Your partners at Superior Consulting realize that the community bank is under siege from an unprecedented volume of new regulation, ever increasing competition, thin profit margins, and an unusually hostile regulatory environment. Our singular mission is to provide you with Guidance You Can Trust during these troubled times in order to ensure your institution does not become yet another statistical casualty of this environment.
The effective date for the last step in the sweeping mortgage rules revisions of the Dodd-Frank Act is almost upon us. On August 1, 2015, the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID) will go into effect. The final rule was issued by the Consumer Financial Protection Bureau (CFPB) on November 20, 2013 in a 1,888 page publication in the Federal Register. The purpose of this article is to outline a few of the salient issues that community banks need to address in connection with implementation of the new disclosures.
Thankfully, the CFPB also published a 91 page guide, “TILA-RESPA Integrated Disclosure Rule, Small Entity Compliance Guide” (March 2014, amended September 2014), and a publication entitled, “2014 CFPB Dodd-Frank Mortgage Rules Readiness Guide Version 3.0” (September 2014) which are both helpful in understanding and implementing the new rules. The latter addresses all of the new Dodd-Frank mortgage rules, including the integrated disclosures. It contains a TRID “Readiness Questionnaire” which should prove to be a useful tool when considering changes to the bank’s compliance program. Changes to policies and procedures should be made using the questionnaire as a guide.
For those not yet familiar with TRID, the new integrated disclosures combine the initial Good Faith Estimate (GFE) currently required by RESPA with the Early Truth in Lending Act Disclosure (ETIL) required by Regulation Z into one document called the Lending Estimate. Similarly, the HUD-1 Settlement Statement required by RESPA and the final Truth in Lending Disclosure (TIL) required by Regulation Z are combined into one document called the Closing Disclosure.
The first question in the Readiness Questionnaire is: “If you make closed-end credit transactions secured by real property, do your policies and procedures address key provisions that: 1) Identify covered transactions” (Readiness Questionnaire, p. 15). Since not every mortgage product is included, and those that are not covered are still subject to TILA and RESPA disclosures, it is imperative to identify bank products that are subject to TRID rules. For transactions not covered by TRID rules, a GFE, ETIL, HUD settlement statement and TIL will continue to be required (depending on type of mortgage). The products and transactions covered by TRID rules include most consumer credit transactions secured by real property, such as purchase or refinance transactions. In addition, certain types of loans that are currently subject to Regulation Z but not RESPA will be covered by the new TRID rules. These include construction-only loans, loans secured by vacant land, loans secured by 25 or more acres, and credit extended to certain trusts for tax or estate planning purposes.
The second question in the Readiness Questionnaire suggests that the bank identify transactions where it must continue to use TILA and RESPA disclosures after August 1st. Loans that are not subject to new TRID rules are: HELOCs, loans secured by mobile homes, reverse mortgages, and loans secured by a dwelling not attached to land.
Identifying the bank’s products and transactions subject to TRID and those which are not subject to TRID can lead to the creation of detailed checklists which clearly indicate which disclosures (and their timing) are required. Checklists will help loan personnel comply and assure management and regulators that the bank recognizes the application of disclosure rules.
New TRID forms may not be used prior to August 1, 2015, so the bank will need to make sure that no Loan Estimate or Closing Disclosure is provided before that date. Early compliance is not permitted.
Loan Estimates must be provided within three business days of receipt of an application. An application for TRID purposes is defined as the lender’s receipt of the following: consumer’s name, consumer’s income, Social Security number, property address, an estimate of the value of the property and the amount of the loan sought. Any consumer submitting an application for a covered transaction received by the lender after August 1st must be given a Loan Estimate. Any application received prior to August 1st is subject to applicable TILA and RESPA disclosures (GFE, HUD settlement statement, ETIL and TIL) in effect today.
The definition of “business day” for purposes of the Loan Estimate is different from the definition of “business day” for purposes of the Closing Disclosure. A “business day” for purposes of the Loan Estimate is any day on which the creditor’s offices are open to the public for carrying out substantially all of its business, which may include Saturdays. A “business day” for purposes of the Closing Disclosure is all calendar days except Sundays and bank legal holidays, and will include Saturdays.
If the Loan Estimate is not delivered in person, the consumer is considered to have received it three business days after it is delivered or placed in the mail. The Loan Estimate must also be delivered or placed in the mail no later than the seventh business day before consummation, absent a bona fide personal financial emergency.
The bank must ensure that the consumer receives the Closing Disclosure no later than three business days before consummation. This is a significant change from current RESPA rules that require that the settlement statement be available for the consumer’s inspection a day before closing, although the statement is commonly prepared the day of closing since many consumers do not exercise the option to request the disclosure in advance of closing. Banks that use third party settlement agents such as title companies will need to make certain that providers understand and can comply with the new requirements.
There are additional TRID requirements which the bank needs to review and incorporate into its policies and procedures which are beyond the scope of this article. They include rules on the content of the new disclosures, rules for handling revisions and corrections, the new Escrow Closing Notice (provided prior to cancelling an escrow account), rules affecting the provision of the Special Information Booklet, and a new post-consummation requirement to provide a notice to the consumer about the bank’s treatment of partial payments. New TRID rules will no doubt create confusion, so it is also vitally important to train staff as soon as possible, with the caveat that the CFPB may continue to amend or restate interpretations of the new rules as we approach the effective date of these changes.
The debate about the wisdom and effectiveness of integrated disclosures is over. It is time for banks to accept the fact that the changes are here and get to work on preparing for implementation.
By: Elizabeth Reefer
This article was published in the February 2015 edition of the Missouri Independent Bankers Association Newsletter.February 4, 2015
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