October 3rd, 2015 the CFPB is implementing the new TRID disclosure which technically eliminates the Good Faith Estimate and the HUD1. This is good news for the mortgage broker community because the lender paid compensation will not be disclosed on the HUD1 because there won’t be a HUD1, below are some of the things to keep in mind, go ahead and educate yourselves.
TILA RESPA Integrated Disclosure rule or TRID is far more than new set of mortgage disclosures
Ushers in new responsibilities for lenders, real estate agents, title and other service providers, buyers, and sellers
Creates new liability and enforcement risks for lenders and investors in mortgages.
Challenges include major systems and business process changes, training and monitoring to operationalize rule and serve consumers.
Post-October 3, real estate transaction timelines will change and greater care will be necessary to manage consumer expectations and ensure deals close.
TRID: What it Does
- Combines TILA and RESPA disclosures
- Establishes new 3 page Loan Estimate (LE) as early disclosure at application – replaces GFE and early TIL
- Establishes new 5-page Closing Disclosure (CD) as disclosure at consummation – replaces final TIL and HUD-1
- Provides new information relevant to consumers including cash to close
- Marks end of the GFE and HUD-1 for most loans
- Establishes pre-application requirements but still allows pre-approvals
- Establishes new definition of “application“ for consumer to obtain LE
- Prohibits upfront fees for loan estimates except for fees for credit reports
TRID: What it Means for You
TRID Rule brings significant changes to the real estate transaction:
- Longer time frame from application to closing
- 3 days to provide loan estimate
- 7 days between estimate and closing
- 3-day waiting period between Closing Disclosure and consummation
- 3 more days (Mail box rule) for disclosures not provided in person
- Additional 3 day waiting period for certain APR and product changes
- Tighter tolerances for lender, affiliate and required provider fees on Loan Estimates except where changed circumstances and revisions to Loan Estimate or Closing Disclosure
- Because lenders are ultimately liable for the LE and borrower’s Closing Disclosure – no matter who provides them – you can expect lenders will demand accurate and timely information from other providers.
- Inaccurate and late data will jeopardize closings.
All of these changes require business process and systems changes to ensure satisfactory consumer experience.
Scope of the New Disclosures
Applies to most closed-end consumer credit transactions secured by real property
- Open-end credit (i.e., HELOCs)
- Reverse mortgages
- Mortgages secured by a dwelling that is not real property (e.g., mobile home, house boat).
- Lenders who made 5 or fewer mortgage loans in the preceding calendar year (unless made more than one HOEPA loan in any 12-month period). Loans not covered by the rule are still covered by the current disclosure requirements.
- Final rule updates GFE and HUD-1 instructions to incorporate the guidance in the HUD FAQs on reverse mortgages
Final Rule is effective October 3, 2015
Applies to applications received by a creditor or mortgage broker on or after October 3, 2015
Except for pre-disclosure restrictions and state preemption/exemption provisions which become effective on October 3, 2015, without respect to application date, Early use of the integrated disclosures is not permitted Application and closing disclosures go together
If application received on October 2, 2015, provide:
- Early TIL and GFE
- Final TIL and HUD-1
If application received on or after October 3, 2015, for most loans, provide:
- Loan estimate
- Closing Disclosure
When Does Loan Estimate Need to Be Provided?
Loan Estimate (LE) must be delivered or mailed to consumer no later than three business days after application
Application for LE requires from the consumer:
3. Social Security Number
4. Property address
5. Estimate of the value of the property
6. Mortgage loan amount sought
If LE is mailed, rule assumes it is not received until 3 days after mailing date
To lessen processing time some lenders will deliver in person or require receipt
A Note on Pre-Approvals
Despite earlier questions, pre-approvals and pre-qualifications to help borrowers shop for real estate remain permitted under the TRID rule.
Under the rule, a lender cannot require verifying documentation such as wage or tax information from the consumer in order to issue the LE.
However, a consumer can voluntarily provide such information to obtain a pre-approval or pre-qualification.
