The TILA-RESPA Integrated Disclosures rule for
mortgages1 ("TRID") went into effect on
October 3, 2015, after a nearly two-year implementation period. Yet
compliance with the new rule continues to pose challenges for
mortgage creditors. Despite significant ambiguities in the rule,
the Consumer Financial Protection Bureau ("CFPB" or the
"Bureau") has declined to issue further guidance
clarifying the rule's implementation, leaving originators,
investors, and settlement services providers exposed to
potential liability.
Director Cordray has acknowledged that the transition required by
the new rule has been difficult and that "minor errors"
are likely during this transition.2 As a result,
CFPB's early review of TRID compliance will, according to
Director Cordray, be "corrective and diagnostic, not
punitive." It remains to be seen, however, whether CFPB
examiners will take a lenient approach to early TRID exams and
whether CFPB enforcement staff will exercise discretion and forbear
if early problems attract significant public attention.
Creditors have taken varying approaches to managing TRID processes
and compliance in order to minimize legal and regulatory risks.
Because the rule requires creditors to assume responsibility for
aspects of the closing disclosure previously handled by settlement
services providers, some creditors are moving processes in-house to
avoid risks arising from coordination with settlement agents. In
addition, creditors who continue to rely on third-party settlement
services providers have had to resolve significant vendor
management issues in establishing TRID processes.
In this bulletin, we highlight issues that continue to complicate
TRID implementation and that may pose challenges for entities when
the CFPB begins to review compliance efforts, likely later this
year.
Ability to Reset Tolerances After Issuing the Closing
Disclosure—the "Black Hole" Problem
One ambiguity in the rule relates to when a creditor can rely on a
Closing Disclosure to reset tolerances when a change in
circumstance requires a change in fees. Creditors are generally
responsible for ensuring that the figures stated in the Loan
Estimate are made in good faith and are consistent with the best
information reasonably available to the creditor at the time they
are disclosed.3 If the amounts paid by the consumer at
closing exceed the amounts disclosed on the Loan Estimate beyond
the applicable tolerance threshold, the TRID rule requires the
creditor to refund the excess to the consumer no later than 60
calendar days after consummation. Different types of charges are
subject to different tolerance limitations under the rule.
Creditors are permitted to provide revised Loan Estimates (and use
them to compare estimated amounts to amounts actually charged for
purposes of determining good faith) only in certain specific
circumstances.4 The general rule is that the creditor
needs to deliver or place in the mail the revised Loan Estimate to
the consumer no later than three business days after receiving
information sufficient to establish that one of the reasons for
revision has occurred.5 Typically creditors are
not permitted to provide a revised Loan Estimate on or after the
date on which the Closing Disclosure is provided.6 The
creditor also needs to ensure that the consumer receives the
revised Loan Estimate no later than four business days prior to
consummation and the Closing Disclosure no later than three
business days prior to consummation.7
Due to this complicated set of deadlines, a scenario can occur
where a creditor receives information about a changed circumstance
after it issued the Closing Disclosure, such that it is no longer
permitted to revise the Loan Estimate. The commentary to the rule
seemingly permits the creditor to comply with the revised Loan
Estimate requirements by providing a revised Closing Disclosure in
lieu of a revised Loan Estimate if there are less than four
business days between the time the revised Loan Estimate is
required to be provided and consummation. Although the rule is
unclear, it appears that the revised Closing Disclosure may then
serve as the basis for tolerance determinations.8
Elaborating on this point, the Bureau's Small Entity Compliance
Guide ("SECG") explained that "if the event occurs
after the first Closing Disclosure has been provided to the
consumer (i.e., within the three-business-day waiting
period before consummation), the creditor may use revised charges
on the Closing Disclosure provided to the consumer at consummation,
for purposes of determining good faith and
tolerance."9
Based on these statements by the Bureau, there may be a
small window during which a creditor can use a revised Closing
Disclosure to reset tolerances. Specifically, creditors may reset
tolerances where there are fewer than four business days between
(i) the time the revised version of the disclosure is provided and
(ii) consummation. Outside this window, creditors may not be able
to reset the tolerance if the Closing Disclosure has already been
provided. The timing requirements of the rule thus appear to create
a "black hole," when tolerances cannot be reset.
