MANAGING THE NEW “TRID”

AVOIDING THE POTHOLES AND PITFALLS OF THE NEW TILA/RESPA INTEGRATED

DISCLOSURE RULES

Presented by: ● Jerra H. Ryan, Vice President of Compliance, Cherry Creek Mortgage ● Diane Evans, Vice President, Land Title Guarantee Company ● Tammy Butler, Director of Fair Lending and Compliance, Optimal Blue

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TILA/RESPA REVISION-WHY? Small History Lesson on Why (Dodd-Frank Mandate).

Two Federal Agencies-Two Federal Statutes • TILA “Truth in Lending Act” AKA “Reg Z”

• RESPA “Real Estate Settlement Procedures Act of 1974” AKA “Reg X”

• The information overlaps and language is inconsistent

Specifically related to making disclosures more consumer Friendly • Friendlier for consumers

• Complexity for lenders

Four disclosures into one.

Starts August 1, 2015-TRID

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WHAT LOANS ARE SUBJECT TO TRID? Closed-End consumer credit transactions secured by real property

Loans subject to TILA but not RESPA • Construction-Only loans • Vacant Land loans or by 25+ Acres • Trusts for tax or estate planning purposes

Not Covered: HELOCs Reverse Mortgages Chattel dwellings (i.e. mobile or not attached to land) If you do less than 5 loans as a company Certain housing assistance loan programs

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READING REGULATIONS-QUICK TIP Q: If the APR changes, do I need to issue a new closing disclosure?

Step One: CFPB Says: Pg. 68-Implementation Guide-“Changes to the loan’s APR 1026.19(f)(2)(i) and (ii)

Step Two: What Do References Say? And what do those References say?

Step Three: Send your thought process and cite regulation to attorney for verification. DO NOT RELY ON WHAT YOU HEAR W/O REFERENCE

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GOOD FAITH DEFINED The Loan Estimate must be made in Good Faith and consistent with the best information available to the creditor at the time disclosed. Good Faith is when the charges estimated do not exceed the charges paid by the consumer... Generally, if the charges paid by the consumer exceed the amounts disclose, the Loan Estimate is not in good faith.

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EFFECTIVE DATE! August 1, 2015 Loan Applications taken or made on or after only! Transaction already in process will close under current HUD1

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IF YOU ARE A BROKER If an application is triggered you are responsible for issuing the disclosures or making sure an end-lender does that w/in time frame. Check Wholesaler rules carefully and organize them for your staff-Train Hard Here! How will you monitor LO locks if you allow them to lock directly with an investor?

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FEE WORKSHEETS/PRE-APPLICATION

May be issued by lender or broker

Must include 12 Point Font disclaimer on the top of the first page: “Your actual rate, payment and costs could be higher. Get an official Loan Estimate before choosing a loan”.

May not look like the LE, should have different headings, form, etc.

May not look like current GFE, may not use term “Good Faith Estimate”

May not be used as a substitute for LE, used for pre-application phase before receiving RESPA Ready Application

May not require a consumer to submit documents verifying information related to the application before providing the Loan Estimate

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PRE-APPLICATION Following current rules, only a bona fide and reasonable fee for obtaining a credit report may be collected prior to issuance of the LE and receipt of Intent to Proceed

ITP may be in any manner lender requires (written, email, verbal), but “silence” is not allowed • “the creditor must document the communication/intent to

proceed to satisfy the requirements” No checks may be held for later deposit No credit card information may be retained for later use for other bona fide third party fees

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WHAT TRIGGERS THE LOAN ESTIMATE A RESPA Ready Application Triggers Disclosure of the LE • Name

• Address*

• Estimated Value

• Estimated Loan Amount

• Estimated Income

• SSN

For those still operating with the “7th” condition—the catch-all condition—it is removed under the Integrated Rule

*Please note, “signed purchase agreement” or “receipt of purchase contract” is not required for “submission of property address”—this may represent a change from current practices—do not wait for the agent to provide the contract, especially if you prepared a pre-application worksheet for a property or provided an approval letter...

