TRID - Iowa Bankers Association

Question: Due to the rising rate environment, we are getting more questions about assumable loans. If the bank allows for a person to assume the existing loan, would we be required to provide a loan estimate and closing disclosure to the new borrower?

Answer: The Consumer Financial Protection Bureau issued a fact sheet on May 1, 2019 that speaks to this very issue. The CFPB states if a new consumer is being added or substituted as an obligor on an existing consumer credit transaction that is a closed-end loan secured by real property or a cooperative unit (not a reverse mortgage), an LE and CD may be required. The disclosures would be triggered if all of the following apply unless otherwise exempted (such as with a housing assistance loan):

The transaction includes the creditor’s express acceptance of the new consumer as a primary obligor.
The creditor’s express acceptance of the new consumer as primary obligor is set forth in a written agreement.
The creditor is creating or retaining a security interest in the new consumer’s principal dwelling (whether real or personal property).
The new consumer is financing the acquisition or initial construction of the consumer’s principal dwelling (whether re3al or personal property).

Question: When determining if an loan estimate and closing disclosure are required for an assumption, Reg. Z says the loan must be a residential mortgage transaction. What does that mean and how do I make that determination?

Answer: Reg. Z defines a residential mortgage transaction as a loan that finances the acquisition or initial construction of the consumer’s principal dwelling. For purposes of determining whether the transaction is a residential mortgage transaction, the bank would look to the person assuming the loan and their relationship to the collateral, not to the original consumer. If the transaction is secured by the new consumer’s principal dwelling, but the new consumer had previously purchased or acquired some interest in the dwelling (even if not full legal title), it would not constitute a residential mortgage transaction. For example, a residential mortgage transaction would NOT occur when a successor takes on a debt obligation that is secured by a dwelling in which the successor previously acquired an ownership interest (e.g., title was transferred to the successor before the assumption occurred).

Question: If the loan qualifies as an assumption under Reg. Z, do we provide the new consumer obligor a copy of the original loan estimate and closing disclosure or should these be updated to reflect the remaining term?

Answer: If the transaction is an assumption under 12 CFR 1026.20(b), the creditor must provide a LE and CD based on the remaining obligation. For example, the amount financed is the remaining principal balance plus any other amounts owed or other accrued charges from the original consumer credit transaction. Similarly, in determining the amount of the finance charge and the annual percentage rate to be disclosed, the creditor should disregard any prepaid finance charges paid by the original obligor but must include in the finance charge any prepaid finance charge imposed in connection with the assumption transaction. If the creditor requires the new consumer to pay any charges as a condition of the assumption, those sums are prepaid finance charges to that consumer, unless exempt from the finance charge under 12 CFR 1026.4.

Question: We have an application to buy a single-family residence that will be the borrower’s principal dwelling. Instead of using the home as collateral for the loan, the borrower is offering a security interest in a certificate of deposit (CD) held at our bank. Since this loan is subject to Reg. Z and for the purchase of a dwelling, is this a TRID loan?

Answer: No. The loan is for a consumer purpose, made to a natural person, and meets other Reg. Z criteria. However, it is not subject to TRID because the TRID rules only apply to closed-end, consumer purpose transactions secured by real property. This loan is not subject to TRID because it is not secured by real property.

Question: Are pre-qualifications covered by the Integrated Disclosure rule? For example, someone wants to see if they qualify for a loan and they have an amount they want to qualify for. Would we be required to provide disclosures?

Answer: In a typical prequalification no property is identified. Since a property address is one of the six pieces of information required by Regulation Z to constitute an “application,” you have no responsibility to issue a Loan Estimate until you receive that information along with a suggested property value. Until you have all six pieces of information required under the rule, the bank is not required to issue a Loan Estimate.

Question: Does the rule apply to a farmer who lives in a house on farmland?

Answer: If the loan is consumer-purpose, yes. There is no requirement to have a structure and there is no exemption anymore regarding the number of acres. Therefore, if you have a collateral interest in real property (dirt) with or without a house, the loan is a closed-end loan and the loan is consumer purpose, the rule applies.

Question: When would you have a “consumer” loan secured by parcel of land that has more than 25 acres?

Answer: One example may be if a consumer wants to buy a vehicle for personal, family or household purposes and choses to use agriculture land as collateral for the closed-end loan request. Another would be if the consumer wants to do home improvements and applied for a closed-end consumer purpose loan secured by the house and the farm land. In both situations, this loan request is consumer purpose and is secured by real property, so the loan would be covered by TRID regardless of the number of acres.

Question: Are rental property loans considered “consumer purpose”?

Answer: If the loan is to purchase or update a rental property, the loan would be considered business purpose and NOT subject to TRID. However, if the consumer wanted to buy a car and used his rental property as collateral, if the car was for his personal use, it would be deemed a “consumer purpose-loan” and would be covered by TRID.

Question: Regarding loans secured by a non-owner occupied property, can you give a definition of what’s included in consumer purpose?

Answer: Under Regulation Z 1026.2(12), a consumer credit transaction is one in which credit is offered or extended to a consumer primarily for personal, family or household purposes. So when determining if the TRID disclosure rule applies, first determine if the loan proceeds will be used for a consumer-purpose, that the borrower is a natural person (or family trust – see OSC §1026.3(a) #10 on lending to trusts), and whether or not the loan is secured by “real property” – which means a collateral interest in dirt. If all three apply, the loan is a covered transaction even if the property being used as collateral is not owner-occupied.

Question: Does the real property securing the consumer-purpose loan have to be owned by the borrower?

Answer: No. Section 1026.19(e) provides TRID coverage is triggered by a closed-end, consumer credit transaction secured by real property (other than a reverse mortgage). There is no requirement the real property be titled in the name of the consumer borrower.

Question: How does the TRID rule apply to a mixed purpose loan? For example, what if we have an $80,000 loan secured by a farm and the proceeds will be used as follows: $5,000 for a new porch and the rest to refi Ag land? Small portion is consumer purpose.

