT increase:

• Fees paid to the creditor or mortgage brokers
• Affiliates of creditor or broker (previously in the 10% category)
• Unaffiliated 3rd party if creditor did not allow consumer to

shop for service provider (previously in the 10% category)

ZERO Tolerance → “Variations”

These fees may NOT increase: (continued)

• Transfer taxes
• Lender credits may not DECREASE

10% Tolerance → “Variations”

Some fees may exceed disclosed by aggregate of 10%:

• Unaffiliated 3rd party if creditor permits consumer to shop and

consumer selects a provider from the Written Service Provider List disclosure or does not choose a provider at all

• Recording fees

www.AllianceAcademy.org

NTXAMP LUNCHEON 06/10/2015 7

No Variation Test

Charges can exceed initial amounts disclosed on LE (if they were consistent with best & most reasonable info available at the time of disclosure):

• Prepaid interest
• Property insurance premiums
• Amounts placed into escrow account
• Charges paid to 3rd party providers not included
• n creditor’s provided list or not required by creditor

IMPACT

Who will prepare the CD?

Preparation of CD Delivery of CD to borrower Delivery of CD to seller Why? Lender is held responsible for accuracy

• f costs and delivery to borrower

Will TRID impact MY business?

• Which loan forms to use before & after Aug 1?
• New loan app def = no required docs before LE
• No fees or payment methods before LE issued
• Need more accurate estimates of taxes, ins, etc.
• New booklet “Your Home Loan Toolkit”
• Impact of LE & CD delivery on contract deadlines
• Contact information needed for CD
• Multiple copies of disclosures to borrower
• Creditor prepares CD instead of Title

What can I do NOW to prepare?

• Start using new 6 data point app definition
• Communicate with partners about how to

make the transition easier (collaborate!)

• BE HONEST and UPFRONT about delays!!!!!
• Parties work together as a TEAM!!!!
• Read the guides
• TRAINING TRAINING TRAINING TRAINING

www.AllianceAcademy.org

NTXAMP LUNCHEON 06/10/2015 8

How will you build your house?

www.AllianceAcademy.org

NXTAMP TRID FAQ

The responses below do not represent legal advice or interpretation. While we do make an effort to provide accurate answers, our presentation and these FAQs are not a substitute for the TRID rule or your own legal counsel. Only the TRID rule and its Official Staff Interpretations can provide complete and definitive information regarding requirements. You should always consult an attorney before creating company policy.

Contents Contents Contents Contents

General Comments and Questions ......................................................................................................................................... 2 Preapprovals ........................................................................................................................................................................... 3 Definition of Application ......................................................................................................................................................... 6 Delivery ................................................................................................................................................................................. 10 Intent to Proceed and Fees ................................................................................................................................................... 12 Forms .................................................................................................................................................................................... 13 Tolerances/Variations/Change of Circumstance .................................................................................................................. 14 Zero Variation ................................................................................................................................................................... 15 10% Variation .................................................................................................................................................................... 17 Change of Circumstance ................................................................................................................................................... 18 Delivery of Disclosures ...................................................................................................................................................... 19

General Comments and Questions General Comments and Questions General Comments and Questions General Comments and Questions

“How can we require the Realtors to make sure they write their contracts at 45 to 60 days?”

Industry: Real Estate It’s a great idea to write longer contracts so you don’t risk going past a contract deadline and setting proper

• expectations. I agree that it’s wise to leave some breathing room in the contract for any type of delays due to the new

disclosure processes that could be happening on the lending and the title side of the transactions. I don’t think you can really REQUIRE that they do this, but you can certainly make strong recommendations. It may be tough to do in a seller’s market, like we’re in right now and buyers are fighting over a low inventory in our area. Work with your fellow agents and try to negotiate reasonable close dates, at least for a few months until the dust

• settles. It does no one any good to set false expectations. The seller is often tying this closing to a closing on their new

home and it causes a bad chain reaction, not to mention a bad reputation. Everyone just needs to be patient if possible.

“Is this the start of phasing out the title companies? Will banks now increasingly get more control? That’s bad news”

I’m guessing this is a reaction to the fact that most lenders have decided to prepare the Closing Disclosure instead of allowing the settlement agents to do that. Well, this is sort of a commentary type question, but I don’t know that title companies will be “phased out” completely. There are more functions that a title company performs besides simply preparing the HUD-1. Also, keep in mind there is some dis-incentive to providing the title company because of the treatment of affiliate fees under TRID and QM rules. They would be included in the Points & Fees test under the QM rule.

“Who orders title work after August 1st? Brokers or Lenders? There is no place on contract for Title Co info.”

Industry: Title I don’t see a change in this process, though I think your question may be similar to the previous question about phasing

• ut title companies. When you mentioned there is no place on the contract for title company information, I would like

to clarify things a little. The title company where the earnest money is held is written into the purchase contract. The Closing Disclosure (CD) has a place for the contact information of the parties involved in the transaction. Unused columns may be removed and columns may be added for additional parties. For example, if there are two real estate brokers representing the seller, a column may be added to identify that party and a column for a party not involved in the transaction may be deleted, such as the Mortgage Broker in the example below.

Preapprovals Preapprovals Preapprovals Preapprovals

“I heard that an LE can be requested by a borrower even on a TBD. True/False?”

