The Consumer Financial Protection Bureau (CFPB) has issued clarifications to the TILA RESPA Integrated Disclosure (TRID) rules last year. The clarifications are referred to as the 2017 Rule or the Final Rule and were published on August 11, 2017. We are alerting you again, because the mandatory compliance date is October 1, 2018.
The CFPB produced an executive summary that provides an overview of the rule changes. In addition, the TILA‐RESPA Integrated Disclosure rule’s small entity compliance guide has been updated to reflect the changes.
The areas addressed by the TRID changes include the following:
- Post‐consummation notice – escrow closing notice and the partial payment disclosure
- Loans secured by cooperatives
- Loans to certain trusts
- Partial exemption for certain housing assistance loans
- Construction loans
- Simultaneous subordinate lien loans
- Tolerances for total of payments disclosure
- Good faith and revised disclosures
- Decimal places and rounding
- Calculating cash to close
- Other disclosures in loan estimates and written list of providers
- Other disclosures in closing disclosures
- Sharing disclosures with various parties during the origination process
- Technical corrections and clarifications
We suggest reviewing the changes spelled out in the executive summary and small entity compliance guide so you can test the LOS to verify that the changes are implemented accurately. To help, TCA is clarifying some key changes in the Final Rule.
Post‐Consummation Notices
Banks are required to provide an escrow closing notice before an escrow account is cancelled (1024.20(e)). Also, for purchased loans, banks need to provide notices to affected borrowers of the partial payment policy applicable to the loan (1026.39(d)(5)). These notices are not required during the origination process. They are post‐consummation notices applicable to applications received on or after October 15, 2015 for TRID loans.
The Final Rule states that after October 1, 2018, the requirement to provide the escrow closing notice and the partial payment policy disclosure apply, regardless of when the application was received. Therefore, this requirement will now apply to all loans, even purchased loans.
Loans Secured by Cooperatives
Currently, Regulation Z requires a bank to provide TRID disclosures for a loan secured by a cooperative unit if the cooperative unit is classified as real property under applicable state law. The TRID disclosures are not required if the cooperative is classified as personal property under state law.
Under the Final Rule (October 1st), banks are required to provide TRID disclosures for a closed‐end consumer loan secured by a cooperative unit, regardless of whether state law classifies cooperative units as real property.
Loans to Certain Trusts
The Final Rules clarifies that the definition of “consumer” under Regulation Z is extended to trusts for tax or estate planning purposes; because of this ruling, such loans are now extended to a natural person.
The regulation states in the commentary to 1026.2 (a) (22) that for Regulation Z purposes, a trust and its trustee are considered to be the same person for purposes of this part, so the disclosures may be given to the trustee on behalf of the trust, except when the loan is rescindable. For a rescindable loan, the disclosures must be given to each consumer who has a right to rescind as stated in the regulation under 1026.17(d).
Construction Loans
There were several clarifications for completing TRID disclosures for construction loans. The October rule:
- Clarifies that if a bank discloses a construction loan as two separate transactions, the creditor must allocate those construction finance charges, points and fees to construction financing, and other amounts for finance charges, points and fees to the permanent phase of the transaction. However, fees and charges that are not finance charges or points and fees may be allocated between the construction phase and permanent phase in any manner that the creditor chooses;
- Provides clarification on how to complete the construction product disclosure as well as disclosure of interestonly features and balloon payments for construction‐only loans and construction‐permanent loans;
- Provides clarification that, if the loan contract indicates the creditor may modify the interest rate when the construction phase converts to the permanent phase and such modifications may increase the payment, the creditor should provide subsequent ARM adjustment notices under 1026.20(c) if the loan is secured by the consumer’s principal residence, but does need to provide the initial ARM adjustment notice under 1026.20(d), for the permanent phase of a construction‐permanent loan; and
- Provides clarification that construction costs (i.e., the costs of the improvements) are factored into the Funds for Borrower calculation on the Loan Estimate or, if applicable, disclosed in the optional alternative Calculating Cash to Close table. On the Closing Disclosure, construction costs are disclosed in the Summaries of Transactions table and factored into the Funds for Borrower calculation or, if applicable, disclosed in the alternative Calculating Cash to Close table.
Tolerance for Total of Payments Disclosure
The 2017 TILA‐RESPA Rule includes tolerances for the total of payments disclosure, including tolerances that apply for purposes of rescission. The tolerances for the total of payments disclosure mirror the tolerances applicable to the finance charge.
For example, the 2017 Rule generally provides that the total of payments disclosure is considered accurate if it is overstated or if it is understated by no more than $100.
Good Faith and Revised Disclosures
Additional clarifications were made when a loan estimate is provided in good faith and what revisions can be made to the disclosures. A few highlights are:
- If a creditor fails to disclose a specific settlement service on the written list of providers or fails to provide the list, the 10 percent aggregate standard for determining good faith continues to apply to a required third‐party, non‐affiliated settlement service charge that otherwise complies with 12 CFR 1026.19(e)(3)(ii). However, good faith for such charges is determined under the zero‐tolerance standard if the creditor fails to permit the consumer to shop. Whether the creditor permits the consumer to shop is determined based on all the relevant facts and circumstances.
- The Final Rule also notes that a creditor is not prohibited from issuing a revised written list of service providers for informational purposes.
- A creditor can provide a revised Loan Estimate for informational purposes or, if applicable, to reset tolerances. In either situation, the Loan Estimate must be based on the best information reasonably available to the creditor.
- Voluntarily extending the expiration date of a Loan Estimate, either orally or in writing, allows the consumer a longer period to indicate an intent to proceed. If the consumer indicates an intent to proceed within the extended period, the creditor must use the charges disclosed in the Loan Estimate when determining good faith and tolerances, unless Regulation Z otherwise allows the creditor to reset tolerances.
- If a revised Loan Estimate is issued after the consumer indicates an intent to proceed, the expiration date and time for the disclosed costs are left blank on the revised Loan Estimate.
These are just the highlights of some of the changes. All the changes are outlined in the executive summary and detailed in the Final Rule.
More Changes to Come.
In S2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, additional changes affected mortgage disclosures. In particular, the Act removes the three‐day waiting period now required under the TILA‐RESPA Mortgage disclosure rules when a creditor extends a second offer of credit with a lower APR. However, as many pundits have discussed, it is not clear how these changes will be memorialized into action.
Regulation Z was hard before TRID! Purchase, refinance, modification and assumptions, what’s behind these names? Join TCA’s Michelle Strickland and Monique Reyna on June 26th for an in‐depth look at what disclosures are needed.