Answer: The commentary for 1026.2(a)(12), uses the term “primary purpose”. Under the exemptions in 1026.3(a), it states “A creditor must determine in each case> if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt.” In your example, if the loan was for $80,000, since only $5,000 is used for a consumer purpose, you could safely say the primary purpose of the loan was business-related.

Question: Are pre-qualifications or pre-approvals subject to the TRID disclosure rule?

Answer: “Application” is defined in Regulation Z as the submission of a consumer’s financial information for the purposes of obtaining an extension of credit. For purposes of the TRID disclosure rule, an application consists of the submission of the consumer’s name, the consumer’s income, the consumer’s social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought. A prequalification or preapproval request typically does not include all six pieces of information constituting an “application.”

As long as the consumer does not provide all six elements—for example, the property address—the creditor is not required to provide a Loan Estimate and may simply provide a preapproval or prequalification in compliance with current practice and other applicable law. However, if the consumer provides all six elements constituting an application, § 1026.19(e)(1)(iii) requires the creditor to provide a Loan Estimate within three business days.

Question: Would farmland fit into the definition of loan secured by bare land (lot loan)?

Answer: Yes. A lot loan is an example of a loan secured by bare land. Again, coverage of the rule is triggered if the creditor makes a consumer-purpose loan and secures the loan with a collateral interest in real property.

Application Issues

Question: What is the definition of “estimated value” of a property?

Answer: Section 1026.2 (the definition section of Regulation Z) does not provide a specific definition. Rather the regulatory text defining an application simply says one of the required elements is “an estimate of the value of the property.” Therefore, since you would not have an appraisal or other validation document at the time you issue the Loan Estimate, the estimated value will most likely be the applicant’s stated value provided on the application or the tax assessed value as found in public records.

Question: If you receive the six pieces of information constituting an “application,” what default loan length and terms are you supposed to use when creating the Loan Estimate if the consumer does not indicate which loan program they are applying for?

Answer: This would need to be decided by the bank. The best answer is to have the loan personnel contact the applicant and ask what they would like. If you are unable to obtain the answer, then the bank can default to the most common loan length and term or any other loan program that makes sense for the borrower.

Question: What if we have an application and the applicant does not indicate the loan amount sought? Do we need to provide a disclosure?

Answer: If the consumer doesn’t provide the loan amount requested, you do not have all six pieces of information constituting an “application.” Until this is provided, you do not have an “application” for TRID purposes and therefore, do not need to issue a Loan Estimate.

Question: We currently provide the borrower with a checklist of items we will need to eventually receive with their completed application such as w-2, paystubs, bank statements, etc. Can we still distribute that list with the application under the TRID rule?

Answer: Yes, you can still ask for this information but you can’t require it as a condition for producing the Loan Estimate. In addition, you cannot delay issuing the Loan Estimate until the items on the list are received. Once you have the six pieces of information constituting an application, you have three business days to issue the Loan Estimate.

Question: For the purposes of determining if we have a completed application, do we need to have “verified income” or does it count if the customer simply states their income on the application?

Answer: You are not allowed to require verification information prior to issuing the Loan Estimate. Once you have their stated income, along with the other five items, you must issue the Loan Estimate within three business days. If they happen to provide you their W-2’s with the application, be sure to document that these items were voluntarily offered and not required as part of the application or a condition for providing the Loan Estimate. Keep in mind the intent is to get loan cost information into the consumer’s hands as soon as possible. The six pieces of information constituting an application will not be enough information for you to make a credit decision and will not likely constitute a “completed application” per your loan policy but receipt of these six pieces of information does constitute an “application” for TRID purposes and does trigger the issuance of the Loan Estimate. After the consumer receives the Loan Estimate and indicates their intent to proceed, you can require the verification documents you will need to fully underwrite the loan and make a final credit decision.

Delivery of the Loan Estimate

Question: If the creditor denies a request for a TRID loan within the three business days of receiving an application and provides the Adverse Action Notice, the creditor does not have to provide the Loan Estimate (LE). If the creditor denies the application within the three business-day period under the original terms requested, but makes a counteroffer, when must the LE be provided?

Answer: The commentary to §1026.19(e)(1)(iii) addresses LE timing requirements. It states that if the creditor is unwilling to approve the application on the terms originally applied for and the consumer amends the application, the amended application becomes a new application, triggering new disclosures. The revised LE would need to be provided within three business days of receipt of the consumer’s acceptance of the terms of the accepted counteroffer.

Question: We received a mortgage loan application from a single applicant and issued a Loan Estimate within three business days as required by Regulation Z. The applicant had sufficient income to support his credit request but did not have the credit experience our underwriting standards require, so we made a counteroffer to originate the loan with a qualified co-applicant. The primary applicant has now provided a qualified co-applicant. Do we need to reissue the Loan Estimate to add the name of the co-applicant?

Answer: If the terms and costs associated with the loan are not changing with the addition of the co-applicant to the credit application, you do not need to reissue the Loan Estimate for the sole purpose of adding the co-applicant. In fact, the general disclosure rules in §1016.17(d)(2) indicate when there are multiple applicants, the Loan Estimate need only be given to one applicant. The Official Staff Commentary to this section states, in part, “… When two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them…” Subsequent disclosures however, should be issued based on the best information available, and as a result, should reflect the names of both applicants.

Question: If an applicant takes home a blank loan application, dates it but does not submit for several days, when does the three day requirement start for issuing the Loan Estimate?

Answer: If the information is not “submitted,” the bank has no responsibility to issue the Loan Estimate. Once the application is received, the bank should note the date received on the application and then issue the Loan Estimate within three business days.

Question: The TRID rule requires we mail the Loan Estimate to application within three business days of receipt of an application and not later than the seventh business day before consummation of the transaction. If we mail the Loan Estimate to our applicant, do we have to apply the three-day mailing period before we can start counting our seven-day waiting period to close the loan?

Answer: The seven-day waiting period begins when the lender “delivers” or places the Loan Estimate in the mail – not when it is received by the consumer; therefore, you would not need to add the three day “mailing period” time frame to the seven-day requirement.

Question: Can the lender require the purchase agreement prior to issuing the Loan Estimate?

