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Compliance Alert Update (1)



April 3, 2015


 Happy, Happy Spring!!!


TILA-RESPA Integrated Disclosures (TRID) August 1, 2015 Effective Date. 

Ready or not, here it comes. The integrated Truth-in-Lending-Real Estate Settlement Procedures Act Disclosures.  If you are not familiar with the new and improved forms, you had better do your homework and train you lenders on the use because just like Frankenstein, this thing will come to life on 08/01/15 whether you are ready or not.  Hopefully your lending staff has had proper training or at least seen the forms and tried to generate a dummy loan using the forms (if your system will allow). 


From the Consumer Financial Protection Bureau (CFPB) 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) Know Before You Owe propelled the CFPB to develop the combined disclosures.  The first form (the Loan Estimate) is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying.  The new and improved form must be provided to consumers within three business days after they submit a mortgage loan application.  The second form (the Closing Disclosure) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers three business days before they close on the mortgage loan. 

The forms use clear language and design to make it easier for consumers to locate key information, such as the interest rate, monthly payments, and costs to close the loan.  The forms also provide more information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time. 

The final rule and combined disclosure requirements are required for most closed-end consumer mortgage loans and do not apply to home equity lines of credit (HELOC), or mortgage loans secured by a mobile home or by a dwelling that is not attached to real property.  The final rule also does not apply to loans made by a creditor who makes five or fewer mortgages in a year.


The Loan Estimate 

The Loan Estimate form replaces two current federal forms.  It replaces the Good Faith Estimate developed by HUD under RESPA and the early Truth-in-Lending disclosure designed by the Board of Governors of the Federal Reserve System under TILA. 


Limitation on Fees 

Consistent with current law, the creditor generally cannot charge consumers any fees (except for consumer credit reports) until after the consumers have been given the Loan Estimate form and the consumers have communicated their intent to proceed with the transaction. 


Limits on Closing Cost Increase 

Similar to existing law, the final rule restricts the circumstances in which consumers can be required to pay more for settlement services – the various services required to complete a loan, such as appraisals, inspections, etc. – than the amount stated on their Loan Estimate form.  Unless an exception applies, charges for the following services cannot increase:

  • The creditor’s or mortgage broker’s charges for its own services.
  • Charges for services for which the creditor or mortgage broker does not permit the consumer to shop for.
  • The APR cannot increase or decrease by more than 1/8 of 1%. 

Charges for other services can increase, but generally not by more than 10%, unless an exception applies. 

The exceptions include the following situations when:

  • The consumer asks for a change.
  • The consumer chooses a service provider that was not identified by the creditor.
  • Information provided at application was inaccurate or becomes inaccurate.
  • The Loan Estimate expires.

When an exception applies, the creditor generally must provide an updated Loan Estimate form within three business days, which delays the loan closing. 

The forms are not too difficult, remember change is good and these forms are to protect your borrowers.  Your loan production software should produce these with the push of a button.  The only section of the forms that may raise questions by consumers is the last page of the Closing Disclosure titled Loan Calculation. The Total Interest Percentage (TIP) by the CFPB’s definition, is a percentage based on the exact monthly payment amount, paid on the exact monthly due date, each and every month, for the full term of the loan.  Seems simple enough, but we all know when dealing with Mr. Loan Customer, they will fixate on the TIP percentage (CFPB’s example 69.468% based on an APR of 4.41%) and then look at your approximate cost of funds (ACF), which in the example is 1.63% and comment the funds are costing you 1.63% and you are charging me 69.468%.  I wish you all the best and thank goodness I am not still sitting behind your desk, it was bad enough back in the day to explain APR.