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SEQUENCING Sequencing – the order information is gathered to start an application Neither RESPA or TILA define “application” other than the ‘RESPA Ready 6” The CFPB recognizes the “6” does not include important details necessary for an accurate disclosure, i.e., “occupancy”, “loan program (30/15, Fixed/ARM)” Official guidance from CFPB is to “sequence” how we gather the information, requesting other relevant information before obtaining the RESPA 6 • Cautioned not to use sequencing as a way of

avoiding or delaying providing LE, but as a way to best serve the consumer, e.g., “request SSN last”

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BUSINESS DAYS-LOAN ESTIMATE Business Day “General” – a day when the lender’s offices are open to the public for carrying on substantially all of its business functions (usually M-F)

Used to measure three (3) Business Days from Application to provide initial LE

Used to measure three (3) Business Days from Changed Circumstance to provide revised LE

“Specific”—all days except Sunday and Holidays

Used to measure waiting periods for closing (per MDIA, changes in APR) APR decrease Okay to Proceed!

Used to measure rescission period

Used to measure time when mailing disclosures

Used to measure time providing Closing Disclosure

Lenders may “choose” to use Specific for all business day calculations, but may not use “general” for all

If using “general”, advisable to not have originators taking loan applications on Saturday

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DELIVERY AND RECEIPT The Loan Estimate must be provided to the consumer within three (3) business days of application and Valid Changed Circumstance must be disclosed within three (3) business days of the change trigger • Creditor may place in USPS within three (3) days (and

consumer is considered to have received it three (3) days after placed in mail

• May deliver in person • May deliver by email if compliant with ESIGN-Act provisions

• An encrypted PDF attached to an Outlook email is not typically compliant with consumer consent and provisions of the E-SIGN Act.

• The E-SIGN Act applies to electronic delivery, whether or not the consumer is actually “signing electronically”

• If delivery does not comply with ESIGN requirements, then creditor did not comply with the timing requirements for delivery

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DELIVERY AND RECEIPT The last revised Loan Estimate must be provided at least one (1) business day before the Closing Disclosure is issued Consumer must RECEIVE the loan estimate before a closing disclosure can be issued. The Closing Disclosure must be issued three (3) business days prior to consummation • If a revised LE is mailed on Monday you can’t issue the

CD on Tuesday and close by Friday.

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SETTLEMENT SERVICE PROVIDER LIST Must use the Model Form If permit consumer to shop for service, charge is in 10% tolerance category Shopping means can go off-list Must provide a written list identifying at least one available provider for each settlement service for which the consumer is permitted to shop Must include sufficient information to allow the consumer to contact the provider Must also state that the consumer may choose a different provider for that service Must provide this written list of settlement service providers separately from the disclosures The written list is a referral under RESPA

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THE LOAN ESTIMATE Standard form for RESPA transactions Dynamic Form (changes based upon loan type) One-page Shopping Sheet Less text, more graphic design Information not education More important and usable information earlier Formatting non-negotiable • Must use BOLD italics and spacing as set forth in the Model Form

Rounding • LE uses rounding if rate is even, e.g. 4.00% is 4%, but 4.125% is 4.125% • LE rounds payment to nearest dollar, without “cents” for some, but uses

“cents” in others, all or none is not an option, must follow the prescription

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THE LOAN ESTIMATE

No change in Settlement Agent processes? Lender will contact settlement agent after loan application to get fees to generate the Loan Estimate - round up doc fee? Lender completes the Loan Estimate and delivers. Settlement Booklet

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LOAN ESTIMATE PAGE 1 Designed to be a ‘stand alone’ page and quick review of the most important items—

Property, Sales Price, Purpose Loan product Rate lock status Loan Terms/Interest rate Projected Payments Cash to Close CFPB Website for general information and tools

• An Alternative Loan Estimate may be used if the transaction does not have a seller, which includes a check box to indicate if cash at closing is paid by or paid to the borrower and there is an alternative calculating cash to close table with fewer entries on page 2

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PAGE 1 PROPERTY, LOAN, LOCK STATUS