The six pieces of information that trigger the issuance of an LE, including specific property address, are generally not required at the pre-qualification or pre-approval stage. If they are provided, a Loan Estimate must be given to the borrower.
What’s On the Loan Estimate?
The LE is a dynamic form (changes with loan type). It generally contains:
First page – “Shopping Form” includes: (1) information identifying borrower and loan; (2) loan terms –amount, interest rate and Monthly P & I and prepayment penalties and balloon payments, if any; (3) projected monthly P + I + escrow payments showing any increases over loan; and (4) estimated total closing costs and cash to close.
Second page includes: (1) origination charges(lender/broker); (2) services borrower cannot shop for, e.g. appraisal; (3) services borrower can shop for, e.g., title; (4) other costs, such as, taxes, prepaid, escrow amounts; (5) total closing costs and lender credits; (6) cash to close and where applicable, adjustable payment (AP) and adjustable interest rate (AIR) table.
Third page – series of additional disclosures regarding: total payments over five years; APR; a new disclosure, Total Interest Payment (TIP); appraisal availability to the borrower, whether the loan is assumable, requirement for homeowner’s insurance; late payment policies; refinancing not guaranteed, and the possibility of servicing transfer.
Key Issue – New Tolerances Limiting Variation from Loan Estimate to Closing Disclosure
Final rule tightens tolerances restricting increases from LE to CD. Rule:
Applies “zero tolerance” or prohibits any increases in:
Lender or broker charges
Fees charged by affiliate of the creditor (NEW)
Fees charged by service providers selected by the creditor for services for which consumer is not permitted to shop (i.e., where consumer must select from list of providers furnished by lender) (NEW)
Applies ten percent limit overall to other third-party charges, such as non-affiliated title. There are limited exceptions to tolerances, including:
consumer requested a change,
consumer requests service provider not identified by the lender,
when information provided at application was or becomes inaccurate,
the Loan Estimate expires or other valid changes in circumstance occur.
Not subject to tolerance – impounds, escrows, hazard insurance but good faith or best information standard applies
Revised Loan Estimate – Changed Circumstances
To revise Loan Estimate and impose increased charges creditor must provide a revised version of Loan Estimate within three business days of receiving information sufficient to establish that permitted basis for change applies. Permitted changed
A. Changed Circumstances Affecting Settlement Charges
1. An “extraordinary” event outside the control of an interested party or an “unexpected” event.
2. Information Creditor relied on is inaccurate or changes.
3. New information Creditor discovers after disclosure not relied on.
B. Changed Circumstances Affecting Eligibility
Changes to the transaction that cause fees to increase related to eligibility – Income decreases, Employment changes, Appraisals
C. Consumer Requested Changes
D. Interest Rate Dependent Changes – Float to Lock and Extensions
E. Expiration – Consumer’s Intent to Proceed not given within 10 Business Days after disclosures DELIVERED OR PLACED IN MAIL.
F. Delayed Settlement on a Construction Loan – When Settlement will occur more than 60 days after initial disclosure, stated on Initial LE, and re-disclosure occurs at least 60 days before settlement.
Who Provides and When Is CD Provided?
The rule makes lenders responsible for delivering CD to the consumer, but the lender may use settlement agent to provide form, with lender retaining liability.
CD must be received by consumer no later than three business days before loan consummation (closing)
Business days for this purpose (specific definition):
Excludes Sunday and legal public holidays
List of Holidays specified in 5 U.S.C. 6103(a): New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day
How to Count the Three Days
For a closing scheduled for Thursday:
- Hand deliver on Monday with confirming receipt
- Courier/Fed Ex with signed receipt showing delivery to consumer on Monday
- Place in US Mail Thursday of the previous week Electronic documents
- Same timing/evidence of receipt rules above
If disclosures are to be provided electronically, the consumer must meet E-sign requirements:
- Consent by consumer before docs sent
- Notice of right to get disclosures in paper
- Notice of software compatibility information
- Notice of procedures to withdraw consent
Extra 3 Day Waiting Period After Providing Closing Disclosure?
