Source: https://info.idsdoc.com/Compliance/February
Timestamp: 2018-04-20 22:20:20
Document Index: 711860263

Matched Legal Cases: ['§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1026', '§ 1024']

IDS | February
February: Weekly Compliance Updates
TRID Hot Topic Series: Creation and Issuance of the Loan Estimate
Creation and issuance of the Loan Estimate (LE) follows rules similar to creation and issuance of the GFE; however, there are a few issues surrounding creation and issuance of the LE that Creditors should keep on their radar:
1. Predisclosure cost estimates. TRID allows creditors to provide customers with an estimate of costs prior to delivering an LE; however, the estimate worksheet cannot look like the LE and it must print the following in a 12-point conspicuous font: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.” See, § 1026.19(e)(2)(ii).
2. Predisclosure fees restrictions. Creditors shall not impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction covered by TRID before the creditor has issued and the consumer received the LE; however, a creditor may charge a fee for obtaining a consumer’s credit report. See, § 1026.19(e)(2)(i).
3.Stricter application requirements. Loans subject to Regulation X, specifically, 1024.2(b), prior to August 1, 2015, followed a definition of application that has mostly been adopted by TRID, with the exception of the following phrase: “…and any other information deemed necessary by the loan originator,” which has been cut out. Removing this catch-all phrase means that as soon as the other six elements are met that a time frame for which the creditor has to produce an LE has been triggered. See, § 1026.19(e)(1)(iii).
4. Brokers. TRID states that “if a mortgage broker receives a consumer’s application, either the creditor or the mortgage broker shall provide a consumer with [an LE].” Allowing either the creditor or the mortgage broker to provide the LE seems like standard practice; however, the new rule also states that “the creditor shall ensure that such disclosures are provided in accordance with all of the requirements [of the rule for producing an LE].” See, § 1026.19(e)(1)(ii). This last phrase has had many creditors in the industry looking into how to manager current broker relationships while also ensuring compliance.
5. Creditor Liability. Combine the fact that creditors are required to “ensure that [LEs] are provided in accordance with [TRID]” with the CFPB’s discussion of liability in the preamble to the rule, which states, paraphrasing, that TRID is written into Regulation Z, which provides for a private right-of-action for consumers (unlike Regulation X, which doesn’t for the purposes of the GFE) and that the CFPB has cited in each part of the rule under which authority the disclosures are being made. See, TRID Final Rule, Liability, pg. 100. In other words, the explicit responsibility to ensure that the LE is issued properly along with the not-so-clear discussion of potential consumer law suits has been enough to cause some concern among creditors as to how to manage creation and issuance of the LE.
TRID Hot Topic Series: Managing Tighter Tolerances (a.k.a. Variations or Variances)
The Loan Estimate (LE), like the current GFE, requires that certain closing costs be disclosed in “good faith.” The new rule states that an “estimated closing cost…is in good faith if the charge imposed on the consumer does not exceed the amount originally disclosed” on the LE. (Emphasis Added). The new rule refers to “tolerances” as “variations,” and many in the industry are referring to them as “variances;” although, technically, “variances” is not a word that appears in the rule. See, § 1026.19(e)(3), 1026.19(e)(3)(iii).
Under the current rule, there are some “tolerances” that categorize closing costs as (1) fees that cannot increase, (2) fees that may increase by 10% in aggregate, and (3) fees that may increase by any amount. The new disclosures continue to categorize the amounts disclosed into these three categories; however, some fees have shifted categories, which may mean that it now follows a tighter tolerance level.
Some closing costs that currently fit into a less stringent “variation” category but have been moved to a stricter category are (a) fees paid to an affiliate of the creditor or mortgage broker and (b) fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a third party service provider for a settlement service, which were moved from the ‘fees that cannot increase by 10%’ category to the ‘fees that cannot increase’ category. See, § 1026.19(e)(3)(i), and its official interpretation.
