Sign, Sign, Everywhere a Sign

Dart_on_FireThey say that every person needs a passion and/or a hobby. I have two, one of which is regulatory compliance in mortgage lending. Unfortunately, that doesn’t make any of the various approved lists of hobbies for men, which is likely why I’m often found alone next to the bar or canape table at cocktail parties. (However, my other passion, darts, does make several of the lists, so there’s that.)

Thankfully, there is a support group where people like me can get their daily dose of various and sundry compliance scenario questions to mull over and comment upon. It’s an email listserv called RegList, and it has some of the most brilliant compliance minds in the country on it. In fact, if your job description includes anything related to mortgage compliance, I recommend you join us; membership is currently FREE, and we even get together for the occasional cocktail at various industry conferences (canapes optional). Just remember, what happens in compliance stays in compliance.

Recently, there was a question posted to the group that got me thinking about how much MLOs really understand about the requirements and timelines for TRID disclosures. It involved a situation where the borrower received a revised loan estimate four business days prior to closing (the last day that a revised LE can be provided under TRID) but did not SIGN the LE until the next day, which is the same day they received the Closing Disclosure.

The ultimate question was, can a borrower SIGN a revised LE on the same day they RECEIVE the initial CD, and the reason I’m discussing it here is there’s a very real possibility that you’ll encounter this exact scenario on one of your files.

To answer this question, we need to look to Section 1026.19(e)(4)(ii) of Regulation Z, which states, in part, “the creditor shall not provide a revised version of the… [Loan Estimate] … on or after the date on which the creditor provides the… [Closing Disclosure]. The consumer must receive any revised version of the…[Loan Estimate]…not later than four business days prior to consummation.” (All emphasis mine.)

Here’s where I think MLOs and others who are not interacting with the rule on a daily basis may get confused: The words PROVIDE and RECEIVE are NOT synonymous with the word SIGN. In fact, Section 1026.37(n) of Regulation Z and the official commentary to this section of the rule make it clear that a signature is not required on the Loan Estimate! The creditor is free to include a signature line for the consumer to “confirm receipt” of the disclosure or NOT to include it at its sole discretion.

Yes, as a matter of course, virtually all creditors elect to use the version of the form with the signature line because it enables them to more easily track timelines and sell loans to certain investors. However, from a pure compliance perspective, it makes no difference when – or indeed even IF – the borrower actually signs the document. Thus, as long as the creditor can prove that the borrower RECEIVED the revised LE at least four business days prior to closing, providing the CD on the same day the borrower signs the revised LE is compliant so long as the CD meets all other timing requirements. Keep in mind that, if you’re providing these disclosures electronically, you must comply with all requirements in the federal E-SIGN Act regarding consent and delivery.

This is just another example of why our compliance management systems (CMS) are so important. While some investors may initially be unwilling to purchase the loan described above simply because of the signature date on the revised LE, being able to provide proof that the LE and CD were DELIVERED in accordance with Regulation Z requirements may save you from a dreaded buyback or unsaleable loan scenario.

Happy originating,
Peter


Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.

How CFPB’s Amendment to TRID Affects Your Business

TRID mazeThe Consumer Financial Protection Bureau (CFPB) finalized an amendment to the TILA/RESPA Integrated Disclosure Rule (TRID) that has been in effect since October of 2015. While the rule makes no changes to the Loan Estimate or Closing Disclosure forms or their timelines for delivery, there are some items in the amendment that may affect your business processes, and we’ll take a quick look at them here.

