As I have discussed in previous articles, the October 1st mandatory compliance date for the 2017 TRID Rule is quickly approaching. I hope you have taken some time to review these requirements during this "Optional Compliance Period." If not, you still have approximately three months to ensure your policies and procedures are up to standard with the new requirements before they become the new law of the land.
With this new wave of requirements comes a slew of technical revisions and clarifications that I like to describe as a "reboot" of the existing TRID Rule. Since the implementation of the original rule in October 2015, the industry has faced certain challenges with the disclosures for certain types of transactions such as construction loans and simultaneous subordinate lien loan closings in connection with a first lien purchase loan.
These simultaneous subordinate lien loans are commonly referred to as "piggyback" loans, as they are typically originated in order to assist with the down payment of the 1st lien purchase loan. Per the clarifications by the new 2017 Rule, in a purchase transaction that involves a subordinate lien loan, if the Closing Disclosure for the first lien loan has all of the required disclosures related to the seller, then the settlement agent, or the financial institution acting as settlement agent, may provide the seller with only the first lien CD instead of both the 1st and subordinate lien CDs. As such, the Seller's Summaries of Transactions table does not have to be included, or can be left blank, for the subordinate lien loan disclosure.
You are also permitted to use the alternative disclosures for the subordinate lien transaction since the seller's information is not necessary to be included on the subordinate lien disclosures. Keep in mind, if you use the alternative disclosure on the Loan Estimate, then you must also use the alternative disclosure tables for the Closing Disclosure. Prior to this clarification in the Final Rule, the alternative disclosures were optional only when a seller wasn't involved. In this case, a seller is involved, but not specifically in connection with the subordinate lien transaction. This means you may also omit the seller's name and address for the subordinate lien disclosures as it will already be reflected on the 1st lien purchase disclosures.
However, there are some additional things to note as clarified by the 2017 Rule -
- The disbursement date on the Closing Disclosure for a simultaneous subordinate lien transaction is the date that some or all of the loan amount is expected to be paid to the consumer or a third party other than the settlement agent
- The simultaneous subordinate lien will also be disclosed as a purchase purpose even though you are not required to reflect seller information on the subordinate lien disclosures as previously mentioned
- Funds from the subordinate lien transaction are included in the Adjustments and Other Credits Section of the Loan estimate for the 1st lien disclosure, and are then disclosed under the Borrower's Summaries of Transactions Table on page three of the 1st lien Closing Disclosure
Additionally, if you're using the standard disclosure, the sales price is not disclosed under the Borrower's Summaries of Transactions table on the CD for simultaneous subordinate lien loan. Therefore, the sales price is also not included in the Calculating Cash to Close calculations on the Loan Estimate or Closing Disclosure for the simultaneous subordinate lien loan transaction.
As a result of the many technical clarifications and amended provisions imposed by the 2017 TRID Rule, it will be important for you to perform a review of your loan operating system to ensure your software is up-to-date with these revisions. As the creditor, you are ultimately responsible for the accuracy and timeliness of the disclosures. It will be you, and not your third party software vendor, that will be held responsible for compliance with the new rules. So, take these last couple of months of the "Optional Compliance Period" to test your system and ensure it is compliant.