Industry: Mortgage You can provide a LE, but a better recommendation would be to provide an estimate of costs that looks nothing like the Loan Estimate. This is allowed for in the rule and the preamble to the rule provides clarification. As you will see in the Staff Commentary below, if you did issue the LE prior to receiving all 6 pieces of information, you cannot claim receipt of the information, such as property address, as a change of circumstance and reason to redisclose. You would be held to the LE which must be provided “in good faith” to the customer. In the Preamble to the TRID Rule, it states, “Creditors and other persons may provide consumers with written estimates prior to application. The rule requires that any such written estimates contain a disclaimer to prevent confusion with the Loan Estimate form. This disclaimer is required for advertisements.” Comment for 1026.19(e)(3)(iv)(A)-3 Six Pieces Of Information Presumed Collected, But Not Required.

• 3. Six pieces of information presumed collected, but not required. Section 1026.19(e)(1)(iii) requires creditors to

deliver the disclosures not later than the third business day after the creditor receives the consumer's application, which consists of the six pieces of information identified in § 1026.2(a)(3)(ii). A creditor is not required to collect the consumer's name, monthly income, social security number to obtain a credit report, the property address, an estimate of the value of the property, or the mortgage loan amount sought. However, for purposes of determining whether an estimate is provided in good faith under § 1026.19(e)(1)(i), a creditor is presumed to have collected these six pieces of information. For example, if a creditor provides the disclosures required by § 1026.19(e)(1)(i) prior to receiving the property address from the consumer, the creditor cannot subsequently claim that the receipt of the property address is a changed circumstance pursuant to § 1026.19(e)(3)(iv)(A) or (B).

“Prequal – can we review docs prior to property address?” “Does the new loan application definition mean that you cannot collect bank statements and tax returns to do a prequalification before you find the property?”

Industry: Mortgage

“Can we obtain supporting docs prior to app?”

Industry: Mortgage These three questions are essentially the same, so let’s work through one answer. The rule really focuses on the definition of application being the 6 data elements of Address, Loan Amount, Income, Estimated Value, Name, and

• Social. (Remember our ALIENS). I would suggest that you are safe in requesting that information prior to meeting the

definition application, but you cannot require it from the borrower. It should be voluntary. The work you do with a consumer before they actually meet the definition of application is outside of the requirement to provide an LE. Once you do have all 6 pieces of information that defines an application, you must provide those disclosures within 3 days of getting number 6, whatever that may be. You can still suggest to the borrower that they should gather that information for you, BUT you cannot hold up the delivery of the LE based on not receiving it. Excerpts from the preamble to the rule: Section 1024.7(a)(5) of Regulation X currently provides that a creditor may collect any information from the consumer deemed necessary in connection with an application, but the creditor may not require, as a condition for providing a RESPA GFE, that the consumer provide supplemental documentation to verify the information the consumer provided on the application. The Bureau also stated that this proposed provision would be consistent with section 129B(e) of TILA because requiring documentation to verify the information provided in connection with an application increases the burden on borrowers associated with obtaining different offers of available credit terms, which is not in the interest of the borrower. …whether a creditor must refuse verifying documentation a consumer brings to the creditor in anticipation of such documentation being needed. The Bureau does not believe that verifying documentation should be needed prior to issuing a Loan Estimate. However, the final rule does not prohibit the creditor from accepting verifying documentation if the consumer

• ffers such documentation, provided that it is not required by the creditor before the creditor provides the Loan

Estimate. The Bureau believes that requiring a consumer to submit a purchase and sale contract so that the creditor can

• btain information it would otherwise obtain from the consumer or other sources may constitute overly

burdensome documentation and inhibit shopping because under such a demand a consumer would be required to become obligated to the purchase of real estate prior to obtaining a reliable estimate of the cost of financing such purchase. The Bureau notes that the creditor may revise the estimates provided in the original Loan Estimate based on receipt of changed information under § 1026.19(e)(3)(iv)(A). …the Bureau does not believe that the definition of application will restrict creditors’ ability to provide pre- qualification cost estimates or grant pre-approvals. The Bureau believes that creditors could provide pre- qualification estimates and grant pre-approvals without obtaining all of the six specific items of information that make up the definition of application. Specifically, the Bureau believes that there is little need for creditors to gather specific information about the loan transaction, such as the property address or loan amount sought, to make pre-qualification estimates because pre-qualification estimates and pre-approvals are not subject to the tolerance rules in § 1026.19(e)(3) and are generally for a range of loan amounts and property values. …the Bureau understands that some creditors require a purchase and sale agreement prior to issuing the RESPA GFE and the early TILA disclosure. While this practice may be permissible under current Regulation X in some

cases, it would conflict with final § 1026.19(e)(2)(iii), which prohibits a creditor from requiring verifying documentation before issuing a Loan Estimate.

Definition of Application Definition of Application Definition of Application Definition of Application

“I read a clarification from CFPB regarding current preapprovals, since per HMDA we have an app even without a property address. If we have a signed 1003 prior to 8/1, we can still

• perate under current rules if a contract is signed after 8/1. True/False?”

