TRID has been in effect since October 2015. The industry has taken great strides in implementing the new requirements, but some questions still arise. As lenders continue to familiarize themselves with TRID documents and processes, access to advice and guidance from trusted industry leaders is a lifeline that many lenders need to stay afloat.
Wolters Kluwer is that lifeline for so many lenders in their TRID implementation and operationalization efforts. Our customer service representatives continue to support and guide lenders daily. This article reveals some of the most common implementation questions we have received throughout this journey.
QUESTION: When do I use the “standard” and “alternative” versions of the new model forms for the Loan Estimate and Closing Disclosures in the TILA-RESPA disclosures in Reg. Z?
ANSWER: The “standard” version can be used for all transactions, whether it’s for a purchase, refinance or home equity loan. You have the option to choose the “alternative” form for transactions without sellers (i.e., refinance and home equity loans).
There are minor differences between the “alternative” and “standard” Loan Estimate in the Costs at Closing section on page one and the Calculating Cash to Close section on page two.
There are also minor differences between the “alternative” and “standard” Closing Disclosure in the Costs at Closing section on page one and the Calculating Cash to Close section on page three. Note also that the seller’s columns have been removed from page two and the Summaries of Transactions section on page three are replaced by a Payoffs and Payment section in the “alternative” version.
It’s important to remember to stay consistent when sending consumers the Loan Estimate and Closing Disclosure. If a consumer is sent a standard Loan Estimate, they should also receive a standard Closing Disclosure. The same rule applies to the alternative Loan Estimate and Closing Disclosure. This will help consumers more easily compare the loan Estimate and Closing Disclosure. For more information, please see Official Staff Commentary at 1026.38(d)(2)-1 and 1026.38(e)-1.
QUESTION: What’s the process for disclosing principal curtailment on the Closing Disclosure?
ANSWER: The CFPB shared with us that the principal curtailment should be shown on page three of the Closing Disclosure in the Summaries of Transaction section. It would be shown as a paid outside of closing (POC) in the “Other Credits” area of Section L.
It’s important to account for a process challenge that pops-up with this approach. The Summaries of Transactions appears on the standard Closing Disclosure, but it does not appear on the alternative Closing Disclosure for transactions without sellers.
If you use the alternative Loan Estimate and later discover the Summaries of Transactions section is needed to disclose the excess credits as a principal curtailment, you will encounter a compliance problem. This is because the regulation does not allow lenders to pair an alternative Loan Estimate with a standard Closing Disclosure.
The best way to avoid this process challenge is to use the standard Loan Estimate and Closing Disclosure.
QUESTION: How do you disclose creditor-paid principal reductions in the Closing Disclosure?
ANSWER: You use the same process for disclosing principal curtailment in the Closing Disclosure. The CFPB shared that creditor-paid principal reductions should be disclosed in the Summaries of Transactions section on page three of the Closing Disclosure in the “Other Credits” area of Section L.
Like with disclosing principal curtailment, there is a process challenge that pops-up from using this approach. If you use the alternative Loan Estimate and later discover the Summaries of Transactions section is needed to disclose creditor-paid principal reduction, you will encounter a compliance problem. This is because the regulation does not allow lenders to pair an alternative Loan Estimate with a standard Closing Disclosure.
QUESTION: What if I have more fees to list on the Closing Disclosure than there is space to list them?
ANSWER: TILA-RESPA Integrated Disclosure (TRID) expects the document authoring system creating the Closing Disclosure will “borrow” blank lines from other fee categories on page two of the disclosure. Those borrowed blank lines should be moved to the categories requiring additional fee entries. It’s important to remember when the CFPB wrote the requirements for TRID, they were expecting lenders to utilize a dynamic implementation.
If the document authoring system has used all the available blank lines and more fees need to be disclosed, then (and only then) can the system use the model forms pages 2a and 2b, instead of the model form for page two.
The regulation covers this situation in 1026.38(t)(5)(iv)(A) and (B):
A. Additional line numbers. Line numbers provided on form H-25 of appendix H to this part for the disclosure of the information required by paragraphs (f)(1) through (3) and (g)(1) through (4) of this section that are not used may be deleted and the deleted line numbers added to the space provided for any other of those paragraphs as necessary to accommodate the disclosure of additional items.
Two pages. To the extent that adding or deleting line numbers provided on form H-25 of appendix H to this part, as permitted by paragraph (t)(5)(iv)(A) of this section, does not accommodate an itemization of all information required to be disclosed by paragraphs (f) through (h) on one page, the information required to be disclosed by paragraphs (f) through (h) of this section may be disclosed on two pages, provided that the information required by paragraph (f) is disclosed on a page separate from the information required by paragraph (g). The information required by paragraph (g), if disclosed on a page separate from paragraph (f), shall be disclosed on the same page as the information required by paragraph (h).
QUESTION: Does 1026.38(g)(1) provide solid legal authority for keeping the amount of the borrower-paid lien release fee out of the finance charge and annual percentage rate calculations?
ANSWER: On the Closing Disclosures, lien release fees are aggregated under the label “Recording fees.” On the HUD-1, the lien release fees were aggregated under the label “Releases,” an approach that worked well with the requirements of 1026.4(e) for “itemizing and disclosing” the lien release fees.
This question was presented to the Consumer Financial Protection Bureau (CFPB), and they gave verbal assurances that the term “Recording Fees,” as used on the Closing Disclosure, was sufficient meet the requirements of 1026.4(e) for “itemizing and disclosing” the borrower paid lien release fees, and keep those fees out of the finance charge. The CFPB noted that the 1026.4(e)-2 suggests that the labels “security interest fees” or “filing fees” are appropriate; this list should not be read to limit the labels for those terms. The list shows examples, and the term “Recording Fees,” as used on the Closing Disclosure, is sufficient.
QUESTION: Certain consumer loans that are secured by real property are not subject to the integrated TILA-RESPA disclosure requirements. Which are these?
ANSWER: Regulation Z contains a partial exemption for certain interest-free state housing finance authority loans that meet the specific definition found in 1026.3(h). For loans that meet this definition, the lender may choose to provide the Loan Estimate and Closing Disclosure or it may choose to provide the traditional Truth in Lending Disclosures found at 1026.18
For those lenders choosing to use the traditional Truth in Lending Disclosures, the following documents can be used: the VMP703-706s and the Itemization of Amount Financed document (VMP documents VMP16, VMP723, VMP768).
These loans are also exempt from the requirement to provide a Good Faith Estimate, HUD-1, or HUD-1A. See RESPA at 1024.5(d)(2).
QUESTION: What are the disclosure requirements for closed-end consumer loans secured by a dwelling that is personal property?
ANSWER: Loans that are secured by a dwelling that is personal property (e.g., a manufactured home that is not attached to real property) are subject to the traditional Truth in Lending disclosure requirements found in Regulation Z at 1026.18, assuming that no real estate is being used to secure the loan.
QUESTION: How are loans secured by a cooperative unit disclosed under Regulation Z?
ANSWER: With the 2018 updates to Regulation Z, the TRID regulations now clearly cover consumer loans secured by an interest in a cooperative unit, regardless of whether state law considers that interest to be a real property interest or a personal property interest.