Answer: No, this is a verification document. While you can definitely ask for it, you cannot wait to issue the Loan Estimate until it is received. In other words, you can’t condition the issuance of the Loan Estimate on the receipt of the purchase agreement or any other verification document.

Question: If we receive an email saying the customer has received the emailed Loan Estimate, and acknowledged it but they don’t actually electronically sign and return the Loan Estimate within three days, are we okay?

Answer: Yes, the regulation only requires the bank “deliver” the Loan Estimate within three business days of application, not that the consumer sign it. If your bank requires a signature, that is separate from the timing rules and goes beyond what the regulation requires. If the applicant confirms receipt of the document, you can use this as evidence of delivery. However, keep in mind the bank can only deliver the disclosures electronically if the consumer has gone through the appropriate E-SIGN Act steps.

Question: Does the customer have to sign something if we hand deliver the revised Loan Estimate to them to prove we gave it the day before the Closing Disclosure is given?

Answer: There is no requirement for a signature. The bank can use whatever means they chose to document the method of delivery and delivery date. This could include a signature on the form, a dated checklist, or detailed, clear file comments. Your procedures should detail how you will document delivery dates of the various disclosures required for a mortgage loan.

Question: On Monday, our bank received a written application from borrowers for a loan to purchase their home. We mailed the Loan Estimate to the borrowers later that day. Can we charge an application fee or collect for the appraisal on Thursday (the third business day following the date of mailing) if we don’t have any evidence that the disclosures were received earlier?

Answer: No. 1026.19(e)(2)(i)(A) provides the creditor cannot impose a fee (other than a reasonable credit report fee) on a consumer until the consumer has received their disclosures and indicated their intent to proceed:

Fee restriction. Except as provided in paragraph (e)(2)(i)(B) of this section, neither a creditor nor any other person may impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction subject to paragraph (e)(1)(i) of this section before the consumer has received the disclosures required under paragraph (e)(1)(i) of this section and indicated to the creditor an intent to proceed with the transaction described by those disclosures. A consumer may indicate intent to precede with a transaction in any manner the consumer chooses, unless a particular manner of communication is required by the creditor. The creditor must document this communication to satisfy the requirements of § 1026.25.

The Official Staff Commentary to this section then goes on to discuss how a consumer may indicate intent to proceed and specifically states “no action” on the part of the consumer would NOT indicate intent to proceed. So the bank cannot simply wait the three mailbox days for delivery of the Loan Estimate, some action needs to be taken on the part of the consumer to indicate intent to proceed.

19(e)(2)(i)(A) Fee restriction.

Intent to proceed. Section 1026.19(e)(2)(i)(A) provides that a consumer may indicate an intent to proceed with a transaction in any manner the consumer chooses, unless a particular manner of communication is required by the creditor. The creditor must document this communication to satisfy the requirements of § 1026.25. For example, oral communication in person immediately upon delivery of the disclosures required by § 1026.19(e)(1)(i) is sufficiently indicative of intent. Oral communication over the phone, written communication via email, or signing a pre-printed form are also sufficiently indicative of intent if such actions occur after receipt of the disclosures required by § 1026.19(e)(1)(i). However, a consumer’s silence is not indicative of intent because it cannot be documented to satisfy the requirements of § 1026.25. For example, a creditor or third party may not deliver the disclosures, wait for some period of time for the consumer to respond, and then charge the consumer a fee for an appraisal if the consumer does not respond, even if the creditor or third party disclosed that it would do so.

E-Sign Delivery

Question: We currently use E-SIGN for mortgage loans. At what point could we evidence receipt of disclosures sent via email? For example, when sending the notification email informing the applicant that their e-Disclosures have been made available via the secure site, our Loan Origination Software issues three “checkpoint” emails to the Loan Officer who is issued the e-Disclosures: 1) upon delivery of the notification email to the applicant’s email address, 2) once the applicant logs into the secure site and views the e-Disclosures, and 3) once the applicant electronically signs the e-Disclosures. At which “checkpoint” can we evidence early delivery as to bypass the three-day mailbox rule?

Answer: It appears you evidence receipt by the consumer at step #2 – once they log into the secure site and view the e-Disclosures.

Question: If we deliver disclosures electronically, is it okay if the disclosures to all parties on the loan are delivered to the same email address?

Answer. It depends. Section 1026.31 indicates, “…If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. If the transaction is rescindable under §1026.15 or §1026.23, however, the disclosures shall be made to each consumer who has the right to rescind.”

If the transaction is NOT rescindable, the creditor can deliver the Loan Estimate and Closing Disclosure to any one consumer primarily liable on the transaction and be in compliance. Therefore, delivering one set of disclosures electronically to a single email address would be acceptable (provided the disclosures are delivered in compliance with the E-SIGN Act consent process).

However, if the transaction is rescindable, each consumer with rescission rights must receive their own copy of the material disclosures (all of which are contained on the Closing Disclosure). Thus, the creditor must be able to evidence it delivered the Closing Disclosure to each consumer with rescission rights. (The Loan Estimate needs only be delivered to one of the consumers.) If disclosures are delivered electronically, each consumer with rescission rights must go through E-SIGN’s electronic consent process and the creditor must deliver separate disclosures to each. If the consumers share an email account, the creditor could deliver each covered consumer’s set of disclosures to the single email account; but again, each consumer must receive his/her own set of disclosures.

Question: If we have gone through the E-SIGN verification process early in the loan process, do we need to get a response from the borrower when we send the disclosure to document that it has been received? If they don’t respond that they received the document, do we need to use the three day mailbox days?

Answer: Clearly your first responsibility is to evidence the borrower has gone through the E-SIGN verification process. The second requirement is to prove the borrower received (opened) the email and attachment if you want to expedite the three-day mailbox rule. Typically banks require the applicant to email them letting them know they received the item. Just sending the Loan Estimate or Closing Disclosure via e-mail (with E-SIGN consent) does not constitute receipt by the applicant and does not allow you to shorten the three-day mailbox period.

