Ben Giumarra
Feel free to settle into a cozy armchair with a cup of coffee and a highlighter and spend your Sunday afternoon reviewing the nearly 300 pages of the new TRID Rule amendments. Or, of course, stay tuned here and we’ll try to keep you up to date.
I’m sure by now you’re aware that the CFPB’s long-awaited update to TRID has been released. At a breezy 293 pages, it’s not quite an epic – it’s a Mark Twain “classic” – something that everyone wants to have read, but nobody wants to read. Well, except me and my colleagues.
Keep in mind that though this is only a “proposed” rule, it’s still worth reading soon. First, the “final” rule will most likely closely mirror this proposed version. Second, this should become a final rule quickly. Public comments are due by Oct. 8 and we’ll have a final rule 120 days later. Most importantly, the proposed rule includes many “clarifications” to existing rules (as opposed to actual changes), which affect what we’re doing today.
Don’t have time to read it yourself? Here are nine takeaways:
1) New tolerance for total of payments: “total of payments” is one of those things in loan calculations on page 5 of the closing disclosure (CD). It discloses the total amount that will be paid after the loan is paid off.
2) “Black hole” issue solved? It appears the proposed rule solves the black hole issue – meaning we can feel comfortable using a changed circumstance with a CD. Good news! The original rule was silent on what to do when, for example, the borrower requests an additional $5,000 after we disclose the CD. The CFPB suggested some lenders have been denying the loan and starting over!
3) Piggyback loan disclosure instructions: It’s too much to summarize in this short story, but suffice to say that if you’ve struggled with disclosing simultaneous second lien loans you should read this proposed rule carefully. (Especially helpful with various down-payment assistance and other special programs.)
4) Gift funds received before closing: In another positive change, we’ll now disclose only those cash gifts that are given at closing. Cash gifts deposited before closing are not disclosed. We think it’s safe to interpret this as a clarification, so go ahead and switch right away!
5) LE expiration date: Remember that the loan estimate (LE) expiration date is supposed to show the 10-day period that the borrower has to provide intent to proceed. Currently, we freeze that date on revised LEs, which can be misleading. Under the proposed rule, we’ll simply leave it blank.
6) Payoffs on a purchase loan will now be disclosed in Section H.
7) Construction loan disclosure improvements coming: Lenders are still scratching their heads with construction disclosures, so the new commentary is welcome. Most of the clarifications are old news, for example disclosing construction costs in Section H. But significant changes are proposed here, too, such as a new method of disclosing post-closing fees on an addendum.
8) Late rate locks: Do we always need a locked LE? What if we lock the rate only after providing a CD? The proposed rule clarifies some of this. It clarifies that we can lock a rate even after disclosing a CD (in which case no locked LE is ever given). Still an open issue (in my mind) is whether a revised LE is necessary where we lock or extend the rate and nothing changes, but we have plenty of time before a CD must be disclosed (safe approach remains to issue a locked LE within three days).
9) Non-borrower on rescindable refinance: We know every party with a right of rescission needs to receive a CD, even non-borrower. But do we disclose a non-borrower/co-owner as a “borrower” on the CD? Seems misleading (“Hey, I’m not borrowing this money!”) Nonetheless, the proposed rule, if adopted, will require us to do so.
Much more to come, I’m sure, as we all finish reading this. So far seems like a great step forward.
I like to end with a quote where possible. Do you recognize this one?
“Not later than 1 year after the designated transfer date, the Bureau shall propose for public comment rules and model disclosures that combine the disclosures required under the Truth in Lending Act and sections 4 and 5 of the Real Estate Settlement Procedures Act of 1974, into a single, integrated disclosure for mortgage loan transactions covered by those laws.”
No? Well, it should be famous in the banking industry. This is the single sentence in the Dodd-Frank Act that birthed TRID. One sentence! Now one set of proposed revisions alone is 300 pages. One sentence in a statute can cause seismic industry changes and spark thousands (probably) of pages of regulatory text. For context, the Housing Opportunity Through Modernization Act passed into law last month has an estimated 400 sentences. Wonder if one of those will become famous?
Ben Giumarra is a risk management consultant with Spillane Consulting. He may be reached at BenGiumarra@SCAPartnering.com.
