TRID Uncertainty Drives Need for Enforcement Delay

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With the TRID rules effective date just around the corner, the industry is pushing Congress hard for legislation to impose an enforcement moratorium.

Lenders are concerned that honest mistakes/errors may take place as the result of the complexity of the new rules, the massive programming changes required for compliance, the exactness of the new forms and remaining uncertainty over implementation of the changes.

These concerns are well founded in view of the new potential for penalties under the revised rules. The new rules allow for the CFPB to take action for TRID violations against more than just the lender.

The CFPB can go after any “related party” that they believe were involved in a violation. This includes Directors, Officers, management employees, or agents of the lender.  Any party that they believe may have materially participated or contributed to the violation, including independent parties like appraisers, attorneys, and closing agents. Everyone involved in the loan transaction is at risk.

And the fines ain’t cheap. They come in 3 separate tiers; (“person” refers to any involved entity)

1. For any violation of a law, rule, or final order or condition imposed in writing by the Bureau, a civil penalty may not exceed $5,000 for each day during which such violation or failure to pay continues.
2. For any person that recklessly engages in a violation of a Federal consumer financial law, a civil penalty may not exceed $25,000 for each day during which such violation continues.
3. For any person that knowingly violates a Federal consumer financial law, a civil penalty may not exceed $1,000,000 for each day during which such violation continues.

As an example of the uncertainty, take a situation where a lender issues their Closing Disclosure for receipt by the consumer 3 specific business days prior to the closing. If for some reason the closing is then postponed for 10 days, this delay causes the rate to expire. The lender decides to allow the rate but needs to charge a rate extension fee. How does a lender disclose this fee change so it may be collected at closing? Seems simple enough, right? Just issue a revised CD. Not so fast.

The law allows for a revised Closing Disclosure (CD) to be issued for a change which takes place after issuance of the initial CD  when there are less than 4 days until closing from the date the lender would be required to issue a notice of the change.

For example, a closing is scheduled for Wednesday and the Lender learns of the change on the Monday before the closing. When learning of a bona fide change, the lender normally has 3 general days to issue a revised Loan Estimate. In this case, the lender cannot issue a revised LE as the CD was already issued. Since there are less than 4 days until the closing, the lender may disclose the change using a revised CD. No problem.

However, what happens when the closing get pushed out to a time that is more than 4 days from the date the lender would normally be required to notify the borrower of a change? Now, the closing would not take place in less than 4 days from the required notice. The lender cannot issue a revised LE because they issued the initial CD. So, how does the lender notify the borrower of the rate lock extension fee and collect it at closing? I don’t know. The law, and so far, CFPB, is silent

QUESTION: Is there is a lender, attorney, anyone (or, maybe CFPB is listening) out there that can provide instructions for how this situation should be handled so the lender and consumer are not penalized? Inquiring minds want to know. 

There are other unknowns and still quite a bit of confusion surrounding the new rules and the proper disclosure of information. Just one example would be the disclosure of owner and lender title insurance charges.

Hopefully, many of these questions will get answered after the rules become effective and the industry and consumers have hands on experience and live closings for review. However, in the process, neither lenders nor consumers should be unfairly penalized where confusion exists and resulting errors are made. Neither should be harmed by a mistake where there was no direct intent to violate the rules.

Corrections to disclosures should be allowed and, if needed, refunds can be made so all parties come out unscathed. That way we can all learn together from our mistakes.

There will be plenty of time for enforcement actions, and related fines after we work out the bugs.

CFPB…please delay enforcement actions for a reasonable period after TRID implementation.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.