Question: The bank delivers Loan Estimates and Closing Disclosures electronically through an electronic delivery system. Since the system generates proof of the e-mail delivery, can the bank consider the disclosures delivered when they are sent? Or are the disclosures considered delivered when the system notifies us that the customer opened the document?

Answer: The TRID rule requires the Loan Estimate to be delivered within three business days of application. It does not require receipt of the disclosure for the timing of the Loan Estimate. Therefore, the bank is allowed to consider the Loan Estimate delivered once the customer has provided consent to receive disclosures electronically and the message has been sent. However, for the Closing Disclosure, the TRID rule requires that it be received by the borrower(s) at least three business days before consummation. So, evidencing only the date the Closing Disclosure was sent would not be sufficient for the Closing Disclosure timing. If the electronic delivery system used by the bank sends notifications when the documents are opened and reviewed by the customer, that would be considered the date the Closing Disclosure is received by the customer.

Loan Estimate Relationship to Regulation B Appraisal Rule

Question: Is the appraisal delivery form still required within three days of an application if the application is denied prior to the three days?

Answer: Yes, there have been no changes to the appraisal delivery form requirements. Even if the loan is declined, the bank must send the notice of right to receive a copy of the appraisal for all first lien loan requests.

Question: Is the appraisal disclosure on the Loan Estimate only applicable to first lien loans?

Answer: The appraisal disclosure on the Loan Estimate is applicable to loans subject to either Regulation B’s appraisal notice disclosure or Regulation Z’s HPML appraisal disclosure. As a reminder, the Regulation B appraisal notice is to be provided to an applicant when the creditor plans to develop an appraisal or other written evaluation in connection with an application for credit that is to be secured by a first lien on a 1-4 family dwelling. Whereas, the RegulationZ disclosure requirement is triggered by an extension of credit that meets the definition of a Higher Priced Mortgage Loan (HPML) under § 1026.35 unless an exemption applies (such as when the HPML is a Qualified Mortgage, a bridge loan of 12 months or less, an extension of credit under the minimum loan threshold amount, etc.).

Question: Now that the appraisal disclosure is on the Loan Estimate, is there any need for the separate appraisal disclosure?

Answer: Yes – the separate Appraisal Disclosure document is still needed for covered transactions that are outside the scope of the Loan Estimate. The Loan Estimate is required for closed-end consumer credit secured by real property.

The scope of the Appraisal Disclosure is complicated, since it is required under two different regulations with different scope:

Per Regulation B, an appraisal disclosure is required for any application for credit secured by a first lien on a dwelling (including commercial purpose loans).
Per Regulation Z, an appraisal disclosure is required for a consumer purpose closed-end loan secured by the principal dwelling in which the Higher Price Mortgage Loan (HPML) thresholds have been exceeded.

The scope of the appraisal disclosure under Regulation B is broader than that of Regulation Z and the Loan Estimate. Also keep in mind that under Regulation B, there is still the need for a separate Appraisal Disclosure in the following situations:

Consumer purpose open-end applications for credit secured by a first lien on a dwelling (real or personal property);
Consumer purpose closed-end applications for credit secured by a first lien on dwelling (personal property);
Commercial purpose applications for credit secured by a first lien on a dwelling (real or personal property); and,
For renewals, when the creditor develops a new appraisal or other written valuation.

Please note that Regulation B has not been changed; its existing timing requirements and definitions remain in place.

Under Regulation Z, there is still the need for the Appraisal Disclosure for a subordinate lien consumer purpose closed-end loan secured by the principal dwelling (personal property) in which the Higher Price Mortgage Loan (HPML) thresholds have been exceeded.

Basis of the Loan Estimate

Question: Are we still able to give an “estimate” of the fees on the Loan Estimate that banks allow the consumer to shop for? For example, abstracting charges, some abstract offices do not have set fee amounts; rather, they charge per entry and per hour to research and prepare the abstract.

Answer: Yes and no. The TRID rules require you make a good faith effort when issuing the Loan Estimate to provide an accurate estimate of the cost of a required service. Therefore, you need to make every attempt to estimate a fee that is appropriate for your loan application request. You would not be able to put a “per hour” or “per entry” entry charge on the Loan Estimate. Also, the fee cannot be just a ballpark fee. It needs to be a fee that is determined based on the best information available at the time. Should the information change, you would have the ability to issue a revised Loan Estimate based on the changed circumstance rules.

Question: Must we provide a revised Loan Estimate when adding a co-borrower to the loan application after the initial Loan Estimate has been provided to the primary applicant?

Answer: No – Regulation Z does not require redisclosure to the second applicant. That may be an event where you want to redisclose, but the obligation to redisclose under the rule only occurs when you have an amount that has increased beyond tolerance due to a changed circumstance or other exception and you need to redisclose within three business days in order to pass that charge on to the consumer and reset the tolerance. Other changes do not mandate re-disclosure of the Loan Estimate although you are always free to provide, voluntarily, a revised Loan Estimate. Regulation Z indicates when two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. If one consumer is merely a surety or guarantor, the disclosures must be given to the principal debtor. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind.

In rescindable transactions, the Closing Disclosures must be given separately to each consumer who has the right to rescind. In transactions that are not rescindable, the Closing Disclosure may be provided to any consumer with primary liability on the obligation.

Therefore, as long as the new borrower does not become the sole principal obligor, it appears that it is permissible to wait and provide both borrowers with the Closing Disclosure. However, there is no question that the safest approach would be to provide a new Loan Estimate to both borrowers when the new borrower is added.

Intent to Proceed

Question: One of the bank’s existing loan customers is considering refinancing her mortgage loan secured by her primary residence. She made significant improvements to the property and has asked the loan officer to order an appraisal before completing an application to assist in her refinance decision. May the loan officer order the appraisal at the customer’s request prior to receipt of an application for the refinance?