Industry: Mortgage It seems that in this case you are advocating that the application received date would be based on the HMDA application date instead of the TRID application date, which would include a property address. The advantage of this thought process would be to be able to use the old GFE, TIL and HUD-1 instead of the new LE and CD. While I haven’t read the document you are referring to, there are actually many different rules that cover a definition of “application” but each disclosure or reporting requirement comes with its own set of rules. My suggestion for which set

• f disclosure to use would be to follow the RESPA-TILA definition of application and provide the LE and CD instead of the

GFE, TIL and HUD-1. Personally, I would not rely on applying the definition of application from another rule to determine which set of disclosures to use. The Loan Estimate/Closing Disclosure delivery requirements are set forth in the RESPA-TILA rule. The rule for HMDA application is a little different, but there is most certainly a category in HMDA reporting for preapprovals. The definition under HMDA exists to determine what applications will be reported on the Loan Application Register (LAR). To contain useful information and minimize duplicate reporting because of credit shopping, HMDA captures applications at a later point in time than ECOA. HMDA looks at the decisions made by the lender. Here is some reference information from FFEIC, which is where the HMDA reports are submitted.

Preapproval request approved but no property identified. How should a lender report a preapproval request it approved if the borrower did not later identify a property to the lender? Answer: Reporting of the transaction is optional. If the transaction is reported, the lender uses code '8' ("preapproval request approved but not accepted") under "type of action" and code '1' ("preapproval was requested") under "request for preapproval." See Appendix A, I.A.8. & I.B.1.

Here are the options for reporting a pre-approval request on your HMDA submission. This may get a little technical, but it should help you understand that the treatment of preapprovals is different from actual applications. Action Taken. 1. Type of Action. Indicate the type of action taken on the application or loan by using one of the following codes. Code 1—Loan originated Code 2—Application approved but not accepted Code 3—Application denied Code 4—Application withdrawn Code 5—File closed for incompleteness Code 6—Loan purchased by your institution Code 7—Preapproval request denied Code 8—Preapproval request approved but not accepted (optional reporting)

• a. Use Code 1 for a loan that is originated, including one resulting from a request for preapproval.
• b. For a counteroffer (your offer to the applicant to make the loan on different terms or in a different amount

from the terms or amount applied for), use Code 1 if the applicant accepts. Use Code 3 if the applicant turns down the counteroffer or does not respond.

• c. Use Code 2 when the application is approved but the applicant (or the loan broker or correspondent) fails to

respond to your notification of approval or your commitment letter within the specified time. Do not use this code for a preapproval request.

• d. Use Code 4 only when the application is expressly withdrawn by the applicant before a credit decision is
• made. Do not use Code 4 if a request for preapproval is withdrawn; preapproval requests that are withdrawn

are not reported under HMDA.

• e. Use Code 5 if you sent a written notice of incompleteness under section 202.9(c)(2) of Regulation B (Equal

Credit Opportunity) and the applicant did not respond to your request for additional information within the period of time specified in your notice. Do not use this code for requests for preapproval that are incomplete; these preapproval requests are not reported under HMDA.

• Request for Preapproval. Indicate whether the application or loan involved a request for preapproval of a home

purchase loan by entering the applicable code from the following: Code 1—Preapproval requested Code 2—Preapproval not requested Code 3—Not applicable

• a. Enter Code 2 if your institution has a covered preapproval program but the applicant does not request a

preapproval.

• b. Enter Code 3 if your institution does not have a preapproval program as defined in section 203.2(b).
• c. Enter Code 3 for applications or loans for home improvement or refinancing, and for purchased loans

Also, here’s a great article I found a few years ago that discusses several of those definitions and how they interact. http://www.mortgagenewsdaily.com/channels/pipelinepress/08012013-mortgage-application.aspx

“Can we instruct our MLO to deliberately NOT ask for all six required items?”

Industry: Mortgage I would say no to this question. You can strategically collect information as stated in the Preamble “creditors could strategically order information collection in a manner that best suits the needs of the creditor” and while it may seem practical, the CFPB has made it clear in several of their webinars and seminars that you cannot refuse information.

“Regarding the loan app definition, can you avoid the disclosure requirement by not asking for the property value estimate or any of the other six items?”

Industry: Mortgage This question is essentially the same as the question above.

“Who will complete the LE and deliver to broker when you are a true broker?”

From what I have heard in industry chatter, it seems that most of the lenders are going to be providing some methodology for requesting a LE to provide to the borrower. This will really depend on the relationship between you and your lender, so get with them and find out what their policy will be if they haven’t already made you aware. Here is

the background on WHY the lenders want to issue the disclosures themselves. If errors are made by a mortgage broker, it would not be considered a valid change of circumstance, so they would have to incur the loss. This is complicated by the LO Compensation rule that prevents the lender from recouping losses because they cannot alter the compensation paid to an originator. From the rule: 1026.19(e)(1)(ii)(A) (A) If a mortgage broker receives a consumer's application, either the creditor or the mortgage broker shall provide a consumer with the disclosures required under paragraph (e)(1)(i) of this section in accordance with paragraph (e)(1)(iii) of this section. If the mortgage broker provides the required disclosures, the mortgage broker shall comply with all relevant requirements of this paragraph (e). The creditor shall ensure that such disclosures are provided in accordance with all requirements of this paragraph (e). Disclosures provided by a mortgage broker in accordance with the requirements of this paragraph (e) satisfy the creditor's obligation under this paragraph (e). And from the Preamble to the Rule: A mortgage broker commenter asserted that the Bureau should expand the categories of valid reasons for revisions to include mistakes made by mortgage brokers. The Bureau has considered the comment but believes that mistakes made by the mortgage broker should not be included among the valid reasons for a settlement charge to exceed the amount originally estimated for the charge. As a general matter, errors are not a basis for revising Loan Estimates, and the Bureau does not believe that mortgage broker errors should be treated differently than other errors. Additionally, there is a clear definition for “Intermediary Agent or Broker”, which is important because this allows the creditor to determine receipt under 1026.19(a)(1)(i)(3) as when it is received by the creditor from the intermediary agent or broker. It is important to communicate with your state examiners to ensure that when you are examined, as a broker, they do not have a different interpretation, but typically a mortgage broker would not meet the definition of “creditor.” From the rule: 1026.19(a)(1)(i)(3) “An application is received when it reaches the creditor in any of the ways applications are normally transmitted—by mail, hand delivery, or through an intermediary agent or broker. (See comment 19(b)-3 for guidance in determining whether or not the transaction involves an intermediary agent or broker.) If an application reaches the creditor through an intermediary agent or broker, the application is received when it reaches the creditor, rather than when it reaches the agent or broker.” 1026.19(b) 3. INTERMEDIARY AGENT OR BROKER.