  1. Information sharing with parties to the transaction: The new rule makes it clear that the borrower’s Closing Disclosure may be shared with other parties to the transaction (i.e. the real estate agent and the seller.) This codifies long-established practice in many States, and removes uncertainty that was thrown into the mix when the original TRID rule was promulgated. The CFPB is working on additional specific guidance on providing separate CD forms to the borrower and seller. NOTE: this Federal regulation will not change practices in any State that might explicitly prohibit such sharing of information at the state level.
  2. Housing Assistance / HFA Loans: In the final rule, the CFPB provides guidance that certain loans made by housing finance agencies and other non-profit housing groups will retain their partial disclosure exemption from the TRID rule even when recording fees and transfer taxes are charged to the borrower. The CFPB hopes that this will increase the number of these transactions that receive the exemption, thereby increasing the number of such loans made.
  3. Co-Op Loans to be Covered by TRID: The new rule extends the scope of TRID to cover all loans made on cooperative housing units (“Co-Ops”), where the buyer is technically buying into the Corporation running the housing project instead of purchasing real property in the traditional sense. Co-ops are quite prevalent in the New York metropolitan area, as well as elsewhere on the East Coast, and this change will probably have more impact on general business processes than the others listed here.
  4. Tolerance for Total of Payments Disclosure: Under the old TIL disclosure, the total of payments box was calculated specifically using the finance charge. With the roll-out of TRID, the marriage between finance charge and this disclosure was removed, but no accuracy tolerances were put in place. This rule changes that by adding an accuracy tolerance to the total of payments disclosure that mirrors the one that has been in place for the finance charge itself.

Finally, the CFPB also put out another request for comment on a proposal to address when creditors specifically may use a Closing Disclosure (instead of a Loan Estimate) to determine if a charge was disclosed in good faith. The uncertainty around acceptable situations for this has created what many compliance officers call the “black hole” – especially when closings are delayed. See the CFPB Website for more information.

The mandatory compliance date for all provisions of the rule listed above is OCTOBER 1, 2018.

Happy Originating,

Peter



Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.

TILA-RESPA DISCLOSURE RULE – VERBAL CLARIFICATION FROM CFPB ON DOC REQUESTS AT PRE-APPROVAL

If you’ve taken Real Estate Institute’s 2014 CE class, you know there have been some questions raised regarding the borrower providing documentation to the creditor before receiving the new Loan Estimate under the rules that take effect on August 1, 2015.  Specifically, the question was how pre-approvals would be conducted given the language in Section 1026.19(e)(2)(iii) of Regulation Z going into effect next year, which states:

“The creditor or other person shall not require a consumer to submit documents verifying information related to the consumer’s application before providing the disclosures required by paragraph (e)(1)(i) of this section.” (Referring to the Loan Estimate.)

The official comments to the rule further state:

“A mortgage broker may ask for the names, account numbers, and balances of the consumer’s checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the disclosures required by § 1026.19(e)(1)(i).” (Comment 19(e)(2)(iii) to the TILA-RESPA Rule)

As our instructors have mentioned in class, I wrote a letter to the Consumer Financial Protection Bureau some months ago asking for clarification on this section of the rule.  Specifically, I was concerned about the CFPB’s interpretation of the word “required” and whether a lender or broker would be in violation of the rule if we went through the typical pre-approval process as it exists in 2014.

I’m pleased to report that I received a call from Jeff Riley at the CFPB and had a lengthy discussion with him about this issue.  Jeff provided verbal clarification* that it is permissible for creditors/brokers to REQUEST information and documentation from the borrower prior to providing a loan estimate, including at the pre-approval stage.  However, the borrower cannot be REQUIRED to provide documentation before a creditor (or broker on behalf of a creditor) provides a loan estimate, nor can the collecting any of the six pieces of information that constitute an application be intentionally delayed until the borrower provides the documentation.  Put simply, if borrowers verbally provide you the six pieces of information (name, income, Social Security number, subject property address, estimate of value of the subject property and the desired loan amount), you must provide a loan estimate within three business days even if they refuse to furnish any documentation to substantiate what they verbally disclose.

What’s the takeaway here?  Carry on with your pre-approvals as you normally would after August 1, 2015.  Obtaining documentation from the borrower in order to issue a pre-approval would not appear to put you in violation of the TILA-RESPA rule (although I would certainly avoid giving the impression through verbal or non-verbal clues that any documentation is “required” or “mandatory”).  Also, if borrowers want to give you all of the required information verbally, don’t stop them from doing so until you’ve seen documents, as that would be a violation of the rule.

*NOTE – Verbal clarification is NOT official staff guidance or an official interpretation of the rule by the CFPB.  I encourage all readers to consult with a qualified attorney on all matters of law or regulation.  I am not an attorney (nor do I play one on TV), and no blog post can or should substitute for competent legal counsel.

Happy originating!

Peter