As it stands, the rule could lead to counterintuitive
results—for example, a post-Closing Disclosure change in
circumstances would allow for a resetting of tolerances when it
occurs two days before consummation but not six days before. The
rule also does not account for other potential scenarios. For
example, it appears tolerances may not be reset in cases where
there is a delay in closing after the Closing Disclosure has been
issued, but where a change in circumstance occurs during the delay
period. Without a resetting of tolerances, the creditor would
likely need to absorb any increased cost if the permitted tolerance
is exceeded, even if the increased cost occurs as a result of the
borrower's actions or requests. As such, this "black
hole" problem remains an issue that creditors hope will be
corrected through further guidance by the CFPB.
Civil Liability
Another area that has been a significant source of concern and
confusion for creditors is the potential liability for violations
of the TRID rules. Although Congress directed the CFPB to integrate
the mortgage loan disclosure requirements from TILA and RESPA,
Congress did not amend the TILA or RESPA liability provisions to
integrate liability. As a result, the potential liability for
violations of the TRID rule is not clear.
As a general matter with respect to mortgage disclosure
requirements, TILA provides a private right of action with
statutory damages, while RESPA does not. In its rulemaking the CFPB
declined to create a bright-line rule for determining whether TILA
liability applies, and it instead pointed to its discussion of the
authority for each of the integrated disclosure provisions in the
rule's preamble.10 CFPB Director Cordray also
recently addressed the issue when responding to a letter from the
Mortgage Bankers Association; he wrote that although the TRID rule
incorporated RESPA requirements into TILA, "it did not change
the prior, fundamental principles of liability under either TILA or
RESPA."11
Based on this guidance, to assess liability for a violation of the
TRID rules, a lender must review TRID's preamble to determine
whether the CFPB relied upon TILA or RESPA authority when adopting
the provision in question. However, the CFPB has also seemingly
broadened TILA's liability provisions: although the tolerance
restrictions on good faith closing cost estimates are originally
from RESPA, the CFPB has stated that TILA's requirement to make
good faith cost disclosures provides authority to issue TRID
tolerance restrictions under TILA and to apply statutory
liability.12
Regulatory Enforcement
In addition to private litigation concerns, creditors
also are focused on the prospect of regulatory enforcement. Due to
the scale of the changes under the new rules, creditors are
reasonably concerned that, despite best efforts, their compliance
may not be immediately perfect or close to it. In light of these
concerns, the Bureau has stated that it will initially focus on
"good faith" efforts to comply with the rule, and that
examiners will focus on the institution's (i) implementation
plan, including actions taken to update policies, procedures, and
processes; (ii) training of appropriate staff; and (iii) handling
of early technical problems or other implementation challenges.
Although these statements are intended to provide some comfort, it
has yet to be seen how the CFPB will actually handle violations of
the new TRID requirements.
We believe certain best practices can help creditors adapt to the
new regime in ways that may be more likely to meet CFPB
expectations. Creditors should document how each rule requirement
maps to its internal processes and take pains to ensure they have
adequately documented all process changes made pursuant to the new
rule. Without such a record, a creditor may face unnecessary
challenges in demonstrating to CFPB exam staff that it indeed made
the required changes and did so to comply with the new rule.
Training documents, manuals, and policies and procedures should be
updated promptly to reflect the new rule, and modifications should
be made upon the discovery of implementation challenges. Finally,
timelines put in place to effectuate specific elements of the rule
should be reflected in both internal guidance and external vendor
requirements.
Despite the CFPB's efforts to provide TRID implementation
guidance, there remains significant ambiguity regarding key
liability issues, and it is unclear how courts will interpret and
apply these provisions. Additional guidance from the Bureau could
provide much-needed clarity. In the meantime, creditors continue to
face a series of tricky and time-consuming implementation
challenges. CFPB's review of TRID compliance will begin soon,
and it remains to be seen how the Bureau's promise to focus on
"good faith" compliance efforts will shape its
examination process.
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