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PAGE 1 LOAN TERMS

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PAGE 1 PROJECTED PAYMENTS

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PAGE 1 CASH TO CLOSE

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LOAN ESTIMATE PAGE 2 Designed to detail the costs and may include up to four categories of costs— 1. Loan Costs/Other Costs, 2. Calculating Cash to Close; and, when applicable-- 3. Adjustable Payment (AP) Table for loans with adjustable

payments, and 4. Adjustable Interest Rate (AIR) Table for loans with

adjustable interest rates Items associated with the mortgage are broken down into two general types: Loan Costs , paid by the consumer to the creditor and third –party providers the creditor requires for the origination of the loan, including Title fees and Other Costs, including taxes, recording fees, and certain other fees in the real estate closing process, including Owner’s Title....

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PAGE 2 LOAN COSTS A. ORIGINATION

First, must include “points”, charges used as a percentage of loan amount or dollar amount to reduce the interest rate

Broker compensation

LLPA’s not including in the interest rate

B. SERVICES YOU CANNOT SHOP FOR

Appraisal Credit

Flood Cert

Tax Service C. SERVICES YOU CAN SHOP FOR

Pest Inspection

Survey Title-Insurance Binder

Title-Lender’s Policy

Title-Settlement Agent Fee D. TOTAL LOAN COSTS (A + B + C)

E. TAXES AND OTHER GOVERNMENT FEES

F. PREPAIDS

G. ESCROWS

H. OTHER

• Title—Owner’s Title Policy (optional)

I. TOTAL OTHER COSTS ( E + F + G + H)

J. TOTAL CLOSING COSTS (D+I)

ITEMIZATION IS BACK—UNLIKE THE 2010 GFE, THE LENDER MAY DISCLOSE INDIVIDUAL FEES, WHICH MUST BE ALPHABETIZED , AND THE TOTAL OF ALL ITEMIZED IN EACH SECTION MUST BE LISTED FIRST

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PAGE 2

PAGE 2 CLOSING COST DETAILS

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PAGE 2 AP Adjustable Payment (AP) Table discloses changes to the principal and interest table, e.g. Interest Only, Step Payment or Seasonal

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PAGE 2 AIR The Adjustable Interest Rate Table (AIR) discloses the changes to payment, rate, etc. with an adjustable rate

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LOAN ESTIMATE PAGE 3 The “rest” of the “Other Information” Contact Information for creditor and loan officer Comparisons – to measure the costs to compare with other loan (the APR and new Total Interest Paid, “TIP”) Other Considerations (including the ‘merged’ Appraisal and Serving disclosures), and Confirmation Receipt (which is an optional signature line for the consumer to acknowledge receipt)

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30 PAGE 3 CONTACT INFORMATION Disclose the Name and NMLS ID number for the Lender, Loan Officer, Mortgage Broker and Loan Officer of the Broker. Must use the name of the primary contact for the consumer.

PAGE 3 COMPARISONS

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PAGE 3 OTHER CONSIDERATIONS

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PAGE 3 CONFIRMATION OF RECEIPT

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A TOLERANCE BY ANY OTHER NAME VARIATIONS Like the current GFE, there are three ‘variation’ buckets—Zero Tolerance, 10% Tolerance and Not Subject to Tolerance Certain charges are not subject to tolerance limits—the amount charged may exceed what was disclosed on the Loan Estimate

Prepaid interest Hazard insurance Escrows and impounds Fees to third-party service providers selected by the consumer and not only the Settlement Service Provider List Fees to third-party providers for services not required by the creditor

BUT—creditors may only charge more than the amount disclosed when the original estimate was based upon the best information available at the time of disclosure

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DISCLOSURE OF TITLE FEES Lenders policy: • Services you can shop for category • How to calculate: Full premium without any adjustment

that might be made for the simultaneous purchase of an owner’s title insurance policy.

• Can use enhanced policy or endorsements if the lender knows that these products will be purchased.

Owners policy • Other category • Must be listed as “optional” • How to calculate: Full owner’s title insurance premium,

adding the simultaneous issuance premium for the lender’s coverage, and then deducting the full premium for lender’s coverage.

