PRMG is Ramping Up for the TILA RESPA Rule

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1 PRMG is Ramping Up for the TILA RESPA Rule Paramount Residential Mortgage Group, Inc. (PRMG) is ramping up for the new TILA RESPA rule. Effective with applications taken on or after August 1, 2015, lenders and mortgage brokers are required to provide the new TILA RESPA Integrated Disclosures (TRID). These disclosures are designed to combine the mortgage loan disclosures that are currently provided under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The changes for the disclosures have been issued by the Consumer Financial Protection Bureau (CFPB) as authorized under the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act). What You Need to Know TRID consolidates four existing disclosures required under TILA and RESPA for most transactions secured by real property into two forms: a Loan Estimate (LE) and Closing Disclosure (CD). The Initial Truth in Lending Disclosure (Initial TIL) and Initial Good Faith Estimate (Initial GFE) are being replaced with the new Loan Estimate. The Closing Disclosure will replace the Final Truth in Lending Disclosure (Final TIL) as well as the HUD 1 Settlement Statement (HUD 1). What s in? Loan Estimate Closing Disclosure What s out? Good Faith Estimate Initial TIL Final TIL HUD 1 Settlement Statement Purpose The purpose of TRID was to simplify TILA and RESPA disclosures in an effort to make them easier for the consumer to use and shop with, make them more understandable, and to help prevent surprises at closing. Transactions Covered Under the New Rule TRID applies to most consumer credit transactions secured by real property, except the following: reverse mortgages home equity lines of credit (HELOC); and some state bond down payment assistance programs (State Bond DPA). PAGE 1 OF 5

2 Effective Date of the Rule TRID goes into effect on August 1 st, Covered applications received by the lender or broker from the consumer on or after August 1 st, 2015 must utilize the new LE and CD. All PRMG mortgage products will be covered under TRID, so applications you take for submission to us beginning August 1 st, must comply with the new rules. Definition of Application An application means the submission of a consumer s financial information for purposes of obtaining an extension of credit. A complete application consists of the submission of the following six pieces of information: The consumer s name; The consumer s income; The consumer s social security number to obtain a credit report; The property address; An estimate of the value of the property; and The mortgage loan amount sought. Note: the new definition of an application no longer includes the catch all provision that an application consists of any other information deemed necessary by the loan originator. This definition of application does not prevent a lender or broker from collecting whatever additional information it deems necessary in connection with the request for the extension of credit. However, once a lender has received the six pieces of information discussed above, it has an application for purposes of delivering the Loan Estimate to the consumer. Loan Estimate (LE) and Three Day Disclosure Rule As discussed above, the new LE replaces the current GFE and Initial TIL. Under the current rule, the GFE must be provided to the consumer by the broker or lender within three business days of receiving an application from the consumer. The Initial TIL must be provided by the lender, within three business days from when the lender receives the application. Under TRID, the lender is responsible for ensuring that the LE is delivered or placed in the mail no later than the third business day after receiving the application. The LE must contain a good faith estimate of credit costs and transaction terms. Although the lender remains responsible for the LE timing, disclosed terms and costs, the LE may be provided by the broker or the lender. The definition of business day for the purposes of delivering or placing the LE in the mail remains unchanged in that it is a day on which the lender s or broker s offices are open to the public for carrying out substantially all of their business functions. PAGE 2 OF 5

