TILA-RESPA Integrated Disclosure Rule
The TILA-RESPA Integrated Disclosure (TRID) rule became effective on October 3, 2015. A proposed rule to make corrections and offer additional clarity is slated to be finalized in April 2017. Its implementation remains a great challenge for the real estate finance industry, and MBA is working on several fronts to help address the issues.
- The Dodd-Frank Act required the Consumer Financial Protection Bureau (CFPB) to propose a rule that combines and integrates the disclosures under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The final rule was issued on November 20, 2013, and it became effective for most loans applied for on or after October 3, 2015.
- A proposal to amend provisions of the rule was released in August 2016 and the CFPB predicts that it will be finalized in April 2017.
- For those loans, the rule requires the use of new, integrated disclosure forms for consumers at the time of application and settlement, known as the Loan Estimate (LE) and the Closing Disclosure (CD), respectively.
- The LE is intended to integrate RESPA's Good Faith Estimate (GFE) and TILA's Early Truth in Lending (TIL) disclosure, and the Closing Disclosure is intended to integrate the Final TIL and the HUD-1 settlement statement.
- In addition to new forms, the rule brings major changes to the mortgage origination and closing process, including changing the definition of application, clarifying responsibilities for providing the forms, establishing tighter tolerances or limits on cost increases from application to closing, and installing a three-day review period between provision of the CD and consummation of the loan.
- If a creditor makes certain changes between the time the CD is provided and closing, a revised CD must be provided to the borrower and an additional three business days must elapse from the time the borrower is provided the revised CD until closing.
- Considering the complexity of the rule and the significant resources required to implement it, the CFPB has stated that it will be sensitive to "good faith" implementation efforts and that early examinations for compliance will be more diagnostic than punitive.
- The TRID rule constitutes a sea change for lenders, settlement service providers, real estate agents and consumers.
- It also has necessitated considerable expenses for systems and business process changes, training and other needs-costs ultimately borne by consumers.
- In the months immediately following its implementation, the many lingering open questions, misperceptions and technical ambiguities in the rule resulted in significant market disruptions. Investors and due diligence firms took an extremely conservative interpretation of several aspects of the TRID rule and the physical disclosure display requirements, resulting in a very high percentage of loans being held in suspense, rendered unsaleable, or forcing lenders to sell loans at a significant discount in a "scratch and dent" marketplace.
- A letter from Director Cordray in December 2015 that included some helpful guidance around errors, corrections, and cures did help to ameliorate this issue but, unfortunately, the CFPB chose not to address corrections and cures in the August 2016 proposed rule. It is unclear how due diligence firms and investors will respond if the CFPB does not provide additional assurances that the content of this letter continues to inform the CFPB's approach to the rule.
- Many of the errors being identified are minor or technical in nature-issues with the alignment or shading of forms, rounding errors, time stamps with the wrong time zone, or check boxes that are improperly completed on the LE.
- Compounding these minor errors is investor uncertainty regarding whether, and under what conditions, a CD can cure or correct the LE for those data fields that are not subject to either tolerances or re‐disclosures enumerated under the TRID rule.
- Finally, it is unknown how Fannie Mae and Freddie Mac (the GSEs) and the Department of Housing and Urban Development (HUD) will view TRID compliance. For now the GSEs and HUD are honoring the grace periods but soon they will begin applying their own interpretations of TRID to their post‐close quality control, repurchase (GSE) and claims review (HUD) processes. Moreover, compliance with TRID appears to be a "life of loan" warranty for the GSEs. Should the GSEs and HUD choose to make interpretations as conservative as the third party due diligence firms and demand repurchase or indemnification, a very significant market "event" cannot be ruled out.
MBA's Position / Next Steps:
- MBA will continue to urge the CFPB to provide authoritative, written guidance-developed with stakeholder input-on the difficult implementation issues presented by TRID.
- MBA is engaged in several areas to help its members comply. MBA will continue to:
- Meet with the CFPB to address questions on behalf of the real estate industry.
- Conduct standalone seminars and include meaningful opportunities at all MBA meetings, with the CFPB and other stakeholders, to focus on key implementation issues and options for resolution.
- Work closely with other trade associations to facilitate compliance.
- Offer compliance guidance through forums and other venues, including MBA's Compliance Essentials (CE) resource guide, CE self-study, and other materials to guide consumers and settlement service providers.
- Comment on any proposed changes to the rule.
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