TRID Becomes Effective

Clients and Friends,

October 3 is finally upon us.  Happy TRID Day!  Someone recently said to me, this is the only “holiday” where you have to go to work.  If you are at work, I hope you are having an easy day. I am sure you are all exhausted from your implementation efforts.

After starting on this rule back on January 3, 2011 (with a completely different cast than the one that finished it) and seeing it through every stage of its development, including leading the final rule, it’s hard to believe the effective date is here.  Someone else recently said to me, you have made disclosure simpler, but more complex.  Although I believe this rule will benefit consumers and help them understand their loans, this is an incredibly complex rule.  And no rule can predict every factual scenario that can arise, especially given the infinite variability of credit and real estate transactions.

Please know that I stand ready to provide assistance in these early days of TRID.  Although TRID is now effective, this is only the beginning.  There will be new questions that come up that we could not have even predicted.  It is also a time to start thinking about the efficiencies you can find in this more complex (but simpler!) disclosure regime.  For example, the closing process is one area where the workflows will be exceedingly more difficult.  To attain customer satisfaction and reduce the risk of consumer complaints, being able to close on time and efficiently for the consumer will be essential.  So, this may be an area deserving attention.

I also want to briefly update you on some TRID issues and materials the CFPB has recently released, and point out some highlights.

CFPB Good Faith Period.  Cordray was on the Hill on Sept. 29 and was asked about providing a more formal good faith period than the informal “sensitivity” period that the CFPB announced a few months ago.  Cordray hinted about an upcoming announcement about a good faith period, but his statement indicated that it would be informal.  For example, he stated at one point, “I don’t think it’s appropriate for me to say ‘I won’t enforce the law’ when my job is to enforce the law, but I think what I have said to them is that we will be diagnostic, not punitive, during that early period.”

The CFPB announced on October 2 on its webpage that it has sent letters to trade associations acknowledging that the CFPB will provide an informal “grace period.”  You can find the press release here.  http://www.consumerfinance.gov/newsroom/cfpb-sends-industry-letter-on-know-before-you-owe-mortgage-disclosure-rule-compliance/  The letter also indicates that the other FFIEC agencies will follow the same approach.  The press release states that during initial exams, the CFPB will examine, “compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance.”  The announcement continues, stating that the CFPB expects industry to make “good faith efforts to comply with the rule’s requirements in a timely manner.”  The announcement states that examiners will consider, “the institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and, its handling of early technical problems or other implementation challenges.”  This confirms and expands on the CFPB’s previous statements about an informal grace period.  This is a positive development for the industry.

But while this announcement does provide some relief with respect to administrative enforcement, it does not eliminate the substantial risk of civil and assignee liability under the rule for lenders and the secondary market.  The TRID rule places a greater amount of information and requirements under TILA statutory authority, including requirements that were previously only subject to RESPA administrative authority under the previous rule.  And the forms still contain the TILA material disclosures, which affect rescission rights.  This brings with it the threat of borrower lawsuits based on disclosure violations and buybacks, and this risk continues even if the CFPB will only examine for CMS and good faith compliance.  So, please keep the foot on the gas, because good faith efforts are not enough to avoid a lawsuit or a buyback.

CFPB Guidance.  I have heard many complain about the fact that the CFPB has placed far fewer resources on TRID guidance than is really appropriate for a rule of this size and effect on the market.  This has unfortunately resulted in excessively long wait times for responses to regulatory inquiries.  And many have complained that when the response finally arrives, the CFPB staff person knows less about the rule or the market than they do, and cannot provide a definitive answer.  Start thinking about how you will handle issues that arise for a loan in the pipeline or worse, at the closing table.  You may not be able to wait a few weeks for a vague response from the CFPB.

This is why I believe it is important to continue pressing the CFPB for more definitive, written guidance on certain aspects of the rule, such as the “black hole” and construction-to-permanent lending, and I look forward to working together on that front.

Consumer Materials.  It is useful to review the CFPB’s consumer materials about the rule, to understand the CFPB’s objectives for the rule and how consumers might understand their new rights and the lender’s obligations.  The CFPB updated its Know Before You Owe webpage to focus on the TRID rule.  The page includes a consumer-oriented video about the new rule.  http://www.consumerfinance.gov/know-before-you-owe/.

Remember those website links on the bottom of page 1 of the Loan Estimate and on page 5 of the Closing Disclosure?  The CFPB updated those pages as well.  The links take consumers to disclosure-specific pages in its Owning a Home suite of pages.  Yes, this is the same Owning a Home that contains their poorly conceived and executed “Rate Checker Tool,” or as it is officially known, “Explore interest rates.”

The Loan Estimate page is: http://www.consumerfinance.gov/owning-a-home/mortgage-estimate/.  The Closing Disclosure page is: www.consumerfinance.gov/owning-a-home/mortgage-closing/.  These pages include “interactive” samples of the Loan Estimate and Closing Disclosure, with clickable short explanations of different parts of the disclosures.  Interestingly, the CFPB’s interactive disclosures do not explain each part of the disclosure, including the Principal and Interest payment or the components of the Projected Payments table.  The unexplained areas may be sources of questions from consumers.

The Owning a Home pages are also updated to reflect the new rules, which are here: http://www.consumerfinance.gov/owning-a-home/.  Some of the highlights include:

  • Information about the new definition of “application.”  The page states, “you just need to provide six key pieces of information to begin your loan application,” and listing the six items in the definition of “application.”
  • Encouragement for consumers to shop between lenders, stating, “your best bargaining chip is usually having Loan Estimates from other lenders in hand…Getting Loan Estimates from multiple lenders increases your bargaining power.”
  • Telling consumers to “shop for title insurance and other closing services,” and that, “research suggests that borrowers who shop around for closing services could save as much as $500 on title services alone.”  The page continues, “that’s $500 that you can put toward new paint, furniture, and other improvements to make your new home feel more your own.”  The page also explains that “state laws may require different title insurance disclosures,” but that the totals between the disclosures should match.
  • Information about submitting consumer complaints because of cost increases.  The page describes some possible reasons why cost estimates may increase, including a description of “changed circumstances.”  Notably, the page also tells consumers to submit complaints if they receive a revised disclosure with invalid cost increases.  The page states, “if you think your lender has revised your Loan Estimate for a reason that’s not valid, call your lender and ask them to explain. You can also submit a complaint to the CFPB.”
  • Please let me know if you have any questions.
  • Supervision Materials.  Finally, the CFPB’s Supervision staff updated its Readiness Guide and Supervision and Examination Manual to reflect TRID’s October 3 effective date.  These can be found here: www.consumerfinance.gov/guidance and http://www.consumerfinance.gov/guidance/supervision/manual/.   The examination manual for TRID essentially is merely a summary of the rule, which does not contain much information about the disclosures themselves.  But for those of you still uneasy about rebaselining using the Closing Disclosure, notably, the TILA exam procedures acknowledge this ability on page 43.

Please let me know if you have any questions.