• i. In certain transactions involving an “intermediary agent or broker,” a creditor may delay providing disclosures.

A creditor may not delay providing disclosures in transactions involving either a legal agent (as determined by applicable law) or any other third party that is not an “intermediary agent or broker.” In determining whether or not a transaction involves an “intermediary agent or broker” the following factors should be considered: … and

• ii. An example of an “intermediary agent or broker” is a broker who, customarily within a brief period of time

after receiving an application, inquires about the credit terms of several creditors with whom the broker does business and submits the application to one of them. The broker is responsible for only a small percentage of the applications received by that creditor. During the time the broker has the application, it might request a credit report and an appraisal (or even prepare an entire loan package if customary in that particular area).

“For Non Delegated Correspondent (NDC), are most investors going to require or allow the NDC to do the LE?”

A delegated correspondent mortgage lending program offers lenders the flexibility and control to manage the loan process, from origination through closing. However, in the non-delegated correspondent lending channel, you are working with lenders who currently have the resources to fund their own loans but prefer the security of having those loans underwritten by the purchasing investor before the loan closes. Typically, what happens is the lender originates closes and funds in their own name while the investor performs the underwriting, purchase review and loan purchasing activities. I would suggest that the disclosure requirements would continue to fall on the correspondent and would not be the responsibility of the investor, though it’s not impossible for the investor to provide that service as well. Definitely check with your investors to see what their policies will be and how that fits into your process. There’s no way to truly answer this question across the board. A lot of it would depend on whether your company meets the definition of “creditor” which would place the burden of disclosure on your staff to ensure it was delivered within 3 days of application.

Delivery Delivery Delivery Delivery

“Essentially now, CFPB considers most delivery of disclosures “mailed” so essentially and for all practical purposes CDs have to be completed 7 days prior to consummation”

Industry: Mortgage There are many different methods that the disclosures can be delivered to the borrower. The Staff Commentary to the rule provides for guidance on email, as quoted below on electronic delivery, assuming you are delivering in an Esign compliant manner.

• If you do not have eConsent, your disclosures are treated as if they were not sent at all!
• If you chose to email the documents, they are treated the same as mailed documents that would not be

considered “received” by the borrower until the third business day UNLESS you get a written communication from the borrower earlier to prove the receipt of the documents. Keep in mind, this is not a “read receipt” but an email from the borrower acknowledging they received the documents. This will start your 3 day clock earlier because now they have “received” the documents three days prior to closing. 19(e)(1)(iv) Receipt of early disclosures. MAIL DELIVERY. Section 1026.19(e)(1)(iv) provides that, if any disclosures required under § 1026.19(e)(1)(i) are not provided to the consumer in person, the consumer is considered to have received the disclosures three business days after they are delivered or placed in the mail. The creditor may, alternatively, rely on evidence that the consumer received the disclosures earlier than three business days. For example, if the creditor sends the disclosures via

• vernight mail on Monday, and the consumer signs for receipt of the overnight delivery on Tuesday, the creditor

could demonstrate that the disclosures were received on Tuesday. ELECTRONIC DELIVERY. The three-business-day period provided in § 1026.19(e)(1)(iv) applies to methods of electronic delivery, such as

• email. For example, if a creditor sends the disclosures required under § 1026.19(e) via email on Monday,

pursuant to § 1026.19(e)(1)(iv) the consumer is considered to have received the disclosures on Thursday, three business days later. The creditor may, alternatively, rely on evidence that the consumer received the emailed disclosures earlier. For example, if the creditor emails the disclosures at 1 p.m. on Tuesday, the consumer emails the creditor with an acknowledgement of receipt of the disclosures at 5 p.m. on the same day, the creditor could demonstrate that the disclosures were received on the same day. Creditors using electronic delivery methods, such as email, must also comply with § 1026.37(o)(3)(iii), which provides that the disclosures in § 1026.37 may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act. For example, if a creditor delivers the disclosures required under § 1026.19(e)(1)(i) to a consumer via email, but the creditor did not obtain the consumer's consent to receive disclosures via email prior to delivering the disclosures, then the creditor does not comply with § 1026.37(o)(3)(iii), and the creditor does not comply with § 1026.19(e)(1)(i), assuming the disclosures were not provided in a different manner in accordance with the timing requirements of § 1026.19(e)(1)(iii).