Further, and this is where it can become quite complicated, the rule says that “a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed…if the revision is due to” one of several reasons. The first two reasons are (a) changed circumstances affecting settlement charges and (b) changed circumstances affecting eligibility. For these two reasons to provide a revised estimate, the creditor is not allowed to update the “fees that may increase by 10% in aggregate” tolerance threshold unless the valid changed circumstance actually results in an increase to the fees in this category by more than 10% of the original amount disclosed. See, § 1026.19(e)(3)(iv). Here’s an example: The total aggregate of fees disclosed on the original LE equals $1000, resulting in a tolerance threshold of $1,100. Subsequent to disclosing the original LE, a valid changed circumstance increases the aggregate of fees in this category to $1,099. This amount does not breach the original $1,100 threshold, therefore, the tolerance level cannot be updated. Supposing then, that a non-valid changed circumstance then increases the aggregate of fees in this category to $1,200, the creditor would not be allowed to update the threshold and would be obligated to pay the consumer $100 to cure a good faith violation. On the other hand, supposing that the second changed circumstance above were another valid changed circumstance raising the aggregate of fees to $1,200, then the revised LE could reflect $1,200 as the disclosed amount and $1,320 would be the new 10% threshold.
TRID Hot Topic Series: Delivery Rules: In-Person vs. Everything Else
TRID has new timing requirements surrounding the creation and delivery of the Loan Estimate (“LE”) and Closing Disclosure (“CD”), which are as follows:
1. LE – Requirement to deliver the LE within three business days of application. See, § 1026.19(e)(1)(iii)(A).
2. LE – Requirement to deliver the LE seven days or more prior to consummation. See, § 1026.19(e)(1)(iii)(B).
3. CD – Requirement to deliver the CD three days prior to consummation. See, § 1026.19(f)(1)(ii)(A).
These timing requirements beg the question, which forms of delivery will ensure compliance with these time lines. The rule provides for (1) providing them in person, (2) by postal mail, (3) electronic delivery methods (see, Official Interpretation to the above citations). Electronic delivery is subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act (15 U.S.C. 7001 et seq.). See, § 1026.38(t)(3)(iii).
Although the time-sensitivity of receipt of the forms is only important to the CD, in the case of the three aforementioned forms of delivery, the consumer is considered to have received the disclosures according to the following conditions:
1. In-Person – the same day the forms are handed to the consumer.
2. Postal mail – three “specific” days (federal holidays and Sundays are not counted) after they’re sent, unless the creditor has “evidence” the consumer received the disclosures earlier than three business days. Creditors may rely on evidence of early delivery to consider the forms as received on that earlier date.
3. Electronic delivery – before this method of delivery can be used, the consumer must consent in accordance with the E-Sign Act to receiving the disclosures electronically. With consumer consent in-hand, the creditor can consider the disclosures three “specific” days (federal holidays and Sundays are not counted) after they’re sent, unless the creditor has “evidence” the consumer received the disclosures earlier than three business days. Creditors may rely on evidence of early delivery to consider the forms as received on that earlier date.
See, §§ 1026.19(e)(1)(iv) and its Official Commentary; 1026.19(f)(1)(iii). See also, paragraph entitled “E-Sign” from the February 06 IDS General Update, “Creation and Issuance of the Closing Disclosure.”
TRID Hot Topic Series: Creation and Issuance of the Closing Disclosure
Creation and issuance of the Closing Disclosure (“CD”) is probably the piece of the TRID puzzle effecting the greatest change to industry. The following are some challenges Creditors should keep on their radar:
1. 3-day Waiting Period. TRID requires that the consumer receive the CD 3 specific business days prior to consummation. This small timing requirement could affect everything in the loan generation process from (a) real estate contract dates to (b) internal work-flow and quality assurance processes to (c) coordination efforts with settlement service providers. See, 1026.19(f)(1)(ii).