Answer: There is no regulatory prohibition on ordering the appraisal prior to obtaining an application for a consumer-purpose, dwelling-secured loan. However, this practice does pose some significant risks to the bank. The TRID provisions in Regulation Z state no fee may be imposed directly or indirectly on a customer applying for TRID-covered loan prior to the lender (1) providing the Loan Estimate (LE) to the applicant and (2) the applicant providing their intent to proceed with the transaction. So yes, the appraisal may be ordered prior to receiving an application, but the appraisal fee may not be charged to the applicant until the applicant receives a LE and indicates their intent to proceed with the loan. Should the value of the property be less than the applicant expects, causing the applicant to change their mind and not apply for the loan, the bank could not pass the cost of the appraisal to the consumer.

Question: Are we required by the regulation to get an Intent to Proceed statement signed or initialed by the applicant or can the applicant provide verbal consent?

Answer: The regulation does not require a signed or initialed Intent to Proceed statement. The key is to have good procedures in place to document when an applicant provides their consent verbally.

Question: On Monday, our bank received a written application from borrowers for a loan to purchase their home. We mailed the Loan Estimate to the borrowers later that day. Can we charge an application fee or collect for the appraisal on Thursday (the third business day following the date of mailing) if we don’t have any evidence that the disclosures were received earlier?

Fee restriction. Except as provided in paragraph (e)(2)(i)(B) of this section, neither a creditor nor any other person may impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction subject to paragraph (e)(1)(i) of this section before the consumer has received the disclosures required under paragraph (e)(1)(i) of this section AND indicated to the creditor an intent to proceed with the transaction described by those disclosures. A consumer may indicate intent to proceed with a transaction in any manner the consumer chooses, unless a particular manner of communication is required by the creditor. The creditor must document this communication to satisfy the requirements of § 1026.25.

Intent to proceed. Section 1026.19(e)(2)(i)(A) provides that a consumer may indicate an intent to proceed with a transaction in any manner the consumer chooses, unless a particular manner of communication is required by the creditor. The creditor must document this communication to satisfy the requirements of § 1026.25. For example, oral communication in person immediately upon delivery of the disclosures required by § 1026.19(e)(1)(i) is sufficiently indicative of intent. Oral communication over the phone, written communication via email, or signing a pre-printed form are also sufficiently indicative of intent if such actions occur after receipt of the disclosures required by § 1026.19(e)(1)(i). However, a consumer’s silence is not indicative of intent because it cannot be documented to satisfy the requirements of § 1026.25. For example, a creditor or third party may not deliver the disclosures, wait for some period of time for the consumer to respond, and then charge the consumer a fee for an appraisal if the consumer does not respond, even if the creditor or third party disclosed that it would do so.

Question: The TRID rule includes a fee restriction provision: that we cannot charge a fee until the consumer has indicated their intent to proceed with the transaction. Does this mean we are prohibited from collecting a rate lock fee? We have had so many customers withdraw their applications after we have locked in a rate, we have started assessing a “rate lock fee.”

Answer: You can still charge a rate lock fee, but will not be able to assess the fee until the Loan Estimate has been “received” by the applicant, and the applicant has indicated their intent to proceed with the application.

If the Loan Estimate is provided at the time of a face-to-face application and the applicant(s) indicates intent to proceed with the loan at that time, the fee can be collected immediately. If the Loan Estimate is mailed to the applicant, the bank must wait to impose its rate lock fee until the applicant has indicated his/her intent to proceed.

The only permissible fee a lender may collect before providing a Loan Estimate is the cost of a credit report. The lender may not charge additional fees until after the applicant has received the Loan Estimate and indicated an intention to proceed with the loan covered by that Loan Estimate.

Question: Just looking for clarification on the intent to proceed: we typically will have the Intent to Proceed form initialed and the LE signed at the same time. If the Intent to Proceed form is initialed and we later have to provide a revised LE, should we remove the expiration date and time from the revised LE?

Answer: Yes, you will remove the LE expiration date and time from revised LEs issued after the borrower has provided their intent to proceed under the rule revisions. The idea is once the borrower has indicated their intent to proceed, the need for the expiration date is no longer warranted as the creditor is bound to the terms of the LE unless a valid changed circumstance occurs.

Shopping for Settlement Services

Question: For a TRID loan, should a written list of service providers be given to the consumer if the bank does not allow the consumer to shop for any settlement services related to their loan?

Answer: The requirement to provide a written shopping list does not apply when the creditor does not allow the consumer to shop for any of the required settlement services related to their loan. The commentary to § 1026.19(e)(1)(vi) — comment 1 states the following: The requirements of § 1026.19(e)(1)(vi)(B) and (C) do not apply if the creditor does not permit the consumer to shop consistent with § 1026.19(e) (1)(vi)(A).

However, if a creditor does allow the consumer to shop for any of the required settlement services related to their loan, a written list is required that discloses at least one provider for each service for that loan. This requirement is found in § 1026.19(e)(1)(vi)(B) and (C).

Question: Do the services on the Written List of Settlement Providers (WLSP) need to be alphabetized?

Answer: Yes. The requirement to provide the WLSP is found in §1026.19(e)(1)(vi). The OSC to this part says the list “must correspond to the settlement services for which the consumer may shop, disclosed pursuant to § 1026.37(f)(3)” and section 37(f)(3) requires the list of shoppable services on the Loan Estimate (LE) to be provided in alphabetical order.

Question: Is it still considered ‘shopping’ if there is only one provider choice in a rural area?

Answer: Yes – if you provide the shopping list. The rule only requires a creditor to include one provider on their shopping list. Even though there is only one option locally, you have met this requirement by putting that provider on your list. Often, while a rural area may have only one provider locally, additional providers are available in the region.

Question: If abstracting is not a “shopped” service, since there is only one abstractor in the area, can the abstracting fee be estimated larger with the difference given back to the borrower after closing?

Answer: No, the Loan Estimate must be issued in “good faith” – meaning as accurate as possible. You should not “cushion” your estimates with what you know are overstated charges applicable to the typical loan application situation.

Question: We only have one abstracting company in our county. Does this mean abstracting is a service the consumer cannot shop for?

Answer: Not necessarily. While many counties have only one local abstracting company, there are a few companies that provide state-wide abstracting services. If you would permit your consumers to use one of these state-wide providers and provide the consumer with a shopping list that includes at least one abstracting service provider for the area the real property is located, you will be deemed to have let your consumer “shop” and can apply the 10% tolerance threshold to abstracting services.