“How are the 3 days calculated? Is it really 5 like it is with recession time frames?”

Industry: Mortgage Three days are calculated as business days. Which days would count in your 3 days depends on which timing requirement you are meeting. If it’s general days, then follow your company calendar. If it’s specific days, it’s pretty much when the mail runs.

“For clarity and consistency with other provisions of § 1026.19(e) and (f), final § 1026.19(f)(1)(iii) provides generally that if the Closing Disclosure is not provided in person, the consumer is considered to have received the disclosures three business days after they are delivered or placed in the mail. Comment 19(f)(1)(iii)-1 also explains that the days are counted from the date on which the disclosures are placed in the mail.

Intent to Proceed and Fees Intent to Proceed and Fees Intent to Proceed and Fees Intent to Proceed and Fees

“Can a lender/broker order an appraisal before the 3 day rule? If our company credit card is used and the borrower will reimburse the lender/broker at closing?”

This is NOT just tied to the three day rule. More importantly, you MUST have received Intent to Proceed from the borrower before any fees can be imposed. My advice would be to wait until AFTER you have received Intent to Proceed to order any services like appraisal. The one safe exception is a credit report. You put yourself at legal risk by incurring a fee on the borrower’s behalf before they have agreed to go forward with the transaction. If you are not going to charge the fee to the borrower at closing, then you can order the appraisal and take the risk that you may have to eat the cost. Comment for 1026.19(a)(1)(ii)-2 Fees Restricted. “2. Fees restricted. A creditor or other person may not impose any fee, such as for an appraisal, underwriting, or broker services, until the consumer has received the disclosures required by § 1026.19(a)(1)(i). The only exception to the fee restriction allows the creditor or other person to impose a bona fide and reasonable fee for

• btaining a consumer's credit history, such as for a credit report(s).”

Comment for 1026.19(e)(2)(i)(A)-4.i “i. A creditor receives a consumer's application directly from the consumer and does not impose any fee, other than a bona fide and reasonable fee for obtaining a consumer's credit report, until the consumer receives the disclosures required under § 1026.19(e)(1)(i) and indicates an intent to proceed with the transaction described by those disclosures.”

Forms Forms Forms Forms

“How is the 2nd mortgage going to square up on the CD with the 1st lien?”

Industry: Mortgage Much like today, a subordinate lien is shown on the CD along with the other transactions occurring in conjunction with the closing. Any fees to be incurred should be reported to the party who is preparing the Closing Disclosure. In the past, that has typically been the title company. Going forward, this is more likely to be the 1st lien lender. This means that the subordinate liens and closing costs should be communicated to the 1st lien lender for CD preparation. Comment for 1026.38(j)(2)(vi)-2 Subordinate Financing Proceeds.

• 2. Subordinate financing proceeds. Any financing arrangements or other new loans not otherwise disclosed

pursuant to § 1026.38(j)(2)(iii) or (iv) must also be disclosed pursuant to § 1026.38(j)(2)(vi). For example, if the consumer is using a second mortgage or note to finance part of the purchase price, whether from the same creditor, another creditor, or the seller, the principal amount of the loan must be disclosed with a brief

• explanation. If the net proceeds of a second loan are less than the principal amount of the second loan, the net

proceeds may be listed on the same line as the principal amount of the second loan. For an example, see form H-25(C) of appendix H to this part.

“On new construction is there a time frame to use the old GFE? For example, July 30 app, closes Jan 2016”

I would suggest that the transaction would continue to go off of the application date. In your example, an application date of July 30, 2015 would be a GFE/HUD transaction and would stay that way through the life of the loan. Any applications taken on or after August 1, 2015 for new construction will fall under the new LE/CD disclosures.

“On the seller CD, can title provide to lender? How would this effect the Lender CD?”

Industry: Mortgage The seller CD is intended to be an extract of the full CD that is provided to the lender. The seller’s closing costs on the Seller CD should not be different from those on the Borrower’s CD. For record keeping requirements, the lender should obtain a copy of all documents related to the transaction, including but not limited to the seller’s CD.

“If we are a broker that is a mini-correspondent, who is the lender?”

Industry: Mortgage I don’t see this as being vastly different from how things are disclosed today. If you are funding the loan in your name, then typically you would be listed as the Lender on the disclosures. This is a fairly grey area and you should discuss this with your sponsoring lender. There is a definition of “Creditor” that could make your mini-correspondent shop the Lender, but it truly can vary depending on your relationship and how loans are funded. Check with an attorney and your sponsoring lender to get clarification on their policy.

Tolerances/Variations Tolerances/Variations Tolerances/Variations Tolerances/Variations/Change of Circumstance /Change of Circumstance /Change of Circumstance /Change of Circumstance

Before we get into the questions, let’s do some summary from the rules found in 1026.19 (e)(3) Zero Variation (Cannot increase) 10% Aggregate Variation Variations Permitted

• Fees paid to the creditor
• Fees paid to a mortgage broker
• Fees paid to an affiliate of

creditor

• Fees paid to an affiliate of broker
• Fees paid to unaffiliated 3rd party

if not permitted to shop

• Transfer taxes
• Fees paid to unaffiliated 3rd party

where customer WAS permitted to shop and did not choose a provider

• Fees paid to unaffiliated 3rd party

where customer WAS permitted to shop and chose a provider off

• f the creditor’s “Written Service

Provider” list

• Recording Fees
• Estimates of prepaid interest,

property insurance premiums, and amounts placed into an escrow, impound, reserve or similar account

• Must be consistent with the best

information reasonably available to the creditor

• Amount must obtained by the

creditor through due diligence, acting in good faith

• Owner’s title insurance

From the preamble, the Bureau (CFPB) believes “these fees can be adjusted in cases of changed circumstances or borrower requested changes.” “The Bureau does not believe that optional services chosen by the consumer should be exempt from the good faith requirement.” For purposes of § 1026.19(e), a fee is not considered “paid to” a person if the person does not retain the fee.

