Jonas Hoerler From Asurity–TRID Refresher Series: Understanding TRID Tolerance and Timing Requirements for Disclosures in Mortgage Transactions
This is the first entry of a two-part refresher series covering various aspects of the TILA-RESPA Integrated Disclosure Rule.
Jonas Hoerler is Chief Regulatory Counsel for RegCheck at Asurity and Of Counsel at Sandler Law Group. He has worked in mortgage regulatory compliance for nearly 20 years, acting as staff attorney and later as senior regulatory counsel prior to joining the RegCheck team. In his current role, Jonas manages the legal and compliance requirements of RegCheck and oversees all aspects regarding legislative review and product implementation.
The TILA-RESPA Integrated Disclosure (TRID) Rule, implemented by the Consumer Financial Protection Bureau in 2015, revolutionized the mortgage industry by consolidating several forms and disclosures into two main documents: the Loan Estimate and the Closing Disclosure.
Among its many provisions, the TRID Rule stands out for its impact on fee tolerance and disclosure timing requirements for mortgage lenders. It is crucial for lenders to understand the tolerance and timing requirements under the TRID Rule to maintain compliance that provides borrowers with a transparent mortgage experience while optimizing operational success.
Let’s delve into the fee tolerance and disclosure timing requirements under the TRID Rule, including specific compliance criteria lenders must watch out for. We will then offer suggestions for lenders to streamline their workflows and additional steps that can be taken to ensure fees remain within the prescribed tolerances and that disclosures are delivered timely.
Tolerance Requirements
The TRID Rule sets tolerance levels for certain loan charges disclosed on the Loan Estimate. There are three categories of charges with different tolerance standards:
Zero Tolerance – Fees that cannot increase at all between the Loan Estimate and the Closing Disclosure. These typically include transfer taxes, lender fees, fees paid to an affiliate of the lender, and fees paid to a third-party for a required service where the lender did not allow the borrower to choose a provider.
10% Cumulative Tolerance – Fees that can increase by up to 10% collectively. This category covers costs like recording fees, and third-party services required by the lender if the borrower chooses a provider on the lender’s list.
No Tolerance or Unlimited Tolerance – Certain fees have no tolerance limit and can increase without restriction. These include prepaid interest, property insurance premiums, amounts placed into an escrow account, and fees paid to third-party service providers not selected by the lender.
Valid “Change of Circumstance”
A “change of circumstance” refers to any event that affects the borrower’s eligibility for the loan or alters the terms or costs associated with the mortgage transaction. Valid changes of circumstance allow lenders to revise the Loan Estimate without violating the tolerance requirements under the TRID Rule. Here are some common examples:
Changed circumstances affecting settlement charges. This includes events like a change in the borrower’s credit score, property appraisal issues, or a change in the loan amount or loan program.
Borrower-requested changes. If the borrower requests a change to the loan terms or selects a different settlement service provider than originally disclosed, it may necessitate a revised Loan Estimate.
Extraordinary events. Unforeseen circumstances such as natural disasters, changes in tax laws, or regulatory changes that affect the cost of the loan or settlement charges can trigger a valid change of circumstance.
Information specific to the borrower or transaction. Newly discovered information about the borrower’s financial situation or the property being financed may necessitate revisions to the Loan Estimate.
For borrowers, understanding tolerances is essential for managing expectations and budgeting effectively. By recognizing which fees are subject to tolerance limitations and which are not, borrowers can anticipate potential changes in closing costs and plan accordingly. It’s important for borrowers to review the Loan Estimate and Closing Disclosure forms carefully and raise any questions or concerns with their lender.
Lenders must adhere to the tolerance limitations prescribed by the TRID Rule to ensure compliance and avoid penalties. This requires accurate estimation of closing costs and diligent oversight throughout the mortgage origination process. Lenders should also be prepared to provide explanations and updates to borrowers regarding any changes to estimated costs and ensure transparency throughout the transaction. Failure to do so can lead to compliance issues and potential legal liabilities.Timing Requirements
Central to TRID compliance are the timing requirements for three key disclosure types:
Loan Estimate (LE) –Lenders must provide borrowers with a Loan Estimate within three business days of receiving a mortgage application. This disclosure outlines the loan terms, estimated closing costs, and other pertinent information for borrowers to compare loan offers effectively.
Closing Disclosure (CD) –The Closing Disclosure must be provided to borrowers at least three business days before closing. This document summarizes the final loan terms, closing costs, and details of the mortgage transaction. The three-day waiting period allows borrowers to review the terms and ensure they align with expectations before closing on the loan.
Revised Loan Estimate or Closing Disclosure – If certain changes occur during the mortgage process, lenders may need to issue a revised Loan Estimate or Closing Disclosure. However, changes triggering a new waiting period vary in significance, with some requiring an additional three-day waiting period and others not.
Delivery Methods and the Mailbox Rule
Fortunately, the TRID Rule offers lenders some flexibility regarding how these disclosures are delivered. Here is how the timing requirements apply according to each method:
Physical Delivery – When disclosures are provided to the consumer in person, that is the date the lender has evidence or can attest that the borrower has received the disclosures.
Electronic Delivery – For lenders using electronic delivery, such as email or e-signatures, the date the lender sends the disclosures serves as the starting point for the three-day window, assuming compliance with the consumer consent and other applicable provisions of the E-Sign Act. The lender may rely on evidence that the consumer received the electronically delivered disclosures earlier, for example, if the consumer electronically acknowledges the disclosures.
