In our initial article announcing our top 10 considerations for financial institutions in 2016, which can be found here, our ninth consideration was the new Truth in Lending Act/Real Estate Settlement Procedures Act Integrated Disclosure (TRID) regime. One final area the CFPB has specifically indicated as a focus area for supervision and enforcement in 2016 are the new disclosures that have been promulgated under the Truth in Lending Act and the Real Estate Settlement Procedures Act. The rules, referred to as “TRID”, require specific disclosure of mortgage loan terms and conditions, as well as expected settlement costs. Simple as that sounds, the rules implementing TRID cover hundreds of pages in the Federal Register and continue to leave plenty of unanswered questions for the industry.
Generally, the rules implementing TRID, which became effective for mortgage applications received on or after October, 3 2015, form the basis for a sea change in the disclosure regime for the residential mortgage industry. Previously, mortgage borrowers received two separate disclosures at the beginning of the mortgage loan process. One disclosure was issued under the Truth in Lending Act (TILA), the initial Truth in Lending disclosure, and another was issued under the Real Estate Settlement Procedures Act (RESPA), the Good Faith Estimate. Additionally, at the end of the mortgage loan process there is another disclosure issued under TILA, the final Truth in Lending disclosure, and another one issued under RESPA, the HUD-1. However, the use of these separate disclosures has been relegated to a significantly limited list of loan products.
Under the currently effective TRID rules, the disclosures mentioned above have been integrated so that there is now one disclosure issued to the borrower at the outset of the mortgage loan process, the Loan Estimate (LE), and a second disclosure issued at the closing of the mortgage loan process, the Closing Disclosure (CD). While many of the core disclosure requirements have been transferred to the new forms, the TRID rules carry a number of intricate timing requirements and situation-specific disclosure requirements that require compliance staffs to be well-versed in the thousands of pages of rulemaking and guidance issued by the CFPB.
Moreover, these changes have challenged the mortgage vendors, such as technology vendors developing software that must evolve as the TRID rules evolve. The new forms and rules have also affected investors and loan purchasers, who are purchasing newly issued mortgage loans from the lenders, as they have also faced a steep learning curve on the new rules in efforts to ensure that the loans they are purchasing are compliant. Everyone is still learning the compliance risks and challenges with the new rules and forms, including the regulatory examiners.
One such challenge the industry has identified is specific to timing requirements, and is referred to as the “black hole.” Here, if a change in circumstances occurs (which would require a revised disclosure to the borrower) more than seven business days before consummation, but after the initial CD has been provided, the concern is that the lender cannot comply with both the requirement to provide the revised CD (in lieu of a revised LE) within 3 business days of the changeand provide it within 4 business days of consummation, as is currently required.
Indeed, as challenges and confusion over specific compliance obligations have emerged, the CFPB, in a nod to the mortgage and settlement services industries, recently announced its intention to reopen the TRID rulemaking and indicated that Notice of Proposed Rulemaking will likely be issued in July to begin such a process. Thus, the industry will have another opportunity to challenge compliance obligations that have caused so much concern over the last few years.