Ben Giumarra

Note to readers: despite the frequency with which I write about it, I actually do more in my day job than obsess about TRID! But here’s another TRID update, as it is much on all of our minds.

The Consumer Finance Protection Bureau (CFPB) released its latest webinar to continue providing interpretations on TRID on April 12. Now, I’m not going to go so far as to argue TRID would have prevented the financial crisis, but the CFPB isn’t all bad. They’re pretty good at answering questions submitted via their website. (Free advice from an attorney, nice!) And their free webinars haven’t been half bad, either.

The most recent webinar addressed a number of specific issues. Some were not exactly breaking news. Others were more interesting. Here are six takeaways I had. Since this isn’t a textbook (and since volume is up and we’re all busy!) we’ll go through quickly; hang on!

Flood insurance. Flood insurance is not disclosed separately on the closing disclosure (CD). We always knew it was combined into homeowners’ insurance on page one in taxes, insurance and assessments, but the CFPB is interpreting this to expand to later pages, so that flood insurance does not show up as a separate line in pre-paids or initial escrow payment at closing. Instead it will be combined into homeowner’s insurance.

Transferred escrow balance. Let’s say a lender refinances its own loan. The existing balance was $200,000 and the remaining escrow was $1,000. Per the CFPB’s guidance in this webinar, this transferred escrow balance (a) needs to be shown (can’t just show a payoff here of $199,000) and (b) there are at least two compliant ways to disclose this:

Option one: Disclose a negative charge for the transferred escrow fund in section G. on both the loan estimate and CD.

Option two: On the loan estimate, just disclose the payoffs/payments as the lower amount (so $199,000). On the CD, provide more information by disclosing the transferred escrow as a negative charge on the payoffs/payments table (which would show the lien payoff for $200,000 and a credit for the escrow of -$1,000).

Seller-paid fees. Do we disclose seller-paid fees? Yes. Even where the settlement agent discloses a separate seller’s CD? Yes. Even if the lender is not requiring the fee? Yes! Finally! That’s what I thought when I heard this. Been saying this all along.

The general rule is that we disclose all fees paid as part of the real estate transaction, not just the loan transaction. This might seem unfair, but that’s one reason Dodd-Frank was so controversial. That includes disclosing to the borrower what the seller paid for recording fees, transfer taxes or real estate broker commissions. The rationale behind this is that it is important for the borrower to understand what the seller is paying in order to intelligently negotiate the price and terms of the P&S agreement.

The only relief we get (which is still pretty good) is that we can leave the seller’s summaries of transactions (right side of page three on CD) blank. Blank! Not with some, but not all, information.) So where the settlement agent is preparing a separate seller’s CD, the lender should not worry about completing that one section (avoiding the need, for example, to wait on the settlement agent for accurate payoff numbers for the seller).

“Good faith” estimates of fees. This is one was a little scary. Basically, the CFPB reminded us that even fees not subject to a 0 or 10 percent tolerance still need to be disclosed in “good faith.” Nothing shocking there. But their remarks were strong on what they will consider “good faith.” The example given was that not disclosing pre-paid property taxes on the loan estimate where the lender doesn’t know exactly what they will be a violation as not in good faith.

This opens up a big box of issues. Before reading this, would you refund $500 if you accidentally disclosed $1,000 for initial escrow but realized it should have been $1,500, or would you just have corrected this on the next disclosure (LE or CD)? Should lenders be disclosing some amount for home inspections in purchase transactions – and would you refund the cost if you failed to?

Principal curtailment. After much debate among the industry (and seemingly crazy advice from some major investors), the webinar settled the issue of how to disclose a principal curtailment. This is one scenario where the CFPB showed flexibility and explained that there was no single correct way, but multiple compliant alternatives.

Where a principal curtailment is needed because the consumer would otherwise receive too much cash at closing (e.g. the refinance program only allows $2,000 cash back and closing costs come in lower than expected and would leave the borrower with $3,000 cash back), there are at least two safe ways to disclose this on the CD.

The first way is to show as a charge under section H. This can be done on either the standard CD form or the alternative form.

The second way is to show the principal curtailment as a charge in the payoffs/payments section. This can only be done on the alternative form of the CD (because the standard form does not have this section).

Over-collecting fees paid before closing. How do you disclose on the CD if you collect $500 pre-closing for an appraisal, but the appraisal only costs $450?

I can sum the answer(s) to this up in five points: Do not disclose this as a lender credit, and there are at least three different ways that are permissible:

Option one: Simply refund the borrower the $50 before closing. The CD just shows $450 for appraisal cost.

Option two: Take the $50 and allocate it as paid before closing on any other fee (but CFPB encouraged us to do one of our own fees) on the CD. Appraisal shows as $450 paid before closing.

Option three: Show a -$50 charge for the appraisal as paid at closing and a $500 charge on the same line for the appraisal but as paid before closing.

A New Trend – Flexibility

While the webinar did not address this specifically, there are plenty of examples within where we’re picking up on an informal shift in policy.

This trend that we’re noticing is with the CFPB adopting a more flexible approach to interpreting new regulations. Whether discussing an issue with a CFPB attorney or listening to a CFPB webinar, the CFPB’s recommendations have always seemed rigid – “there is only one right answer!” But lately I’m sensing a shift – we hear CFPB officials say things such as “the rule doesn’t expressly say, therefore there are several different approaches that will be in compliance.” This may all be in my head, and I suppose we won’t really know until enforcement ramps up, but this feels like it’s moving in a better, more flexible direction.

Ben Giumarra is a risk management consultant with Spillane Consulting. He may be reached at BenGiumarra@SCAPartnering.com.