Asurity’s Karol Villavicencio–TRID Refresher Series Part 2: Examinations Under TRID
Karol Villavicencio, an MBA NewsLink 2024 Tech All-Star Award recipient, is Director of RegCheck Operations and Product Management for Asurity, Washington, D.C.
Jonas Hoerler, Chief Regulatory Counsel for RegCheck at Asurity and Of Counsel at Sandler Law Group, contributed to this article and wrote Part 1, Understanding TRID Tolerance and Timing Requirements for Disclosures in Mortgage Transactions.
For mortgage lenders, the mortgage process can be daunting, with its myriad regulations and requirements. Among these, the TILA-RESPA Integrated Disclosure (TRID) Rule, implemented by the Consumer Financial Protection Bureau in 2015, stands out for its impact on disclosure timing and tolerance requirements for mortgage lenders. In the first article of this series, we reviewed some of the key requirements and limitations the TRID Rule imposes on lenders. Here, we’ll delve into some of the legacy thresholds reviewed in TRID examinations as well as provide some useful recommendations for lenders to ensure ongoing TRID compliance.
Examinations
Examinations are a powerful tool employed by the CFPB and other agencies to assess a lender’s compliance with applicable laws and regulations, including the TRID Rule. While these examinations help ensure that lenders remain in compliance and treat consumers fairly, they can be a real headache for the unprepared lender. The good news is the agencies conducting the examinations, including the CFPB, typically make available their examination playbook so that lenders can be prepared.
For the TRID Rule, the CFPB published Subpart C of the TILA Examination Procedures guide to outline the process for lenders. It is important to note, however, the guide also covers the restrictions from both TILA and RESPA before the rules were combined under the TRID Rule.
Below we provide an overview of the topics covered under Subpart C of the TILA Exam Procedures guide.
Accuracy Tolerances
The TILA Rule defines the accuracy tolerances required for certain calculations. These tolerances follow the mandate to accurately disclose terms like the finance charge and the annual percentage rate (APR) to consumers who apply for closed-end credits.
Finance Charge – Generally, the finance charge is considered accurate if at least one of the following statements is true:
The finance charge disclosed is not understated by more than $100.
The finance charge disclosed is greater than the actual amount.
APR – There are two accepted ways of calculating the APR and no matter which one you use:
For regular transactions, the APR is considered accurate if it is within one-eighth of one percentage point of the APR as calculated under Regulation Z.
For irregular transactions, the APR is considered accurate if it is within one-quarter of one percentage point of the APR as calculated under Regulation Z.
Total of Payments – Total of payments under the TRID Rule is not the same as the total of payment calculation.
previously seen on the Truth in Lending disclosure. The total of payments calculation consists of all the payments of principal, interest, mortgage insurance, and loan costs as disclosed on the Closing Disclosure.
Please note for the purposes of right of rescission and foreclosures, the thresholds are more stringent.
Disclosure Requirements
Disclosure Methods for Construction Loans – Creditors have several options to disclose construction loans and construction to permanent loans. Appendix D and its associated commentary provides guidance and clarification on the different methods of disclosure and corresponding methods of calculations and timing requirements.
TIL Disclosures Still Required for Current Loans not Subject to TRID – Housing assistance programs may be exempt from the TRID disclosure requirements, but they are still required to provide the borrower with TIL disclosure.
Home equity lines of credit (HELOCs) require a similar brochure titled “What You Should Know About Home Equity Lines of Credit,” be provided to the borrower.
Adjustable-rate mortgage (ARM) transactions require a booklet titled “Consumer Handbook on Adjustable Rate Mortgages,” (CHARM) to be provided to the borrower.
Creditors servicing their loans are required to provide notice to the borrower when the rate adjusts on ARM loans.
Recommendations for Lenders
Lenders can follow a few best practices to mitigate potential issues and become more comfortable with examination procedures. Below are some tips to help be better prepared for upcoming examinations.
Relationship with Vendors
Your due diligence with vendors shouldn’t end once you have signed a contract. It should be an evolving relationship to make sure your needs are met and that you are taking advantage of all the features and services available to you. Below are some areas that you may or may not know that certain vendors offer to help you in your compliance journey.
Locking down APR-affecting fees. Many vendor systems rely on a small checkbox on a screen to indicate whether a particular fee constitutes a finance charge for the purpose of calculating numerous disclosed values, such as the APR. These finance charge selections should be reviewed on a regular basis to make sure those definitions are treated consistently through your loan volume.
Annual check-ins with your document providers. Lenders often rely on document vendors for generating required disclosures. As part of your ongoing vendor due diligence, it is recommended that you understand the process on how and when they update documents, always review the release notes to be aware of any changes, and have check-ins, at least annually to make sure if any adjustments in the entity need changes as it relates to documents.
Establish Strong Quality Control Systems. An independent quality control system is important and oftentimes a required component of an originator’s structure. QC processes may include different components including underwriting decisioning, process adherence, as well as regulatory compliance. Quality control can happen before and after a loan closes and can be done internally or externally.
Conclusion
While the TRID Rule may be somewhat recent, examinations that cover the TRID Rule also cover thresholds that were introduced well before the CFPB combined TILA and RESPA. Fortunately, there are tools, technology, and vendors available to lenders to ensure consistent and accurate compliance.
Did You Know?
RegCheck®, Asurity’s automated mortgage compliance solution, allows lenders to detect mortgage compliance issues in real time, saving lenders valuable time and money. In addition, having a third Testing requirements in RegCheck are highly customizable, allowing lenders to quickly identify those issues that matter the most according to their business practices. If you have any questions regarding the TRID functionality in RegCheck, please contact Franci Webster at fwebster@asurity.com.
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.)