Question: How do you allow the customer to shop for an appraiser and still meet regulations on appraiser independence per Regulation Z?

Answer: You can’t. Regulation Z’s valuation independence rules and the Interagency Guidelines on Appraisals and Evaluations both clearly state the Lender should select the appraiser independent of any input from the borrower. Since the bank selects the appraiser, the fee will now fall in the zero percent category, not the 10% category. Therefore, you would not include this service provider on a shopping list.

Question: Do we have to expressly ask the borrower “do you want to pick your provider” or if we give them the list of service providers and if they do not state they want to pick one, can we assume they want us to pick?

Answer: The rule requires the creditor inform the consumer of their ability to shop by providing the written list of providers and then permitting the borrower to shop off the list. The rule does not expressly say the creditor has to ask the borrower “do you want to pick your provider” but from a practical perspective, at some point the creditor will have to ask the consumer which provider they are using when the creditor permits the borrower to shop. If the consumer tells the creditor they don’t care which provider is used or asks the creditor to select the provider for them, they will be deemed to not have shopped. As such, the charge will be disclosed in the “Charges the You Did NOT Shop For” section of the Closing Disclosure and but will remain subject to the 10% tolerance threshold.

Question: If we present a list for shopping to the borrower and they choose an attorney not on our list who does not provide Rapid Certificate’s from Title Guaranty as required by our bank, and this results in the attorney requiring a second abstract continuation, will we be able to include the abstracting in Section C even if we have listed that abstract company on our list since the attorney is requiring it?

Answer: When providing a shopping list, the creditor must include an available provider that meets their qualifications. If the borrower wants to select a provider not on the list, the bank can still require the borrower to use a provider the bank deems as “qualified.” For example, the bank can require that if a consumer shops off your list, the consumer must use a provider that participates in the Rapid Certificate program with Iowa Title Guaranty. The fact that you are requiring a service such as a Rapid Certification does not mean the bank selected the provider nor does it change where the fee is placed on the Closing Disclosure. If the borrower selects a qualified provider off your list, the fee will be included in Section B on the Closing Disclosure; if they choose a qualified provider not included on your list, the fee will go in Section C.

Question: We normally don’t permit our borrowers to shop, however sometimes a consumer will work for a settlement service provider and request that provider be used. In those cases, the provider does not charge the consumer for the cost of the service. When this happens, should we provide the consumer with a shopping list that includes that provider?

Answer: This would qualify as a borrower-requested change – they are requesting the ability to shop when the creditor’s normal practice does not allow shopping. If the creditor is going to permit the borrower to shop, the creditor must provide a shopping list within three business days of the changed circumstance. The creditor is not required however to include a particular provider on this list. So if the consumer’s employer is not normally on the creditor’s list, the creditor is not obligated in any way to include that provider on the list (even when the creditor has knowledge that is who the consumer will use).

Question: If there is a valid changed circumstance or a borrower-requested change that triggers another third-party service that the creditor permits the consumer to shop for, should the list of service providers be updated and re-disclosed, or is the written list of service providers only given once when providing the initial Loan Estimate?

Answer: A creditor may update and re-disclose the written list of service providers to reflect the new service that is added as a result of a changed circumstance or borrower-requested change. Section 1026.19(e)(1)(vi)(C) requires the creditor provide a written list of service providers to accompany the Loan Estimate for any settlement service that the consumer can shop. When an event that would permit resetting of tolerances or variations under Section 1026.19(e)(3)(iv) occur (i.e. a changed circumstance or borrower requested change), and an additional settlement service is required, the creditor may disclose a provider of that additional service on the written list at the same time as it issues the revised Loan Estimate.

There are two ways that a creditor may approach adding the new service to the written list. First, the creditor may add the additional service to the original list and provide an updated written list to the consumer. Or second, the creditor may provide a new written list showing only a provider of the additional required service. Either method complies with the rule.

Rate Locks

Question: Please clarify what constitutes a “rate lock” under section 1026.37(a)(13). Our bank does not have a formal rate lock process for loans held in portfolio. The rate disclosed on the Loan Estimate is the rate the borrower receives at consummation. There is no formal written rate lock agreement, however the bank tells the borrower that the rate disclosed will not change. The commentary states a rate lock exists when there is an agreement between the creditor and consumer subject to contingencies described in any rate lock agreement. If we do not issue a written statement that the rate is “locked,” does this mean we should be checking the “no” box on the Loan Estimate in this field?

A: If the creditor honors the rate quoted on the Loan Estimate but does enter into a written agreement with the consumer, the rate is NOT considered “locked” for Loan Estimate purposes.

OSC – 1026.37(a)(13) Rate lock.

Interest rate. For purposes of § 1026.37(a)(13), the interest rate is locked for a specific period of time if the creditor has agreed to extend credit to the consumer at a given rate, subject to contingencies that are described in any rate lock agreement between the creditor and consumer.

Also see from the preamble to final TRID rule, page 79919 of 12/31/2013 Federal Register:

A State trade association representing banks requested clarification regarding how to disclose an interest rate in the situation where a creditor has a policy to honor the rate quoted on the Loan Estimate but does not require the consumer to sign a rate lock agreement…

Regarding the situation where the creditor has a policy to honor the rate quoted without a rate lock agreement, both proposed §1026.37(a)(13) and comment 37(a)(13)-1 expressly contemplate a rate that is locked for a specific period of time pursuant to a rate lock agreement. Accordingly, where a creditor has a policy to honor the quoted rate, but does not lock the rate pursuant to a written agreement with the consumer, the creditor would disclose “no” pursuant to § 1026.37(a)(13)(i). The Bureau believes this disclosure is appropriate to aid the consumer’s understanding of the transaction, because the creditor would not be bound by an agreement to provide the interest rate to the consumer at consummation.

Changed Circumstances & Revised Loan Estimates

Question: If after the initial Loan Estimate is provided, the interest rate is set for HPML purposes, but not locked with rate a rate lock agreement between the creditor and borrower, and must a revised Loan Estimate be issued indicating the rate has been set?