Mail Delivery – For disclosures delivered via traditional (or “snail”) mail, the “mailbox rule” applies. The borrower is considered to have received the disclosures three business days after the disclosures are delivered or placed in the mail. Proof of actual delivery earlier can shorten the mailbox rule time period.
Business Days
To ensure compliance with the timing requirements under the TRID Rule, it is important to note that the Rule employs two distinct definitions of “business day” to ensure clear timelines for disclosure delivery. Understanding and adhering to the appropriate “business day” definition are of paramount importance for accurate TRID compliance. The two definitions are as follows:
Standard Definition (General) – The standard “business day” definition is a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions. This definition means the day count may vary from one lender to the next. It also means the day count can change from year to year within a given lender as they expand or contract the observed holidays and other company events.
Specific Definition – The specific definition does not vary from one lender to the next. It includes all calendar days except Sundays and legal public holidays as specified under 5 U.S.C. 6103(a). This list seldom changes, but it did so recently with the introduction of the Juneteenth holiday in 2021, as discussed on a previous blog post.
Exceptions
The TRID Rule does allow for some of the timing requirements to be waived or modified by the borrower if they determine that they need the credit to meet a bona fide personal financial emergency. While the CFPB does not clearly define a list of conditions that must be met, they do require that the borrower provides a written statement detailing the set of circumstances that necessitated closing the loan prior to the waiting period. Instances such as going on vacation or attending out-of-town work meetings likely would not qualify as a bona fide personal emergency, but a waiver to avoid a foreclosure deadline would likely meet the criteria.
Additional TRID Timing Requirements of Note:
Written List of Settlement Service Providers – The companion disclosure to the Loan Estimate where it identifies one or more service providers quoted on the Loan Estimate for the services the borrower is permitted to shop for. This separate disclosure is required to be issued within three general business days of the application. If new services are introduced in the middle of the loan cycle, lenders may revise the written list of settlement service providers accordingly.
Intent to Proceed – While an intent to proceed does not have to be provided in writing, it does need to be documented prior to the lender imposing any fees onto the borrower, other than a bona fide and reasonable fee for obtaining the consumer’s credit report. In addition, the intent to proceed cannot be given by the borrower prior to receiving the Loan Estimate.
What steps can lenders take to keep in compliance with the TRID Rule?
Fortunately, new technologies and independent service providers in the mortgage compliance space are making compliance easier, faster, and more cost-effective. However, these solutions do not entirely obviate the lender’s responsibility to do its part to ensure adequate compliance. The key to a successful mortgage compliance strategy is to maintain a healthy feedback loop and update compliance strategies as needed. Like many other regulations, the TRID Rule is not a static piece of legislation–it can be amended, and new guidance can emerge that can alter your mortgage compliance processes.
A few things lenders can do to keep ahead and ready include:
Updating mortgage compliance policies and procedures. Company policies and procedures, including escalation steps, work best when they are kept current and consider any changes to personnel size, loan program offerings, and technology partners. Reviews should be conducted once a year at a minimum but preferably also when a major event impacting operations has occurred.
Refreshing training for employees. Recurrent training ensures new team members, or existing team members who have switched/expanded job responsibilities, are up to speed. Several industry associations, including the Mortgage Bankers Association, offer classes and webinars on topics such as the TRID Rule to help maintain compliance and assist with continuing education.
Leveraging technology. Investigate if there are additional tools available to you via your loan origination platform, document provider, or automated compliance partner. Typically rules, tasks, and checks can be configured at different stages of the loan cycle to alert users to potential violations prior to sending disclosures or other loan documents.
Conclusion
Lenders must adhere to the tolerance limitations and timing requirements prescribed by the TRID Rule to ensure compliance and avoid penalties. This requires accurate estimation of closing costs and diligent oversight throughout the mortgage origination process. Lenders should also be prepared to provide explanations and updates to borrowers regarding any changes to estimated costs and ensure transparency throughout the transaction. Failure to do so can lead to compliance issues and potential legal liabilities.
Non-compliance with the tolerance and timing requirements of the TRID Rule can have serious repercussions for lenders. The Consumer Financial Protection Bureau closely monitors adherence to these regulations and imposes penalties on lenders found to be in violation. These penalties can range from monetary fines to reputational damage and even legal action. By prioritizing compliance with the TRID Rule, lenders mitigate the risk of facing regulatory scrutiny and the associated consequences.
Compliance with the requirements of the TRID Rule is not just a regulatory obligation–it’s also a strategic imperative for lenders looking to differentiate themselves in a crowded marketplace. Maintaining accurate and consistent compliance practices instills confidence in borrowers, reassuring them that their financial interests are being safeguarded. This confidence is invaluable in building a loyal customer base and establishing a positive brand image that resonates with borrowers seeking a trustworthy partner for their mortgage needs. By implementing streamlined workflows, leveraging technology, and prioritizing communication and education, lenders can minimize disclosure timing and tolerance issues and provide borrowers with a seamless and compliant mortgage experience.
For further guidance, consult the CFPB’s resources on the TRID Rule, including the TRID Rule FAQs.
The information provided in this article does not, and is not intended to, constitute legal advice and is presented for general informational purposes only.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
