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.

Reg Relief a Reality – Now What?

Blue_Sky_CloudsOn May 24, the President signed the Senate bill known as the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155). You may have read a previous article I wrote that summarized the key points in this piece of legislation. However it’s worthwhile to reexamine them here before using a proven scientific method to predict what will happen next in the world of mortgage regulation.

Keep in mind that, while there are some significant provisions in this bill that benefit both consumers and the mortgage industry, the regulatory structure and disclosure regimes you’re used to at the federal level have not been affected. The CFPB is still the CFPB (albeit with a radically different approach to its mission under Acting Director Mulvaney), TRID is still TRID and the answer to the ultimate question of life, the universe and everything is still 42.

So, without further ado, here are the five parts of this much larger bill that are likely to affect originators and mortgage compliance professionals.

  1. Transitional MLO licensing. Without a doubt, this is the most important change for anyone on the front lines of our business, and one that the Mortgage Bankers Association has been advocating since the SAFE Act went into effect. The provision gives MLOs who work for depositories a 120-day window to originate loans after transitioning to a nonbank while securing their state license, meaning they would not need to lose valuable work time and income fulfilling the licensing provisions before speaking to consumers. This same 120-day grace period will also apply to currently licensed originators who wish to obtain a license in another state. 
  2. A small bank exemption from expanded HMDA reporting. Banks that originate fewer than 500 HELOCs and closed-end mortgages in a year have been exempted from reporting the expanded HMDA data points that went into effect with originations after January 1, 2018. Despite what you may have heard, this does NOT exempt these institutions from Regulation C altogether, merely from reporting the new data points such as disaggregated demographic information. This provision does not make any changes for other institutions, including nonbanks. 
  3. Eliminating the need for an additional 3-day waiting period when the APR decreases. Before you jump for joy at this one, the legislative language applies directly only to High-Cost mortgage loans. Although given the current leadership at the Bureau, it is likely to clarify through regulation or official interpretation that the same provision applies to loans that are not High-Cost as well (the Bureau has taken that position informally since TRID was enacted).

  4. Allowing consumers to freeze their credit reports without cost. This provision is a direct result of the massive Equifax data breach that shook the country in 2017. While credit freezes (that stop anyone from accessing a consumer’s credit file) have been around since the passage of the Fair and Accurate Credit Transactions Act, there has been a cost associated with them. Removing this cost will likely lead to more consumers placing freezes on their reports (and more MLOs needing to ask clients to unfreeze them to proceed with an application). Under the law, the bureaus are also required to inform consumers that these no-cost freezes are available.

  5. Providing Qualified Mortgage protection to bank portfolio loans. Depository institutions with assets under $10 billion receive QM protection on loans that they retain in portfolio without needing to follow all the documentation requirements in Appendix Q of the Qualified Mortgage rule. Before you start reliving 2007 however, keep in mind that such loans will still require verification of applicant income and assets, comply with prepayment penalty restrictions in the QM rule and not carry any interest-only or negative amortization features.

Where do we go from here?

While Congress is likely done with financial regulatory issues (at least for this session), the CFPB is, of course, under no pre-midterm election pressure. In fact, they’re scheduled to reexamine the QM Rule in 2018 due to the mandatory five-year review period specified in the Dodd-Frank Act. We know through various speaking engagements by Acting Director Mulvaney that this process is likely to lead to significant changes to the rule, although the scope and extent of those changes are not yet known. One of the areas of the rule that seems ripe for change is the 43% Debt-to-Income requirement exemption given to loans eligible for sale to Fannie Mae and Freddie Mac. Remember, this exception is temporary and is currently scheduled to sunset in January 2021. Thus, if not extended or made permanent, Fannie and Freddie loans would begin to be subject to the 43% DTI cap for QMs at that time. This could have a big effect on the marketplace by moving otherwise qualified loans out of the conventional conforming space and into FHA (adding risk to taxpayers), so look for this to be one of the focal points in an amended QM rule.

While we’re on the topic of regulation, remember the United States has a dual regulatory system where both federal and state governments have a say in regulating many financial services entities. It’s very likely that, as the CFPB pulls back on certain regulations, some states will move to continue or tighten them. Thus, compliance managers and MLOs alike need to remain focused on statehouses across the country for potential changes affecting rules in states in which they are licensed. This is especially true if there are leadership changes at the state level as a result of the off-year election results in November.

See you next month!


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.

Is the CFPB Finally Listening on TRID?

TRID maze
According to the folks over at National Mortgage Professional Magazine, the CFPB has quietly begun drafting a Notice of Proposed Rulemaking. For those unfamiliar with the process, this is the first step in issuing a new or revised administrative rule, and typically opens the door for public comments on the topic at hand before the rule is actually drafted/released.

In this case, the topic at hand is the TILA-RESPA Integrated Disclosure Rule – or TRID – which totally revamped the mortgage disclosure process beginning in October of 2015. Since the new rules took effect, lenders have been struggling to comply with what they believe the CFPB wants, which in some areas is still unclear as the CFPB has not issued formal written guidance on many topics.

While there are positives that have come out of TRID – namely the effectiveness of the simplified Loan Estimate form that replaced the GFE for most transactions – there also have been many speedbumps. For example, many technology providers lagged behind in releasing updates to origination, document preparation and other software, which led to lenders issuing non-compliant Loan Estimates and Closing Disclosures. In fact, recently Moody’s estimated that up to 90% of loans originated in the first few months of the rule’s effective date contained at least one TRID-related defect.

A large mortgage lender – W.J. Bradley – closed its doors in March after being unable to sell a large number of loans with TRID compliance issues. This event, along with consistent industry prodding for help in understanding CFPB expectations through formal written guidance may have led to Director Cordray’s decision to revisit the rules.

While the NMP article indicates a “possible TRID rewrite,” I wouldn’t expect a massive overhaul of the key components that we’re becoming accustomed to in the origination community – namely the Loan Estimate and Closing Disclosure. Instead, what I believe is likely to happen is a clarifying tweak to some of the more confusing areas of the regulation, such as the sections dealing with construction and other non-traditional lending products, and (fingers crossed) significantly more written industry guidance to help us understand what we need to do to comply with CFPB expectations. If this is the case, that should make the secondary market (especially in the nonconforming space) much more comfortable in purchasing loans, which should result in an easing of credit availability and – one would hope – a reduction in loan turn-times which skyrocketed industrywide after October 1, 2015. It also may lead to a long-term reduction in compliance costs, which would make many small and midsized players in our industry very, very happy.

More on this as it develops. Until then, happy originating!

Peter

BREAKING NEWS: TRID Delayed

TRID Deadline ExtendedIn response to what the CFPB claims was a “technical error in the regulatory process” – but likely has everything to do with continued concern from creditors about their ability to implement and guarantee compliance with the new disclosure rules by August 1 – the effective date of the new Loan Estimate and Closing Disclosure has been delayed two months to October 1, 2015.

Many lenders are calling TRID the biggest change in the mortgage industry since the 1960s. Understanding the new TILA-RESPA integrated disclosures is critical for anyone working with the real estate industry, from loan originators to real estate agents, to real estate attorneys.

Real Estate Institute has been offering courses for mortgage loan originators that provide an in-depth look at the disclosure changes for a year. The newest course designed to prepare Illinois attorneys who support both buyers and sellers of residential real estate has been very popular. New TRID course content for Illinois real estate agents will be released this summer.