2. Revised disclosures. It is the current understanding of IDS Compliance that it was the regulatory intent of the CFPB to make the LE and CD similar in their appearance yet different in their defined roles. This role delineation stands out when looking at the rules surrounding “receipt of revised disclosures” and the official interpretation in the rule related to it. See, 1026.19(e)(4)(i)-(ii). Paraphrasing, this section states that no more revised LEs shall be given once a CD has been issued. That said, if there are changes to the information disclosed on the CD (e.g., a last minute walk-through changes a disclosed cost; see, 1026.19(f)(2)(i)-1(i)), the creditor shall redisclose the CD to reflect those changes up to and including the date of consummation. See, 1026.19(f)(2)(i). Note well, however, that there are three changes that if made after the CD has already been issued will require redisclosure of the CD and a reset of the 3-day waiting period prior to consummation; the three “CD waiting period reset” changes are (1) changing the product type, (2) adding a prepayment penalty, and (3) changing the APR enough that it is “inaccurate” by regulatory definition. See, 1026.19(f)(2)(ii).
3.Creditor Liability. The LE and CD were written into Regulation Z (12 CFR § 1026), which provides consumers with a private right of action that Regulation X (12 CFR § 1024) did not. Further, although certain third parties (e.g., brokers and settlement service agents) are allowed to prepare or help prepare the new documents, the rule places responsibility for accuracy of the forms on the creditors. See, 1026.19(e)(1)(ii), 1026.19(f)(1)(v), and their related official interpretations. Combine private right of action with rule-driven responsibility and the situation is that several creditors are opting to prepare and generate the LE and CD even while continuing to rely heaving on these third parties for information necessary to complete the forms.
4. Settlement Service Providers. Title agents and others (e.g., closing attorneys) who provide settlement services are an important part of the closing process. Without having any statistical or empirical evidence to rely on, it’s probably not a stretch to say that the industry standard prior to August 1, 2015, has been to have the settlement service provider prepare the HUD-1 and any final redisclosed TIL. For the reasons mentioned in “3. Creditor Liability” above, several creditors may begin preparing all or part of the CD. The rule provides just enough flexibility to complicate this piece of the workflow, stating “to ensure timely and accurate compliance with the requirements of 1026.19(f)(1)(v), the creditor and settlement agent need to communicate effectively.” Industry has been talking for several months now about the use of technology to facilitate data exchange between creditors and settlement service providers while preparing the CD; however, coming up with a technology solution that will work all the time for everybody will probably take more time than is remaining prior to the August 1, 2015, implementation date (although, there are several technology providers working on it). This is a piece of the puzzle where there may not be one perfect solution beginning August 1, 2015, but creditors can have internal policies and procedures in place and in practice that will facilitate the process—saving creditors who have a game plan, time, money, and unnecessary hassles.
5. E-Sign. It’s interesting to note that the five page CD is the only industry disclosure required by the rule to be received by the consumer 3 specific business days prior to consummation. Besides in-person delivery (instant receipt) and postal mail (presumptive 3-day receipt, unless evidence of receipt proves that delivery took place sooner), the rule allows the CD to be delivered by electronic means if its delivery meets the requirements of the E-Sign Act. See, 1026.19(f)(1)(iii)-2. Using the E-Sign process in conjunction with the CD has the potential to reduce the time to close by up to 3 specific business days. The rule treats E-Sign similarly to postal mail. The differences in practice relate mostly to reliable tracking and speed. For tracking purposes, E-Sign systems that follow the strict validation process of the E-Sign Act can provide creditors with some proof and peace-of-mind that the intended consumer receives the disclosures. For speed purposes, an E-Sign system should also keep time stamped information of (1) when the consumer consents to receive disclosures electronically and (2) when the disclosures are viewed/received by the consumer. For speed purposes, E-Sign systems can provide notices to the creditor via email as soon as disclosures are received by the consumer. IDS will use its extant E-Sign system to give clients the option of using E-Sign to manage the CD delivery process.