March 2015, Issue 03
TRID: The New Disclosures
Part 1: The Loan Estimate
The new rules for the integration of the disclosures now required under TILA and RESPA go into effect for new loan applications effective as of October 3, 2015. That will be here before you know it. These changes will bring about dramatic changes in how mortgage lending is done. The intent is to streamline the process and reduce paperwork, making the process more understandable for the consumer. I'll tell you candidly, after sitting in on numerous meetings, seminars and phone calls about these new disclosures I sure hope they satisfy their intended purpose.
By now I hope you are well into the process of modifying, updating, and doing whatever needs to be done to your processes and systems to satisfy the legal requirements for the completion and issuance of the new Loan Estimate (LE) form. Accordingly I'm not going to go into all the gory details of this form. For all intents and purposes it will provide the consumer with all pertinent information about the lender, the loan, its terms, payments, rate, special features and associated fees and costs. In essence what the applicant may expect to get and pay at the closing.
I would like to provide some highlights, information and questions you should keep in mind when preparing to implement usage of this new form. Let's get started...
First let's define a business day, actually let's give two different definitions of a business day. These are important as each will determine when a certain disclosure must be provided / received by a borrower.
1. "General": a day on which the creditor's offices are open to the public for carrying out substantially all of its business function. (This for most companies would usually not include Saturdays).
2. "Specific": All days except Sundays and the legal public holidays specified in 5U.S.C. 6103(a), such as New Year's day, the birth of Martin Luther King, Jr., Washington's Birthday (Presidents day), Memorial Day, Independence day, Labor day, Columbus day, Veteran's day, Thanksgiving Day and Christmas Day.
Note that the "General" definition of a business day is used for the timing requirements associated with the Loan Estimate. Accordingly you need not count Saturday when determining the deadline for the issuance of the initial LE, when you are normally not open to conduct your business on a Saturday. As an example, if an application is received on a Thursday, the initial LE must then be issued by the following Monday, not counting Saturday as a "business day."
The existing rule prohibiting a loan to close within the first seven (7) days after the application remains in effect. This is to allow the consumer the time to receive and review the initial Loan Estimate.
As a best practice you should have a way to document the applicant's receipt of the Loan Estimate and their decision to proceed with the application. This will eliminate any confusion about the timing and receipt of the LE and the applicant's intentions. Remember if the applicant does not confirm their intent to proceed within 10 days of their receipt of the Loan Estimate the lender is no longer bound by that disclosure and may issue an updated LE if the applicant chooses to proceed after the initial 10 day period. Further, as is required under existing rules, the lender may not collect any fees, other than for the credit report, within 7 days of receipt of the application. Note that for the 7 day waiting period you may use the "Specific" definition of a business day, meaning you may include Saturdays.
Some questions you should ask yourself:
As the Loan Estimate must be provided within 3 business days of receipt of the application you should have some mechanism in place to identify/determine when you receive the application. Seems simple enough but think of how things are done today. Do you always know when an originator takes the application? There are 6 required items (name, address, income, estimate of value, SSN and loan amount). Once you have these, the clock starts ticking. So you'll need a way to know.
How will you ensure the LE is issued within 3 business days? Is it up to your originator, processor or a disclosure team? Whatever way you decide, just make sure you can ensure how timely it gets done.
How will the required fees and charges be disclosed? Individually by the loan originator, or via use of a system template? What about exceptions? Who approves/authorizes?
How will you track changes that affect the fees disclosed so you can issue a revised LE timely (within 3 "General" business days of the change)?
A few other things to keep in mind:
Ensure a new Loan Estimate is issued within 3 "General" business days of the rate lock, with appropriate changes to only those fees/charges affected by the rate lock.
Gather all information from outside sources, i.e. closing agents, needed to complete the final Closing Disclosure.
Remember the final LE must be issued at least 4 "Specific" business days prior to loan consummation (when the consumer becomes legally responsible for the loan).
Have a system to perform periodic audit checks throughout the loan process, especially prior to loan closing, to maintain quality, ensure accuracy and meet required time lines.
In addition to your preparation for the technical requirements of the new Loan Estimate you should be reviewing current policies and procedures to determine the changes and improvements needed to ensure a timely and accurate disclosure of information to the consumer. Everyone from originator through closing agent must understand not just the requirements for the new forms, but the impact they will have on the way you do business. Make sure you take the time to train your employees so they fully understand the requirements under the law, the processes needed to comply, why this needs to be done and the impact of not doing things correctly.
Quality and compliance is everyone's responsibility.
Next month; Part 2; the Closing Disclosure.
— Mike Vitali - SVP/Chief Compliance Officer
Mike Vitali is SVP/Chief Compliance Officer for LoanLogics. He has over 40 years of experience in all facets of mortgage lending. Just prior to coming to LoanLogics, he served for more than 12 years as an EVP and Chief Risk Officer for a major national lender. He also served as legislative chair for both the MBA of Greater Philadelphia and MBA of Pennsylvania, and is a member of several task forces dealing with compliance issues for the National MBA.
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This material is provided as a general information service by LoanLogics, Inc. and its applicable subsidiaries and affiliates ("LoanLogics"), and is not intended to provide financial, regulatory or legal advice on any specific matter. The information contained herein reflects the views of LoanLogics and sources reasonably believed by LoanLogics to be reliable as of the date of this publication. LoanLogics does not make any representation or warranty regarding the accuracy of the information contained in this material, and there is no guarantee that any projection, forecast or opinion in this material will be realized. Any links provided from outside sources are subject to expiration or change. © 2015 LoanLogics, Inc. All Rights Reserved.
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