The rule requires the creditor to provide the Closing Disclosure to the borrower at least three business days before the consumer closes on loan.
If the borrower or creditor makes certain changes between time Closing Disclosure form is provided and closing, a new CD must be generated and an additional three-business-days after receipt of the new form before closing. The following changes require re-disclosure:
(1) the creditor makes changes to the APR above 1/8 of a percent for most loans (and 1/4 of a percent for loans with irregular payments or periods);
(2) changes loan product; or
(3) addition of prepayment penalty to the loan
Less significant changes can be disclosed without an additional 3 day period. Note that the final rule is an improvement over the proposal that would have required re-disclosure for nearly all changes.
What’s On the Closing Disclosure (CD)?
Five-page form designed to be comparable to LE – First page essentially same as first page of Loan Estimate and contains: (1) information identifying borrower and loan; (2) loan terms –amount, interest rate and Monthly P & I and prepayment penalties and balloon payments, if any; (3) projected monthly P & I & escrow payments showing any increases over loan; and (4) estimated total closing costs and cash to close.
Second page details closing costs and cash to close includes: (1) origination charges(lender/broker); (2) services borrower cannot shop for, e.g. appraisal; (3) services borrower can shop for, e.g., title; (4) other costs, such as, taxes, prepaid, escrow
amounts; (5) total closing costs and lender credits; (6) cash to close and where applicable, adjustable payment (AP) and adjustable interest rate (AIR) table.
Fourth and fifth pages include several disclosures including: (1) whether loan is assumable; (2) whether loan has demand feature; (3) requirement for homeowner’s insurance; (4) late payment policies; (5) refinancing cannot be guaranteed; (6) potential
for servicing transfer; (7) appraisal availability to borrower; (8) APR; (9) finance charge; amount financed; and (10) new disclosure of Total Interest Percentage (TIP) that includes total amount of interest paid over loan term as a percentage of loan amount.
Who Gives the Closing Disclosure?
Under Rule, creditor is responsible for
1. Producing the Closing Disclosure (CD) and ensure the accuracy of the information.
2. Ensuring the CD is received by the consumer at least 3 business days before Consummation.
While a creditor can partner with the title/closing agent to perform these tasks, it is at lender’s discretion and the lender is ultimately responsible Some lenders are providing the CD with Title Agent’s input, others are instructing the Title Agent and allowing the agent to provide.
Rule Provides Seller Disclosure and Rules for Issuance
Rule provides Seller Only CD which can be used to provide to seller or third party to protect borrower privacy.
Seller Only forms delete from Closing Disclosure:
Creditor’s name and loan information;
Loan terms table;
Projected payments table;
Costs at closing table;
Borrower’s table in Summaries of Transactions table;
Other disclosures; and
Under the rule, there is a significant liability for lenders and their assignees including new liabilities for the disclosures which did not previously exist.
Violations of the rule carry penalties of up to $1 million per day.
Consequently, it can be expected that lenders will take a conservative view of what is allowed under the rules.
Lenders will not permit consumers to waive the timing requirements.
Last-minute changes to the transaction should be avoided if at all possible because of liability concerns.
To avoid delays that could be triggered by concerns regarding liability, real estate agents should remain in close contact with lenders and closing agents throughout the transaction process.
Learn the features of the new forms including the “cash to close” chart on disclosures and be prepared to answer client questions;
Learn the new time limits and do not over promise a quick closing. Loans and purchases can be expected to take 45 days to close, at least initially;
Back-to-back closings will need to be carefully coordinated;
Suggest clients accept disclosures in person or electronically, if possible;
Urge clients to provide any documents needed for loan processing ASAP;
Avoid last minute changes or negotiations;
Advise clients to raise questions to the lender, request any changes to the loan and arrange walkthroughs earlier in the process, and before the Closing Disclosure is issued where possible;
Write your purchase and sale contracts with these new timelines in mind.
Communicate with your lender and title partners as needed during the transaction to help the process run as smoothly as possible.