A: No because a written rate lock agreement was not issued. See the preamble discussion from the December 31, 2013 Federal Register – page 79833:

Final § 1026.19(e)(3)(iv)(D) and commentary also clarify that if the interest rate is simply set, but there is no rate lock agreement, § 1026.19(e)(3)(iv)(D) [revised LE due to interest rate lock] does not apply…But the Bureau intended that § 1026.19(e)(3)(iv)(D) only applies in situation where a rate lock agreement has been entered into between the creditor and borrower, or where such agreement has expired.

Question: If we have a changed circumstance that will not take the revised costs over the 10% tolerance, is it a violation to issue a revised Loan Estimate, even though we are not resetting for comparison purposes?

Answer: No, it is not a violation to issue a revised Loan Estimate in this scenario but it’s important to remember when establishing if the Loan Estimate was provided “in good faith” that you compare final costs to the initial Loan Estimate, not the revised Loan Estimate with costs adjustments under the 10% threshold. It might be good to test your software with this scenario.

Question: The Bank issues a Loan Estimate based on the six required pieces of information received from the applicant. A few days later, the Bank receives NEW information making the applicant ineligible for the particular loan type disclosed on the original Loan Estimate. In these types of situations, we generally issue a combined counteroffer and denial and wait for the customer to respond to the counteroffer. We are wondering if we can continue this process. And at what point would we be required to issue a revised Loan Estimate with the terms of the new loan program?

Answer: Your three days in which to issue a revised Loan Estimate starts at the point you discover the borrower is ineligible for the loan program they originally applied for. That is your changed circumstance, not the customer’s acceptance of your counteroffer. So while Regulation B gives you 30 days from the completed application date to issue a counteroffer, Regulation Z only gives you three days from your changed circumstance date to issue a revised Loan Estimate.

Question: Please clarify if a valid changed circumstance occurs (such as a borrower-requested change in loan product) which changes fees, can the bank decrease a lender credit if the new product calls for a smaller lender credit than the one originally disclosed? Example: Borrower requests a 3/1 ARM product where the lender provides and discloses a $1,000 lender credit. Later, the borrower changes their mind and requests a 15 year fixed rate loan for which the lender provides a $750 lender credit. Since this is a valid changed circumstance, can the lender credit decrease to $750 since it is based on product type?

Answer: Yes – Valid changed circumstances can impact (and reduce) lender credits. It will be important for creditors to clearly document in loan file the changed circumstance and how it is directly related to the change in the lender credit. Further, in this example, it will be important for the lender to be able to provide evidence it provides different credit amounts for different loan types and sizes.

Question: If a customer were to lock in an interest rate after application, would we still need to issue a revised Loan Estimate even if the rate stays the same and all fees stay constant?

Answer: Yes, the Loan Estimate should be reissued when a written rate lock agreement is issued after the initial Loan Estimate if for no other than reason than to indicate the rate has now been “locked.”

Question: If you lock in an interest rate after the initial Loan Estimate has been provided and issue a revised Loan Estimate, do we need to provide the borrower with an additional three-day waiting prior to consummation if no other fees changed?

Answer: Issuance of a revised Loan Estimate alone does not trigger a new three-day waiting period prior to consummation. However, the Regulation Z requirement found in §1026.19(a)(2)(ii) remains intact:

(ii) If the annual percentage rate disclosed under paragraph (a)(1)(i) of this section becomes inaccurate, as defined in §1026.22, the creditor shall provide corrected disclosures with all changed terms. The consumer must receive the corrected disclosures no later than three business days before consummation. If the corrected disclosures are mailed to the consumer or delivered to the consumer by means other than delivery in person, the consumer is deemed to have received the corrected disclosures three business days after they are mailed or delivered.

So, if locking the interest rate results in the disclosed APR on the initial Loan Estimate to become “inaccurate” – generally meaning it increases by more than .125% – the creditor would be required to deliver the revised Loan Estimate to the consumer no later than four business days prior to consummation. Also, keep in mind a revised Loan Estimate cannot be received by the consumer on the same business day the consumer receives their Closing Disclosure. So creditors will need to ensure the revised Loan Estimate is received at least one business day before the Closing Disclosure.

Question: May a creditor provide a revised LE in connection with a rate lock extension?

Answer: Yes. Although extensions are not specifically referenced in the rule, CFPB’s subsequent discussion in the Official Staff Commentary (OSC) clarifies the requirement to issue a revised LE in the event of a rate lock or extension of a rate lock. In the OSC to § 1026.37(a)(13), the rule states that disclosures “required by § 1026.37(a)(13)(ii) related to estimated closing costs is required regardless of whether the interest rate is locked for a specific period of time or whether the terms and costs are otherwise accepted or extended.” Also, in summarizing subsequent rule amendments to lengthen timeframes for redisclosure upon rate locks, CFPB describes such amendment as “extending the timing requirement for revised disclosures when consumers lock a rate or extend a rate lock after the Loan Estimate is provided….” See Preamble at 80 FR 8767. Further, in its OSC to § 1026.19(e)(3)(iv) regarding “revised estimates”, the CFPB also provides the example that “if a consumer requests a rate lock extension, then the revised disclosures may reflect a new rate lock extension fee, but the fee may be no more than the rate lock extension fee charged by the creditor in its usual course of business, and other charges unrelated to the rate lock extension may not change.” See Comment 19(e)(3)(iv)-2.

Question: If the appraisal fee is estimated at $350 and it comes in lower, is that OK?

Answer: Yes, a fee in the zero tolerance category may go down.

Question: Can we issue a revised Loan Estimate in the cases when we have to get an appraisal recertification? For example, last summer when there was flooding, our investor required the appraiser to go out and check for flood damage. We were charged an additional $50.