• For example, if a consumer pays the creditor transfer taxes and recording fees at the real estate closing and the

creditor subsequently uses those funds to pay the county that imposed these charges, then the transfer taxes and recording fees are not “paid to” the creditor for purposes of § 1026.19(e).

• Similarly, if a consumer pays the creditor an appraisal fee in advance of the real estate closing and the creditor

subsequently uses those funds to pay another party for an appraisal, then the appraisal fee is not “paid to” the creditor for the purposes of § 1026.19(e). A fee is also not considered “paid to” a person, for purposes of § 1026.19(e), if the person retains the fee as reimbursement for an amount it has already paid to another party.

• If a creditor pays for an appraisal in advance of the real estate closing and the consumer pays the creditor an

appraisal fee at the real estate closing, then the fee is not “paid to” the creditor for the purposes of § 1026.19(e), even though the creditor retains the fee, because the payment is a reimbursement for an amount already paid. Examples of Zero Variation 1026.19(e)(3)(i)

• Must be cured after closing: “at consummation, the consumer pays the creditor $100 for recording fees.

Settlement of the transaction concludes five days after consummation, and the actual recording fees are $70. The creditor refunds the consumer $30 immediately after recording. The recording fee paid by the consumer is $70” Examples of 10% Aggregate Variation – Sum of all charges cannot increase by 10% 1026.19(e)(3)(ii)

• “the sum of all charges … increases by more than 10 percent, even if a particular charge does not increase by

more than 10 percent. For example, if, in the disclosures…, the creditor includes a $300 estimated fee for a settlement agent, the settlement agent fee is included in the category…, and the sum of all charges… (including the settlement agent fee) equals $1,000 then the creditor does not violate … if the actual settlement agent fee

exceeds 10 percent (i.e., exceeds $330), provided that the sum of all such charges does not exceed 10 percent (i.e., $1,100).

• Section 1026.19(e)(3)(ii) also provides flexibility in disclosing individual fees by focusing on aggregate amounts.

For example, assume that, … the sum of all estimated charges … equals $1,000. If the creditor does not include an estimated charge for a notary fee but a $10 notary fee is charged to the consumer, …then the creditor does not violate … if the sum of all amounts charged to the consumer …does not exceed $1,100, even though an individual notary fee was not included in the estimated disclosures provided …” Examples of Variations Permitted 1026.19(e)(3)(iii)

• For example, if the creditor requires homeowner's insurance but fails to include a homeowner's insurance

premium on the estimates provided …, then the creditor's failure to disclose does not comply …

• …if the creditor does not require flood insurance and the subject property is located in an area where floods

frequently occur, but not specifically located in a zone where flood insurance is required, failure to include flood insurance on the original estimates provided … does not constitute a lack of good faith …

• …if the creditor knows that the loan must close on the 15th of the month but estimates prepaid interest to be

paid from the 30th of that month, then the under-disclosure does not comply ….

• If, however, the creditor estimates consistent with the best information reasonably available that the loan will

close on the 30th of the month and bases the estimate of prepaid interest accordingly, but the loan actually closed on the 1st of the next month instead, the creditor complies…

• Zero Variation

Zero Variation Zero Variation Zero Variation

“What variation category will HOA transfer fees, condo questionnaire or review fees fall into?”

Under 1026.37(f)(2) these would be included in the “Services you cannot shop for” category. Examples of the services and amounts to be disclosed pursuant to § 1026.37(f)(2) might include an appraisal fee, appraisal management company fee, credit report fee, flood determination fee, government funding fee, homeowner's association certification fee, lender's attorney fee, tax status research fee, third-party subordination fee, title—closing protection letter fee, title— lender's title insurance policy, and an upfront mortgage insurance fee, provided that the fee is charged at consummation and is not a prepayment of future premiums over a specific future time period or a payment into an escrow account. Government funding fees include a United States Department of Veterans Affairs or United States Department of Agriculture guarantee fee, or any other fee paid to a government entity as part of a governmental loan program, that is paid at consummation.

“Regarding ‘zero’ variations for fees paid to an unaffiliated 3rd party, if the creditor did not permit the borrower to shop for the service provider. What about final inspections?”

Industry: Mortgage I’m assuming that by final inspection, you are referring to an appraisal cost, which would typically be required by the lender and would be included in the “Services you cannot shop for” category with zero tolerance.

“Can the appraisal fee or credit report fee go up with a change of circumstance?”

