The Bureau of Consumer Financial Protection (CFPB) issued its long-awaited Black Hole final rule today, eliminating one of the major headaches of the TRID rule. Specifically, the final rule amends TRID to allow lenders to disclose revised estimates for resetting the tolerances on any Closing Disclosure (including the initial and corrected CDs), without regard to how many business days before closing the change occurred. The rule is effective 30 days after publication in the Federal Register without regard to whether an application was received on or after the effective date. This represents a solid victory for the industry, thanks to the efforts of the major trade associations and a number of individual institutions. You can access the final rule here: https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-finalizes-amendment-know-you-owe-mortgage-disclosure-rule/.
I want to highlight an issue that could be a cause for concern, which relates to the accuracy of the CD. As you may know, the Black Hole provision has the effect of disincentivizing lenders from providing the initial CD very early in the transaction, because doing so can create a long period of time that falls in the Black Hole, meaning the lenders would have to absorb legitimate cost increases during this long period. Some commenters to the proposed rule cautioned the CFPB against eliminating this disincentive, because lenders might provide CDs very early in the process with largely inaccurate information, possibly as early as the day after the initial LE is provided, which could cause consumer confusion and other market issues.
The CFPB, in response to these concerns, stated in the preamble that it believes the existing accuracy standard for the CD will prevent lenders from providing the CD very early. The CFPB clarified that the accuracy standard that applies to any estimated information on the CD is the “best information reasonably available” standard, and cautioned that this standard requires lenders to perform “due diligence” to obtain information before providing any CD. The preamble references an existing commentary example of a lender that does not request the actual cost of the lender’s title insurance policy from the title company before providing a CD, and states that the lender has not exercised due diligence, i.e., it has not satisfied the accuracy standard for the CD. The CFPB stated that it “will continue to monitor the market for practices that do not comply with the rule’s Closing Disclosure accuracy standard.” This preamble language could signal that this will become an issue in federal and state TRID examinations.
Please let me know if you’d like to discuss the accuracy standards that apply to the information on the CD, or if you have any other questions.