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The Rule vs. Reality

OTP Disclosure = OTP Premium + LTP Simultaneous Premium – Full FTP Premium

LTP Disclosure = Full OTP Premium

LTP Disclosure = Full LTP Premium (with no

discounts for Simultaneous Issue)

LTP Actual = LTP Simultaneous Premium

OTP Disclosure = $368 [__________$1237____(OTP Premium) + __________$350___(LTP Simultaneous

Premium) – _____$1219____________(Full LTP Premium)]

OTP Actually Charged = _____$1237_________

LTP Disclosure = ______$1219______________

LTP Actual = ___$350______________

THE INSURANCE CHARGES IN STATE/REGION 36

Title Insurance Charges in Colorado Please complete this form using $200,000 as the sale price with a $190,000 loan.

TWIST... In a recent discussion with former CFPB counsel, Richard Horn, who was the primary architect of the Rule, and now a partner at Dentons, we questioned whether the originator should only disclose the Preferred Service Provider for the title fees. Rich emphasized:

“The answer is based on the facts and circumstance”

How do you document them? The requirement is to disclose the fees that the borrower is likely to pay. If the borrower (seller) has already selected the title co (e.g., it’s listed in the contract), then actually yes, you’d have to list that title company’s fees and fee names. This will be one of the challenges of the rule. If no title company has been selected or you require the borrower to use your preferred title company, then you’d list [their fees]

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10% TOLERANCE Some charges are subject to a 10% cumulative tolerance

Recording fees Fees to third-party service provider (not an affiliate of the creditor or broker), selected by the consumer, when the consumer is permitted to shop

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ZERO TOLERANCE The creditor may never charge more than the estimated amount for the following fees, unless there is a valid ‘changed circumstance’ or other triggering event:

Fees paid to the creditor Fees paid to the broker Fees paid to an affiliate of the creditor or broker Fees to a third party settlement service provider the consumer was not permitted to shop for • Appraisal, Credit, Tax Service, Flood Cert

Transfer taxes

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WHAT IS A CHANGE OF CIRCUMSTANCE? 1. Changes that occur after a Loan Estimate is

issued, that cause estimated settlement charges to increase more than is permitted under RESPA-TILA 1026.19(e)(3)(iv)(A)

2. Appraisal Change that affect eligibility. 3. Credit Terms requested by consumer. 4. Float to Lock 5. Intends to proceed more than 10 days after

original loan estimate. 6. New Construction delay by more than 60 days. 7. Extraordinary Event 8. Information lender relied upon that was later

discovered to be inaccurate. (i.e. credit score, income)

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MULTIPLE CHANNEL MONITORING Retail Correspondent • Careful review to test for TRID requirements

Wholesale • You are the lender so you are responsible

• Who will issue the disclosures?

• How will you monitor what happened before you saw the loan for Loan application, and change of circumstance?

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HOW AM I GOING TO MANAGE THIS? Plan A: • Your LOS System works perfectly and you have nothing to

worry about!

Plan B: • Tracking Trigger Dates

• Tracking Change of Circumstances

• Monitoring Tolerances

• Monitor Origination Channels

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CONSIDERATIONS FOR MONITORING Use “if this” then “this” thinking. Consider a Centralized repository for monitoring. • Archive of data field changes matched with disclosures

sent/received for exam.

Look at what data you can get and where to be prepared for how to monitor this. All technologies have audit trails. Train Hard: • Trigger Dates • Change of Circumstances • Damage Control (Consumer/Real Estate Delays) • Turn every employee into a compliance person and compensate

appropriately.

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SAMPLE TRIGGER MONITORING How do we monitor prospect to loan application? When a loan comes in how will it be tagged to the correct type of disclosure? How will we differentiate the timing and triggers on different types of loans? How do we monitor withdraw in 72 hours and then Re-Application? (Rising Rate) What system will be used for to track COC vs. change of information? (i.e. loan amount) What methodology will be used each time a loan estimate or closing estimate is issued to check for tolerance acceptance. What will happen if a loan misses a trigger date? How will we monitor that a disclosure has been “received” What are our company “business days”? Test with Old School Methods! Confirm with Technology Methods, they should match one another!

