Karl Dahlgren is managing director of BAI, Chicago, a nonprofit independent organization that delivers actionable insights for the financial services industry.
In October 2015, the first iteration of TRID took effect, which integrated the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations, under the Know Before You Owe (KBYO) Mortgage Initiative.
Two years later, the Consumer Financial Protection Bureau issued amendments to TRID that will go into effect this year, impacting loan applications received on or after October 1. While this updated regulation will have a significant impact on the industry, it will not require massive adjustments to processes and procedures, new training models or changes in vendors or suppliers.
Yet, even a few years after the initial ruling has gone into effect, many lenders and service providers still experience confusion about compliance with the rule. The CFPB continues to publish additional amendments and clarifications in an attempt to address much of the industry’s confusion about unique situations requiring disclosures. The main issue the industry struggles with is that the ruling, despite its staggering length, cannot possibly address all of the different scenarios that lenders continue to encounter.
When facing the upcoming regulations, many lenders have been concerned or confused about the following frequently asked questions.
Title and Escrow Fees
Can all fees associated with title and all fees associated with escrow be combined into one line each?
On the loan estimate form, all fees associated with title costs and closing can be rolled into one line if the lender prefers to do so. It is important to note, however, that this is not mandatory; it is an optional way of disclosing.
Appraisal Costs Changed Because Property Type Changed
If a borrower did not describe the property type correctly, such as confusing a condo and a duplex, and the appraisal charge must be increased as a result, is this considered a change of circumstances? Would this require a change in circumstance form for the higher cost of the appraisal?
The TRID amendments and clarifications have not altered the current definition of a change in circumstance. The regulation implies that you have three days to send the loan estimate. That time is intended to allow the creditor to perform the necessary investigations and due diligence to gather the necessary information to make the loan estimate in good faith. If a situation such as the one described occurred after the loan estimate was prepared, this would be considered a change in circumstances. The lender would need to issue a revised loan estimate in this scenario.
Defining Draw Fees
What is considered a “draw fee” under the new updates? Draw fees would also be synonymous with inspection fees if the lender requires an inspection before advancing more funds. There are several different terminologies for this fee used in different parts of the country. The small entity guides use “inspection and handling fees.”
Lender Paid Loans
How are most lenders disclosing a lender-paid loan? Does any lender-paid credit have to be disclosed at the time of the loan estimate?
Lenders may show the lender credit on the loan estimate and the item purchased by the loan credit, or they may decide not to disclose the cost of an item the lender-paid credit will pay for in the loan disclosure. The charge and the specific lender credit would need to be shown on the closing disclosure.