Industry: Mortgage It is possible that a fee can be increased, but the burden of proof to document a true change of circumstance will be on

• you. The rule defines a changed circumstance as follows:

§1026.19(e)(3)(iv) Changed circumstance affecting settlement charges. Changed circumstances cause the estimated charges to increase or, in the case of estimated charges identified in paragraph (e)(3)(ii) of this section, cause the aggregate amount of such charges to increase by more than 10

• percent. For purposes of this paragraph, “changed circumstance” means:

An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction; Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under paragraph (e)(1)(i) of this section and that was inaccurate or changed after the disclosures were provided; or New information specific to the consumer or transaction that the creditor did not rely on when providing the

• riginal disclosures required under paragraph (e)(1)(i) of this section.

And the supplement provides an example where this may be justified to increase the appraisal fee. Supplement I to §1026.19(e)(3)(iv)(A) CHARGES SUBJECT TO THE ZERO PERCENT TOLERANCE CATEGORY. Assume a creditor provides a $200 estimated appraisal fee …, which will be paid to an affiliated appraiser and therefore may not increase for purposes of determining good faith … except as provided in § 1026.19(e)(3)(iv). The estimate was based on information provided by the consumer at application, which included information indicating that the subject property was a single-family dwelling. Upon arrival at the subject property, the appraiser discovers that the property is actually a single-family dwelling located on a farm. A different schedule

• f appraisal fees applies to residences located on farms. A changed circumstance has occurred (i.e., information

provided by the consumer is found to be inaccurate after the disclosures required …were provided), which caused an increase in the cost of the appraisal. Therefore, if the creditor issues revised disclosures with the corrected appraisal fee, the actual appraisal fee of $400 paid at the real estate closing by the consumer will be compared to the revised appraisal fee of $400 to determine if the actual fee has increased above the estimated fee. However, if the creditor failed to provide revised disclosures, then the actual appraisal fee of $400 must be compared to the originally disclosed estimated appraisal fee of $200.

“I’ve heard in only one place that with a change in interest rate, a corresponding decrease in lender credit CANNOT be redisclosed. Any truth to that?”

Industry: Mortgage It is possible that lender credits may be able to be adjusted in conjunction with the rate lock, but again, the burden of proof for having provided the original Loan Estimate with a “good faith” estimation of fees and credits will be on your

• rganization. Additionally, you have to prove that these are interest rate dependent changes. Following is an example

from the staff commentary. Comment for 1026.19(e)(3)(iv)(D)-1.i

• i. Assume a creditor sets the interest rate by executing a rate lock agreement with the consumer. If such an

agreement exists when the original disclosures required … are provided, then the actual points and lender credits are compared to the estimated points disclosed … and lender credits included in the original disclosures provided … for the purpose of determining good faith ….

If the consumer enters into a rate lock agreement with the creditor after the disclosures required … were provided, then § 1026.19(e)(3)(iv)(D) requires the creditor to provide, no later than three business days after the date that the consumer and the creditor enter into a rate lock agreement, a revised version of the disclosures required … reflecting the revised interest rate, the points disclosed …, lender credits, and any other interest rate dependent charges and terms. Provided that the revised version of the disclosures required … reflect any revised points disclosed … and lender credits, the actual points and lender credits are compared to the revised points and lender credits for the purpose of determining good faith …

“Please clarify the statement “lender credits may not decrease”. Does this mean the percentage cannot change or the dollar amount cannot change?”

Industry: Mortgage In my opinion, I would say that this is a dollar amount under the spirit of the law, though others may differ in opinion. The rule, preamble, and commentary refer to everything as a “charge” to the consumer and they are comparing the estimated charge to the actual charge. You should run your scenarios by an attorney before you build policy around this to ensure you are making correct procedures.

“With a valid change of circumstance, can an additional inspection be charged after the CD has been sent out?”

Industry: Mortgage Theoretically, if there is a valid change of circumstance, it is possible to change or add certain fees, though in this case, I would question if you were estimating in “good faith” if you were all the way to the CD that is provided 3 days before closing and you are just now finding out about an inspection. I probably would suggest that this is something that should have been known to the lender and should have already been disclosed that should not be charged to the customer.

“What will happen if the credit report fees go up during the transaction due to rescore and correcting errors?”

Industry: Mortgage More than likely this would not be considered a change of circumstance because at the time of application, you had their social security number and had the ability to pull credit. At that point, you should have reasonably estimated the fees for obtaining the credit report in “good faith” and would therefore be unlikely to increase them later.

10% Variation 10% Variation 10% Variation 10% Variation

“Service provider list for the borrower to shop, can we only provide one to be compliant for 100% tolerance?”

Yes, BUT if the borrower choses your suggested vendor you would then be held to the 10% tolerance/variation bucket. 1026.19(e)(1)(vi)(C) Written List Of Providers. (C) Written list of providers. If the consumer is permitted to shop for a settlement service, the creditor shall provide the consumer with a written list identifying available providers of that settlement service and stating that the consumer may choose a different provider for that service. The creditor must identify at least one available provider for each settlement service for which the consumer is permitted to shop. The creditor shall provide this written list of settlement service providers separately from the disclosures required by paragraph (e)(1)(i) of this section but in accordance with the timing requirements in paragraph (e)(1)(iii) of this section.

“Will the 10% tolerance still be an aggregate so the total of the 10% tolerance will be for all

• f the fees in the 10%?”

Industry: Mortgage

• Yes. As you can read in a previous page it’s defined as “the sum of all charges … increases by more than 10 percent,

even if a particular charge does not increase by more than 10 percent.” Please also read the response to the next question.

“If I have a change of circumstance that doesn’t exceed the 10% but is specifically a “borrower requested change” can I send a new LE and reset the baseline? I’ve heard that you can!”