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PREAMBLE TO THE RULE Comments regarding Closing and the role of Settlement Agents:

Ensures all requirements are met Documents are completed and executed Collects all funds including fees Disburses all funds to appropriate parties Records documents

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WHO WILL PROVIDE THE CLOSING DISCLOSURE Shared Responsibility (like what happens today) Lender and settlement agent agree to divide responsibility for gathering data for the closing disclosure or Lender will provide Consumer must get ONE completed disclosure

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THREE-DAY RULE (OR IS IT 7) Policy: Consumers must receive their Closing Disclosure

at least three business days before closing . • Business day = Every day but Sundays and Federal Holidays

Final: Only have to re-disclose and restart clock in

limited circumstances. • APR changes

• Change in loan product

• Addition of prepayment penalty

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HOW TO COUNT THE THREE DAYS- CLOSING DISCLOSURE

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WAIVER The Rule does provide for a consumer’s waiver o the three (3) day wait period to meet a ‘bona fide personal financial emergency’

Earnest money is not considered a “bona fide” financial emergency, whether $5,000 or $50,000 The Regulators believe “waiting” is advantageous Lenders may not be able to sell the loan because the definition of a bona fide financial emergency under the Rule is very narrow

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ALL OTHER CHANGES All changes that do NOT fall within the 3 categories must be disclosed in a corrected Closing Disclosure given to the borrower before or at consummation

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THE OTHER CONSUMER What about the SELLER! Separate disclosure Delivered by the settlement agent Lender(creditor) must be given a copy!

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SELLER DISCLOSURES Seller must receive Closing Disclosure reflecting the actual terms of the seller's transaction. Seller only form allowed • In case of privacy concerns

• Includes only information relevant to seller

• Model H-25(i)

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CONSUMMATION ROOM! New terms – closing v consummation Consumer/borrower is legally obligated under on the promissory note Colorado is typically ‘closing’ Only changes to APR, loan product, and addition of a prepayment penalty cause a reset or issue a new closing disclosure

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CONSUMER IMPACT Inaccurate disclosure of costs Delay in closing Loss of earnest money Back to Back closing failures EXTREME FRUSTRATION with all real estate professionals

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CFPB DOES NOT CONSIDER A ‘DELAY’ TO BE BAD! IT IS ACTUALLY A FEATURE OF THE NEW RULE!

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FINAL DISBURSEMENT Rule does NOT prohibit a separate form from being used Lenders have expressed concern but Colorado has required a Settlement Statement for many years Acknowledges acceptance of final figures and disbursement

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POST CONSUMMATION ROOM Corrected Disclosure (not re-disclosure) changes that actually affect the amount paid by a consumer( including seller) i.e. taxes, HOA fees, recording fees just to name a few! Including tolerance violations

Must be made within 30 days of consummation!

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60 DAY CORRECTION Within 60 days of consummation if: Clerical Error or Refunds to correct a tolerance violation Placed in the mail

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WHAT TO KEEP? Final Rule requires 5 years or whatever individual state standards require Evidence to show compliance with obligations and standards under the rule Does NOT require machine readable format

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REALTOR DEMANDS No ‘quick’ closings No last minute changes Need to extend contracts Plan on 30 to 60 day close Loss of control of transaction

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WHAT LENDERS WANT REAL ESTATE AGENTS TO KNOW

We value your role in the transaction Earnest money is not a bona fide emergency Once we have some muscle memory around the process, if we work together and share good communication, efficient, timely closings will be possible (we are aiming to continue to meet 21 day closings...which is a 16 day application-to-clear-to-close event) The consumer will look to you for explanations and information—you don’t need to know the details of 1,888 pages, but a basic understanding will be important Remember, we will have overlapping forms in process and closing at the same time—everyone will do their best to meet expectations, but the first weeks of August are not a great time to expedite any closing—under the old GFE or the new LE...

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REFERENCES CFPB TILA-RESPA Guidance RESPA-Regulation X Section 1024 TILA-Regulation Z Section 1026

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