The Consumer Financial Protection Bureau (CFPB) announced that it had finalized its amendments to the TILA-RESPA Integrated Disclosure (TRID) rule on July 7, 2017.
The bureau, among other things, updated the rule to include tolerance provisions for the Total of Payments that parallel the tolerances for the finance charge and disclosures affected by the finance charge; extended TRID’s coverage to include all cooperative units; and clarified how a creditor may provide separate disclosure forms to the consumer and the seller.
The Black Hole
One issue that the CFPB did not address, however, was the so-called Black Hole – time period in which a creditor cannot use a valid changed circumstance or other reason for revising tolerances because TRID does not permit its disclosure on the Closing Disclosure (CD).
Under TRID, an estimated closing cost is considered to have been disclosed in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed. Like many laws, there are exceptions to this rule. For certain types of third-party services and recording fees, estimates are considered to be disclosed in good faith if the total paid by or imposed on the consumer for those types of charges does not exceed the disclosed amount by more than 10 percent.
Also, estimates of certain other types of charges are in good faith if the estimate is consistent with the best information reasonably available to the creditor at the time it was disclosed. Lastly, TRID permits creditors, in certain limited circumstances, to use revised estimates, instead of the estimate originally disclosed to the consumer, to compare to the charges actually paid by or imposed on the consumer for purposes of determining whether an estimated closing cost was disclosed in good faith.
With the Black Hole, when a creditor could not reset charges subject to the tolerance requirements as needed, because the CD already has been issued, the creditor often is required to absorb the fee increases.
The CFPB’s proposed amendments, which were issued July 29, 2016, may have cured this issue by eliminating certain timing restrictions. Specifically, the CFPB’s proposal would have allowed the use of a corrected CD for tolerance purposes if there were fewer than four business days between the time the revised Loan Estimate (LE) is required to be provided and consummation; or if the CD has already been provided to the consumer.
Instead of finalizing anything last month, the CFPB issued a new proposal to address the Black Hole.
“The bureau understands from outreach through its implementation process, and through comments received in response to the 2016 proposal, that there is significant confusion in the market about the timing requirements related to issuing revised disclosures for purposes of resetting tolerances and, in particular, the use of Closing Disclosures for this purpose,” the proposed rule states.
Within the new proposal, the CFPB poses the question of whether it should remove the current four-business-day limit for resetting tolerances with both initial and corrected CDs. The proposal would allow creditors to use “either initial or corrected Closing Disclosures to reflect changes in costs for purposes of determining if an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation.”
“Based upon the CFPB’s specific requests for comments, it is apparent that the CFPB is concerned that the current proposal will open the door for lenders to provide a closing disclosure well before final terms and costs are available, and the potential for consumer harm as a result,” Jennifer Dozier, a partner at Franzén and Salzano, told RESPA News.
Dozier added that the new proposal would make it easier for lenders to reset fee tolerances once a CD has been provided and to manage changes that occur late in the process. This would be a positive change for the industry.
“The current proposal eliminates the four-business-day timing restriction altogether, and simply provides that fees may be revised by providing either a Loan Estimate or Closing Disclosure (including any corrected Closing Disclosure issued to reflect certain pre-consummation changes) within three business days of a changed circumstance or borrower-requested change,” Dozier explained.
Sharing the CD with third parties
When announcing the finalized amendments, the CFPB stated that it “understands that it is usual, accepted and appropriate for creditors and settlement agents to provide a Closing Disclosure to consumers, sellers and their real estate brokers or other agents.” The CFPB finalized comment 38(t)(5)(v)-1, clarifying the provision of separate CDs to the consumer and seller.
“As detailed in the section-by-section analysis of § 1026.38(t)(5)(v), the bureau proposed and is now adopting new comment 38(t)(5)(vi)-1 to cross-reference comment 38(t)(5)(v)-1 for additional clarity on permissible form modifications in relation to the modified version of the Closing Disclosure for sellers or third parties,” the final amendment states.
The comment states that the creditor may make the modification permitted under § 1026.38(t)(5)(v) through the following:
- Leaving the applicable disclosure blank concerning the seller or consumer on the form provided to the other party;
- Omitting the table or label, as applicable, for the disclosure concerning the seller or consumer on the form provided to the other party; or
- Providing to the seller, or assist the settlement agent in providing to the seller, a modified version of the form under § 1026.38(t)(5)(vi), as illustrated by form H-25(I) of appendix H.
Under TRID, mortgage lenders are required to furnish the CD; however, to ensure compliance, many were reluctant to share the CD with other parties involved in the transaction.
This clarification in the finalized amendment was applauded by the National Association of Realtors (NAR).
“Consumers depend on their real estate agent to help guide them from pre-approval to closing, but that job is significantly harder when an agent is denied access to the Closing Disclosure,” NAR President William Brown said in a statement. “The CFPB has again made clear that lenders may share disclosures with third parties, including real estate agents. This was common practice for years in advance of [TRID].”
Total of payments
Since TRID was issued, there have been two issues with Total of Payments. One issue is whether it includes only those loan costs paid by the borrower, or whether it also includes loan costs paid by the seller and other parties. The other issue is whether the tolerance for the finance charge and disclosures affected by the finance charge under § 1026.38(o)(2) applies to TRID’s modified Total of Payments calculation, because the finance charge is not a component of the modified calculation.
The finalized amendments clarify that “Total of Payments” includes “Loan Costs” paid by the borrower only, and provides for an independent tolerance for the Total of Payments.
Under the finalized amendments, the Total of Payments is accurate if it is understated by no more than $100 or is greater than the amount required to be disclosed. The CFPB clarified that the tolerances for the finance charge and the Total of Payments are separate and operate independently – i.e. loan costs that are not finance charges can be understated such that the Total of Payments is rendered inaccurate, but the finance charge remains accurate.
Also, the CFPB added additional provisions that expressly provide that the numerical tolerances for the purposes of rescission that apply to the finance charge and disclosures affected by the finance charge also apply to the Total of Payments (i.e. the $35, 0.5 percent and 1 percent understatement tolerances, and the tolerance for overstatements, as applicable).
The new tolerance is based on the accuracy of the Total of Payments taken as a whole, rather than its components.
The amendments also clarify that the Total of Payments calculation excludes “charges that would otherwise be included as components of the Total of Payments if such charges are designated on the Closing Disclosure as paid by seller or paid by others.”
Expansion to include co-ops
The final amendments expand the scope of TRID to cover loans secured by cooperative units (also known as co-ops). However, there is still the possibility for confusion.
For example, the CFPB did not address comments requesting that it define “real property” in § 1026.2 to include cooperative units, to ensure consistent coverage throughout Regulation Z. Because of this, provisions of Regulation Z that will continue to apply to loans secured by “real property” will require a state-law analysis to determine coverage, according to the final amendments’ preamble.