August 2015, Issue 08
TRID, Timing & Tolerance
We're almost there. A little more than a month from now lenders will be issuing their first Loan Estimates. Closing Disclosures will follow soon behind. As important as it is to complete the new forms specifically as required under the new rules (and they are exact), it is just as important to know the timing of when each is required. A late disclosure is as bad as no disclosure at all.
Timely Delivery of the Loan Estimate
Hopefully you know by now that the initial Loan Estimate must be sent to an applicant within 3 general business days from receipt of the application. General business days do not include Saturdays unless the lender is normally open on Saturday to conduct substantially all of its business. If the lender is normally open on Saturdays then they must include Saturday when counting the 3 days for the required mailing/delivery of the Loan Estimate. If the Loan Estimate is not timely when sent/provided, the lender is in violation of the law. Technically without a timely Loan Estimate the lender may not charge the consumer any fees. Not a good way to start.
Once the ball gets rolling, a revised Loan Estimate may be issued when circumstances occur that result in a fee change. Such revised disclosures must be issued within 3 general business days of the lender learning of the change. Again, Saturdays are not counted unless the lender is normally open for business. The key is that the lender must document not just the fee change, but also when they became aware of the circumstance that resulted in the fee change. That's because if the revised Loan Estimate is not sent/provided to the applicant within 3 days of learning of the change, the lender cannot charge for or collect the new or increased fee. The lender remains bound by the fees disclosed on the last compliant Loan Estimate.
By the way, a revised Loan Estimate can include only fee changes directly related to, or resulting from, the specific change involved. A lender cannot include a fee which was previously missed or not disclosed timely. Once the 3 day period expires for notification, the fee change is gone forever.
Loan Estimate at Rate Lock
A new Loan Estimate is required to be provided to borrowers when they lock their loan rate, if not locked at application. The new disclosure must reflect the rate that is locked, the expiration of the rate lock and any fee changes or additions that apply. As with all revised Loan Estimates, the revised disclosure must be provided to the borrowers within 3 general business days of them locking their rate. This means a lender must show evidence of when the rate is locked with the borrower and when it will expire. This is best done via the use of a rate lock confirmation notice provided to the consumer. This can be provided at the time of the rate lock or along with the new Loan Estimate.
The key is to clearly document the date the rate is locked with the borrower, especially when that date is different than the date the rate is locked with an entity that will purchase the loan. Only fees directly related to and/or resulting from the rate lock may be changed on the new rate lock Loan Estimate.
Hopefully you're getting the picture. It's not enough to issue a revised Loan Estimate to document and collect any fee changes, the disclosure must be provided timely with the date of the change documented for reference when needed.
Don't kid yourself, when CFPB comes to audit they will carefully scrutinize any differences in the fees disclosed to an applicant on the initial Loan Estimate as compared to those actually collected at the closing. They will ask to see not just the intermediate Loan Estimates but documentation to support when the change took place that caused any increase in fees. If you cannot provide satisfactory evidence you may be required to refund the additional fees collected.
Fee Tolerances
Remember the new fee tolerances.
1. Zero Tolerance
a. Fees paid to the lender , broker and any affiliate of either
b. Fees paid to a third party for which they cannot shop, e.g.appraisal
c. Transfer Taxes
2. 10% tolerance (aggregate)
a. Recording Fees
b. Charges to an unaffiliated entity for services that a borrower may shop for BUT chooses a provider on the lenders provider list.
3. No limit
a. Escrow prepaid items
b. Services that a borrower may shop for and they chose their own provider, not one on the lender's list
c. Charges paid to any entity for services not required by the lender
I highlighted 2(b) above for a reason. Here is another area for caution and monitoring. At application, along with the Loan Estimate, the lender must also provide the applicant with a listing of select providers (at least one for each service) that can provide the applicant with certain needed services for which the consumer may shop, e.g. title services. When the consumer uses a provider of their own choosing for such services and that provider is not on the lender's list of providers, then all is good and the lender is not held to any tolerance for the service fee, regardless of what was disclosed on the Loan Estimate. However, when the consumer selects a provider for a service from the list provided by the lender, then the lender is held to a 10% tolerance on the fees disclosed on the Loan Estimate for that service.
Consumer Choice of Service Providers
It is important that lenders correctly disclose the fees and costs for the services an applicant can shop for, as these must represent a reasonable good faith estimate of the cost of that service. A lender may be considered in violation and face potential penalties if it is found that the lender artificially inflated the fees for the service providers on their list and did so to deter a consumer's selection of those services in order to avoid the potential for fee tolerance violations, cures or losses at closing.
So you see the intent is to have the lender provide an applicant a timely and accurate estimate of the fees and charges the applicant may expect to pay in connection with their loan. This will enable the consumer to shop and compare lenders not just by the rates offered, but also by the total cost of getting the loan. Once the consumer decides on their lender, the disclosure of fees and charges may only increase as the result of specific circumstances directly affecting a fee and that the lender had no prior knowledge, or control. No bait and switch; no last minute undisclosed changes at the closing. Good old fashioned, honest business practices. What is sold to the consumer is what they should get. Not too much to expect.
Technology Controls
To accommodate everything we have just reviewed, lenders need to have a system to ensure the timely delivery of the initial and any subsequent Loan Estimates, while documenting what changed, why it changed and when they were made aware of that change. Anything less and you're asking for trouble. Employees must be trained to be aware of these timing requirements. They must know what will result in a fee change so they can react and issue a revised Loan Estimate timely when needed. Technology can help with systems programmed to generate notice of a required revised Loan Estimate when any changes are made to the loan data that could result in a fee change. Whatever way it gets done, lenders need to be able to identify the fee changes and when they occur so the disclosure can be made timely. Otherwise, you may be in for some serious losses.
The Closing Disclosure
The final Loan Estimate must be provided to the borrower prior to providing them with the Closing Disclosure. After all is said and done you must provide the borrower with the final Closing Disclosure for receipt at least 3 full specific business days prior to the loan consummation (usually the closing). In this case you can count Saturdays. A revised Closing Disclosure may be provided if there are any changes after issuance of the initial Closing Disclosure. Keep in mind a new 3 full specific business day wait period is required when a revised Closing Disclosure is issued because of
An increase in the final APR by more than .125%
A loan product change causing prior disclosures to become inaccurate; or
The lender adds a prepayment penalty on the loan.
As it is in most cases, timing is everything. Sticking to the TRID timelines will help you tolerate the new rules.
— 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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