3 Loan Estimate (LE) Waiting Period Similar to the seven day waiting period required under the current Regulation Z, TRID also requires that the LE must be delivered or placed in the mail no later than the seventh business day before consummation of the transaction. For the purposes of the waiting period, a business day includes all days except Sundays and legal holidays specified in 5 U.S.C. 6103(a). The legal holidays include, New Year s Day, Martin Luther King Jr. s Birthday, Washington s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. TRID differs from current disclosure timing requirements in that there is a four day waiting period prior to consummation if a revised LE is provided to the consumer. Tolerances Under TRID there are three different tolerance buckets: (1) zero tolerance; (2) 10% tolerance; and (3) no tolerance. (1) Zero Tolerance means the fee cannot increase absent a changed circumstance. The following fees fall under the Zero Tolerance bucket: Lender s retained fees Broker compensation Services for which the consumer is not permitted to shop for providers Services paid to an affiliate of lender or broker when the consumer is permitted to shop for the provider Transfer Tax (2) 10% Tolerance means fees collectively may vary up to 10% of the total amount of fees initially disclosed that fall under the 10% tolerance bucket. The following fees fall under the 10% Tolerance bucket: Service provided by an unaffiliated service provider that the consumer could shop for but the consumer selected the provider from lender s list of providers Recording fees (3) No Tolerance means fees that may increase without restriction provided the estimate was issued in good faith. Fees that fall under the No Tolerance bucket are as follows: Service provided by an unaffiliated service provider that the consumer could shop for and the consumer did not select the provider from the lender s list of providers Homeowner s insurance Prepaid interest Initial escrow deposit at closing Services not required by the lender PAGE 3 OF 5

4 Note: Even if the fees disclosed change within the tolerances, all fees initially disclosed must have been a good faith estimate of the credit costs and transaction terms. Good faith defined by the rule means if any information necessary for an accurate disclosure is unknown, the lender/broker must make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer and use due diligence in obtaining the information. Revised Loan Estimate/Changed Circumstance Lenders are generally bound by the LE provided within three days of the application and may not issue revision because they later discover technical errors, miscalculations, or underestimation of charges. Lenders/Brokers may provide a revised LE in the event: (a) of a valid Changed Circumstance; (b) the consumer locks the interest rate after the initial LE was provided; (c) the consumer indicates an intent to proceed more than 10 business days after the Loan Estimate was provided; or (d) the loan is a new construction loan and settlement is delayed more than 60 calendar days. A changed circumstance for the purposes of a revised LE is: An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction; Information specific to the consumer or transaction that the lender or broker relied upon when providing the LE and that was inaccurate or changed after the LE was provided; or New information specific to the consumer or transaction that the lender or broker did not rely upon when providing the LE. Note: a revised LE may not be provided to the consumer once the lender has issued the Closing Disclosure. Closing Disclosure (CD) and Initial Waiting Period The lender must provide a Closing Disclosure reflecting the actual terms of the transaction no later than three business days prior to consummation. The CD must contain the actual terms and costs of the transaction. Revised Closing Disclosure/Waiting Period Lenders must re disclose terms or costs on the CD if certain changes that cause the disclosure to become inaccurate occur to the transaction after the CD was provided to the consumer. A revised CD must be received by the consumer no later than three business days before consummation if: the previously disclosed APR becomes inaccurate; the loan product changes; or a prepayment penalty is added. For any other changes that occur before consummation that do not fall under the three categories listed above, the lender must still ensure that the consumer receives a revised CD with those changes at or before consummation. PAGE 4 OF 5

5 Record Retention The lender must also retain copies of the Closing Disclosure for five years after consummation and three years after consummation for the Loan Estimate. If the broker provides an LE to the consumer, then the broker must also comply with the three year record retention requirement. What to Expect Over the course of the next several months, PRMG will be issuing additional information regarding PRMG s requirements for complying with TRID. As we approach the August 1 st deadline, PRMG will provide resources and conduct regular webinars with our lender and broker clients surrounding TRID. In the meantime, brokers and lenders should be working with their compliance departments, consultants, software providers and document vendors to ensure compliance with the new rules come August 1 st, The Place To Go For More Information To find out more about the changes, please visit the Consumer Financial Protection Bureau s webpage dedicated to the implementation of TRID. Disclaimer The information provided in this newsletter is merely an overview of the TILA RESPA Integrated Disclosure (TRID) requirements and it is not intended to cover the entire scope of TRID. PRMG s requirements, policies and procedures are subject to change. This information does not constitute legal advice. Your Legal or Compliance Department should consult with an attorney regarding specific questions surrounding TRID. PAGE 5 OF 5