MBA Comments Address TRID ‘Black Hole’

The Mortgage Bankers Association, in a letter this week to the Consumer Financial Protection Bureau, offered recommendations on how the Bureau could improve the TILA-RESPA Integrated Disclosure rule, known as TRID or “Know Before You Owe.”

The MBA letter addresses a glaring flaw in TRID, known as the “black hole.” Specifically, under current language TRID generally prevents lenders from re-setting fee tolerances when a Closing Disclosure has been issued prematurely.

For example: a Closing Disclosure (not a Loan Estimate) is issued within four business days of a loan closing. However, should a “valid change of circumstance” or “borrower-requested change” occur that changes the original fee tolerances, TRID as currently written provides no redress for lenders and/or creditors to reset tolerances in the corrected Closing Disclosure, thus they are unable to provide the consumer with a revised Loan Estimate or a corrected Closing Disclosure with reset tolerances.

“Because the integrated disclosure rule does not address any other circumstances in which a Closing Disclosure may be used to reset tolerances, many in the industry have interpreted this sentence to prevent creditors from using a CD to reset tolerances outside the four-business day limit, thereby creating what the industry commonly refers to as the ‘black hole’ when the creditor cannot reset tolerances using a CD,” wrote MBA Senior Vice President for Residential Policy and Member Services Pete Mills. “As a result, when changes occur after the CD has already been issued and the four-business day limit is exceeded, the creditor is faced with a choice between absorbing cost increases and passing that cost on to other consumers in the form of increased prices or instead denying the application.”

TRID went into effect July 2015. The CFPB issued a “fix” to the black hole in July, asking for comments from industry participants; the deadline was this week; these changes would go into effect Jan. 1, 2018. In its amendments, the CFPB proposes to resolve the black hole issue by eliminating the four-business day limit and allowing creditors to reset tolerances using a CD, regardless of how many days there are between the date the CD is issued and consummation.

MBA noted the rule as currently written has created confusion among lenders as to whether and when they may use the CD to reset tolerances when a change in circumstance or other permitted change occurs. This confusion results in uneven consumer experiences with some lenders issuing a CD to reset tolerances while others believe they are not permitted to do so. According to our members, the black hole has resulted in:

–Harm to consumers when creditors are forced to deny consumers’ requests to delay closings;

–Increased cost of credit for all consumers because many creditors believe that costs cannot be charged when a black hole event occurs even if there has been a valid permitted change and are therefore forced to spread these costs across all loans;

–Increased compliance costs that are passed through to all consumers; and

–Harm to competition, as smaller creditors and their customers are disproportionately affected because smaller creditors must spread increased costs across a smaller population of loans than larger creditors.”

MBA said resolving the black hole issue will benefit consumers and the mortgage industry alike by providing clarity, leaving choice in consumers’ hands and keeping costs down.

“The proposed amendment will resolve these issues, ultimately benefiting consumers by providing certainty for creditors and flexibility for consumers when unexpected issues arise before closing,” MBA said. “The amendments will not diminish the current rule’s requirement that creditors provide accurate, good faith disclosures to consumers in advance of consummation. Indeed, consumers will continue to benefit from the current rule’s protections against ‘bait and switch’ or similar tactics because, under the current rule and the proposal, tolerances can only be reset based on valid, documented changes in circumstances or other permitted changes. Finally, any potential for abuse will be discouraged by lenders’ quality control reviews and audits, as well as secondary market reviews and due diligence.”

MBA offered several modifications to the CFPB proposal:

–The Bureau should not create a rule now that further limits when the CD can be provided. “Attempting to resolve a problem that has not occurred may have unintended consequences, which could unnecessarily further complicate compliance, create confusion, and drive up costs for consumers,” the letter said. “If a problem develops in the future, the Bureau should propose action at that time to address the specific problem that develops.”

— Clarifying the commentary is needed to provide more useful examples and confirm that the initial CD can be used to reset tolerances when the interest rate is first locked. MBA asked the CFPB to provide more examples of common situations where creditors may use a CD to reset tolerances; and confirm that creditors can use the initial CD to reset tolerances when locking the interest rate for the first time.

MBA also noted the proposal to address the black hole will not increase costs to consumers or creditors. “Upon implementation, the proposed change will not increase costs for creditors,” the letter said. “Although some creditors will need to update programming to ensure their systems permit tolerances to be reset using the CD after a valid, documented permitted change, the proposed amendment is less restrictive than the current rule.” Additionally, MBA noted the proposed amendment should not inappropriately increase consumer costs in the long run.