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The Elimination of the Black Hole

By Matt Goble 9 May 2018

Since the implementation of the TRID Rule in October 2015, the mortgage industry has been plagued by a concept that has become known as the "Black Hole". As a creditor, you may even want to call it the black plague of mortgage loans. This concept earned its gloomy title due to the original language in the Rule which prohibited a creditor from utilizing a Closing Disclosure to reset tolerance thresholds unless there were less than four business days between the time a revised disclosure was required to be provided and consummation of the loan. Otherwise, there was no ability to reset tolerances after the initial Closing Disclosure was provided even if a valid changed circumstance occurred during the three business days leading up to consummation of the loan.

As a result of the recent 2018 Final Rule, if a changed circumstance occurs even after the initial CD has been provided, then a creditor may pass along increased costs to the consumer with either an initial or revised Closing Disclosure, thus, resetting the tolerance threshold as long as the creditor provides the disclosure at or before consummation and within three business days of receiving information sufficient to establish a changed circumstance. Essentially, due to the Final Ruling, the Black Hole has been eliminated with an effective date of June 1, 2018. Just make sure and include documentation in the loan file referencing the changed circumstance event so you can demonstrate that any revised disclosures were provided timely. As I always say, documentation is the key to compliance!

Of course, you don't have to take my word for it. Printed below is a Summary of the Final Rule provided by the Bureau discussing the amendment to the regulation.

The TILA-RESPA Rule requires creditors to provide consumers with good faith estimates of the loan terms and closing costs required to be disclosed on a Loan Estimate. Under the rule, an estimated closing cost is disclosed in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed, subject to certain exceptions. In some circumstances, creditors may 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. If the conditions for using such revised estimates are met, the creditor generally may provide revised estimates on a revised Loan Estimate or, in certain circumstances, on a Closing Disclosure. However, under the current rule, circumstances may arise in which a cost increases but the creditor is unable to use an otherwise permissible revised estimate on either a Loan Estimate or a Closing Disclosure for purposes of determining whether an estimated closing cost was disclosed in good faith. This situation, which may arise when the creditor has already provided a Closing Disclosure to the consumer when it learns about the cost increase, occurs because of the intersection of timing rules regarding the provision of revised estimates. This has been referred to in industry as a "gap" or "black hole" in the TILA-RESPA Rule.

The Bureau understands that these circumstances have led to uncertainty in the market and created implementation challenges that may have consequences for both consumers and creditors. If creditors cannot pass increased costs to consumers in the specific transactions where the costs arise, creditors may spread the costs across all consumers by pricing their loan products with added margins. The Bureau also understands that some creditors may be denying applications, even after providing the Closing Disclosure, in some circumstances where the creditor cannot pass otherwise permissible cost increases directly to affected consumers, which can have negative effects for those consumers. For these reasons, in July 2017, the Bureau proposed to address the issue by specifically providing that creditors may use 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 (2017 Proposal or "the proposal"). The Bureau is finalizing those amendments as proposed, with minor clarifying changes.

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