Industry: Mortgage Actually, no you probably cannot do that because in the Official Staff Commentary regarding Changed Circumstances, it says that you are required to provide these estimates in “good faith” and then provides an example where a particular fee in the 10% category went up, but the sum of all charges did not go up. You are allowed to redisclose, but as you can see below, it would not cause the baseline to reset. The actual fees would be compared to the originally estimate, NOT the redisclosed fees. This is further complicated by the fact that a service provider that the borrower was allowed to shop for, but then chose someone off of your Written Service Provider list would previously been in the charges that can vary section and now moves into the 10% variation category. That would cause your fees to increase in aggregate. I suppose there, you could possibly justify the change of circumstance due to the borrower requested change. OFFICIAL INTERPRETATION TO 19(e)(3)(iv)(A) CHARGES SUBJECT TO THE TEN PERCENT TOLERANCE CATEGORY. Assume a creditor provides a $400 estimate of title fees, which are included in the category of fees which may not increase by more than 10 percent for the purposes of determining good faith under § 1026.19(e)(3)(ii), except as provided in § 1026.19(e)(3)(iv). An unreleased lien is discovered and the title company must perform additional work to release the lien. However, the additional costs amount to only a five percent increase over the sum of all fees included in the category of fees which may not increase by more than 10 percent. A changed circumstance has occurred (i.e., new information), but the sum of all costs subject to the 10 percent tolerance category has not increased by more than 10 percent. Section 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures, but if the creditor issues revised disclosures in this scenario, when the disclosures required by § 1026.19(f)(1)(i) are delivered, the actual title fees of $500 may not be compared to the revised title fees of $500; they must be compared to the originally estimated title fees of $400 because the changed circumstance did not cause the sum of all costs subject to the 10 percent tolerance category to increase by more than 10 percent.

Change of Circumstance Change of Circumstance Change of Circumstance Change of Circumstance

“Who pays for 2 extra days if there is a delay?”

Industry: Mortgage

Great question, though I’m not sure what the two extra days of charges are related to in this question. If you are talking about a rate lock extension fee, it might be justifiable to pass that along to the borrower if it’s truly a borrower requested change in the closing date. If not, then the lender would likely have to “eat it”.

“How do we reset tolerance after we send the Initial CD if the closing gets delayed and a lock extension fee must be added?”

Industry: Mortgage I would suggest that it depends on whether this is a borrower requested change that would allow for a change of circumstance process to redisclose the CD.

“Are there really only 3 valid change of circumstances?”

Industry: Mortgage There are not 3 valid change of circumstances. There are 3 changes that would cause the timer to start over after you delivered a CD to the borrower 3 days in advance. If your APR varies outside of the tolerance, if you add a prepayment penalty, or if the product is changed, these would cause a new CD to be issued and the borrower must wait another 3 days before they can close.

Delivery of Disclosures Delivery of Disclosures Delivery of Disclosures Delivery of Disclosures

“Can the final LE be sent at CTC, and if a COC is required have to change LE to restart the 3 day count?”

Industry: Mortgage The final LE should be sent no later than 4 days before closing, but does not initiate the 3 day count, so I think you may have meant the CD. Regardless of the form being an LE or CD, a valid Change of Circumstance (COC) must be present to allow for reissuing of a disclosure. Regarding the 3 day count for the CD, only a change to the product, the APR tolerance exceeded or the addition of a prepayment penalty would restart the clock.

“When sending the final LE 4 days in advance, where in the process start? CTC, if we have Prior to Funding Conditions, can we still send out the Final LE?”

Industry: Mortgage Whatever LE is the last one sent would be considered your “final LE”. There is no field on the form that would differentiate initial from final. Clear to Close (CTC) is probably a good time to finalize your numbers and get those documents out. As far as went to start the process, you should be communicating well in advance of closing with your loan partners (title, real estate, vendors, etc.) to ensure that you have all of the costs, contact information and license numbers needed to prepare the CD. The idea of a rush closing is one where a CD is prepared on the 3rd day before closing. You still need to leave time for preparation of the form by your closers followed by a review by all the parties to make sure it’s accurate before delivering to the borrower. Give yourself plenty of space. I have heard one opinion from a software provider that you cannot deliver the CD more than 7 days in advance because that would essentially close the window that allows you to create subsequent redisclosures using a CD. I have not verified this information.

“If waiving escrows – must escrow funds be disclosed

• n either LE or CD?”

Industry: Mortgage The commentary for the rule provides the answer for this question, however on the Closing Disclosure, there is a section on page 4 that covers the escrow account scenario. This includes a calculation of “non-escrowed property costs over year 1”. This represents the amount of escrows the borrower would have paid in the 12 months from closing IF they had been escrowing. Comment for 1026.37(c)(2)(iii)-1 Escrow Disclosure.

• 1. Escrow disclosure. The disclosure described in §

1026.37(c)(2)(iii) is required only if the creditor will establish an escrow account for the payment of some or all of the charges described in § 1026.37(c)(4)(ii). If no escrow account for the payment of some or all such charges will be established, the creditor discloses the escrow amount as “0.” If an escrow account is established for the payment of amounts described in § 1026.37(c)(4)(ii), but no escrow payment is required with a particular periodic payment (such as with a final balloon payment) or range of payments, the escrow payment should be disclosed as “—.”