The one thing that seems to remain consistent in the world of federal compliance regulation is the fact that it consistently seems to be changing. If you even blink, then you probably feel like you've missed something. The 2017 and 2018 years have been no exception with the implementation of HMDA 2018 in conjunction with the amendments to the TILA/RESPA Mortgage Servicing Rule. Needless to say, the Bureau has kept our industry's compliance officers on their toes for a few years now.
While your focus has been dialed into HMDA and mortgage servicing, the recent amendments and clarifications to the TRID Rule issued in the last quarter of 2017 may have slipped right by your regulatory radar. As many of you can attest, the TRID Rule issued three years ago left the industry with certain challenges to deal with regarding the new disclosures and many unanswered questions. Luckily, the Bureau heard our plea for additional guidance, and the recent amendments to the Final Rule is their response. I will cover a few of those items recently clarified by the amendments that we often see through our Compliance Advisory Services here at Temenos.
Expiration Date: The expiration date at the top of page one of the Loan Estimate (LE) is typically a date that is 10 business days beyond the date in which the initial LE was issued. The intent of the Rule is for you to document the consumer's intent to proceed with the transaction during those initial 10 business days. If the consumer does not provide you with his or her intent during that time-frame, then the Loan Estimate is considered to have expired. Expiration of the initial LE is considered to be a valid changed circumstance permitting a revised Loan Estimate to be provided. In this case, you may make changes to the revised Loan Estimate at your discretion. The revised LE provided as a result of expiration must reflect a new date 10 business days beyond the date in which the revised Loan Estimate was provided. The consumer now has a new 10 business day period to provide his or her intent to proceed with the transaction.
What if a revised Loan Estimate is provided as a result of a changed circumstance other than expiration? The recent amendments to the TRID Rule clarified that if a revised LE is provided for any reason other than expiration, then you will simply leave the expiration date blank on the revised Loan Estimate. The Final Rule also clarified that a creditor may voluntarily extend the expiration date of a Loan Estimate beyond 10 business days, either orally or in writing. If the creditor does so, it must allow the consumer to indicate an intent to proceed until the extended expiration date as reflected on the disclosure.
Seller Paid Costs: Let's say you receive the consumer's application for a Purchase loan along with the sales contract prior to issuing your LE within three business days of application. According to the sales contract, the seller has agreed to provide a specific credit to cover the cost of the consumer's appraisal. The amendments to the Final Rule adopted the proposal to clarify that anytime you are aware of such an agreement between the consumer and the seller, then you may either disclose the cost of the service on the consumer's disclosure along with an offsetting general seller credit in the Calculating Cash to Close table or you may exclude the seller paid amount from the Loan Estimate altogether.
For example, let's say the appraisal costs $400. If the seller has agreed to pay for the appraisal on the consumer's behalf via a seller credit, then you may omit the appraisal from the Loan Estimate entirely, but you will still disclose it on the borrower's CD in the Seller-paid column as paid "at" or "before" closing, as applicable. On the other hand, if the seller agreed to pay half of the service, then you may disclose $200 on the consumer's LE for the cost of the appraisal. In this case, the CD would disclose $200 in the Borrower-paid column and $200 in the Seller-paid column.
Disclosing Construction Costs: The Bureau's amendments to the Rule clarifies how to disclose loan costs described as "inspection and handling" fees. These are the costs associated with a Construction loan for the inspection and handling of the staged disbursement of construction loan proceeds, including draw fees. How you disclose such fees ultimately depends on when the fee was collected. If the inspection and handling fees are collected at or before consummation of the transaction, then the total of such fees are disclosed in the Loan Costs table in Section B of the disclosures. If the inspection and handling fees are collected after consummation of the transaction, then the total of such fees must be disclosed in a separate addendum to the disclosure. In this case, the fees will not be included in the Cash to Close calculation.
Disclosing Borrower(s) on the CD: Due to the original language in the regulation, the Bureau originally intended for all consumers who are either borrowers or have the right to rescind the loan to be disclosed as a "Borrower" on page one of the Closing Disclosure. Due to the amended language in the Final Rule, the term "Borrower" is limited to only those consumers to whom the credit is being offered or extended. So, a consumer with the right to rescind who is not an actual obligor on the loan will no longer be listed as a borrower on page one of the disclosure. However, the rule did remain flexible enough to allow you to obtain the signature of any non-borrowing consumer(s) with the right to rescind on the final page of the Closing Disclosure if it is your policy to do so.
The Proposed Rule: From a creditor's perspective, one of the biggest concerns since the implementation of TRID was the inability to provide a revised Closing Disclosure to reset tolerances after the initial CD had been provided. For example, if a changed circumstance occurs after the initial CD is placed in the mail that causes fees to increase, then you may not issue a revised CD and reset the tolerance for those fees. In other words, you're stuck providing a credit due to something that was out of your control.
The proposed rule, if finalized, will permit creditors to issue a revised Closing Disclosure to reset fee tolerances due to a valid changed circumstance regardless of when the Closing Disclosure is provided relative to consummation. So, if you issue the initial CD, and the consumer makes a subsequent request to increase the loan amount during the three business days leading up to closing, thus, causing an origination charge to increase, the proposed rule would allow you to provide a revised Closing Disclosure and increase the fee without issuing a lender credit. In this case, you would be permitted to compare the initial CD to revised CD for good faith.
There is no time-frame as to when this rule may become finalized, but there has been no indication that the Bureau is planning to reverse their course on this proposal. Stay tuned!