Answer: If you are asking if this is a valid changed circumstance, it depends on the information known to the bank at the time the original Loan Estimate was prepared. If at the time of application, it was known that your investor was requiring recertification on all loans, no “changed circumstance” occurred, which means that the bank would not be able to pass on the increased cost to the borrower. However, if the bank had no knowledge that this property could have been impacted by the flooding or the flooding occurred after the initial Loan Estimate was provided, once you are notified that a recertification is required, you can produce a revised Loan Estimate including that fee within three business days of notification. It will be important that your file document the situation related to changed circumstance.

Question: What if estimated closing date changes and that in turn changes your loan payoff amount? Do we need to reissue the Loan Estimate because our Closing Cost Financed amount changed?

Answer: If the Loan Estimate becomes inaccurate due to a changed circumstance and the Closing Disclosure has not yet been issued, the bank may, but is not required, to provide a revised Loan Estimate. However, if the Closing Disclosure has been issued, the bank is not able to issue a revised Loan Estimate. At this point, the bank would issue a revised Closing Disclosure at or before consummation to adjust the payoff amount.

Question: Must we provide a revised Loan Estimate when adding a co-borrower to the loan application after the initial Loan Estimate has been provided to the primary applicant?

Answer: No – the Regulation Z does not require re-disclosure to the second applicant. That may be an event where you want to redisclose, but the obligation to re-disclose under the rule only occurs when you have an amount that has increased beyond tolerance due to a changed circumstance or other exception and you need to redisclose within three business days in order to pass that charge on to the consumer and reset the tolerance. Other changes do not mandate redisclosure of the Loan Estimate although you are always free to provide, voluntarily, a revised Loan Estimate or closing disclosure. Regulation Z indicates when two consumers are joint obligors with primary liability on an obligation the disclosures may be given to either one of them. If one consumer is merely a surety or guarantor, the disclosures must be given to the principal debtor. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind.

Question: Regulation Z [§1026.19(e)(4)(ii)] says a revised Loan Estimate must be received at least four business days before closing, and that you have to add three business days mail time before a mailed revised Loan Estimate is considered received if the disclosure is delivered by any means other than in person. However, if I mail the revised Loan Estimate, is it permissible to mail out the Closing Disclosure a day later (meaning I mail out the Loan Estimate on Monday then mail the Closing Disclosure on Tuesday)?

Answer: The creditor would be considered to be in compliance with the Closing Disclosure timing rules if it placed the Closing Disclosure in the mail the business day following the day it placed a revised Loan Estimate in the mail. The three-business day mailbox rule is a “safe harbor” or blanket rule…meaning, as long as the creditor permits three business days for the delivery of each, the disclosure will be deemed to be “received” three-business days later. Thus, if the creditor places the revised Loan Estimate in the mail on Monday and the Closing Disclosure in the mail on Tuesday, the consumer will be deemed to have received the Loan Estimate on Thursday – one business day prior to Friday, the day the borrower is deemed to have received the Closing Disclosure.

Official Staff Commentary – 19(e)(4)(ii) Relationship to disclosures required under § 1026.19(f)(1)(i).

Revised disclosures may not be delivered at the same time as the Closing Disclosure. Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the disclosures required under § 1026.19(e)(1)(i) on or after the date on which the creditor provides the disclosures required under § 1026.19(f)(1)(i). Section 1026.19(e)(4)(ii) also requires that the consumer must receive a revised version of the disclosures required under § 1026.19(e)(1)(i) no later than four business days prior to consummation, and provides that if the revised version of the disclosures are not provided to the consumer in person, the consumer is considered to have received the revised version of the disclosures three business days after the creditor delivers or places in the mail the revised version.

“Good Faith” Estimates (Tolerance issues)

Question: What category would a fee fall into if we allow the customer to “shop,” but the provider on our list is the ONLY available provider in the trade area?

Answer: If you provide the shopping list for this service, the fee would be subject to the 10% threshold assuming there are other providers that can provide this service – for example, a statewide provider of abstracting services. If there are truly no other options (such as Iowa Title Guaranty is only issued by the State of Iowa), then the bank should not include this service on their shopping list and the service would be subject to a zero percent tolerance.

Question: What if two separate changed circumstances occur greater than three days apart that on their own do not exceed 10%, but together do exceed 10%? Are we out of luck because we were not allowed to issue the revised Loan Estimate within three days of the first changed circumstance?

Answer: No, you are not out of luck. The three-day timeframe in which to issue a revised Loan Estimate starts upon the occurrence of the last changed circumstance that puts you over the 10% threshold. So it doesn’t matter when the first changed circumstance occurred as long as the first change resulted in a cost increase of less than 10%. The three day rule applies to the amount of time you have to issue the revised Loan Estimate based on the changed circumstance creating an increase of the aggregate amount of the 10% fee total of more than 10%.

Question: What about credit report supplements – does that mean the lender has to pay for those directly because there is no tolerance?

Answer: Typically creditors are aware at the time of origination that credit supplements may be needed and as such, should include this cost on the original Loan Estimate. If however, the creditor anticipates consummation will occur within the timeframe that a credit supplement would not be needed and a valid changed circumstance occurs that delays consummation (necessitating an unanticipated credit report supplement), the creditor can issue a revised Loan Estimate within three business days and add the additional fees. Again, you will need to assess on a case-by-case basis if a valid changed circumstance occurred.

Question: What about real estate administrative fees or HOA fees without having the purchase agreement yet? Would these fees fall under the 10%?

Answer: Real estate administrative fees are not a cost associated with the loan and therefore, do not have to be disclosed on the Loan Estimate. Rather realtor administrative and other fees are associated with the settlement between the buyer and seller. Think of it this way, the borrower would incur that fee whether they paid cash for the property or financed the purchase. If the bank is not aware at the time it issues the Loan Estimate that the home is subject to a HOA, this would be a valid changed circumstance (information not known to the creditor) and a revised Loan Estimate could be issued be within three business days of knowledge of that information.

Question: If we provide one provider on our shopping list, even if there are more available, and the customer picks that option, is it still considered shopping and would we be allowed the 10% tolerance?

Answer: Yes – it’s still considered shopping as long as you provide the list and give the customer the opportunity to seek out another provider. The fee is still subject to the 10% tolerance even if the consumer picks someone on your list. However, placement of the service on the Closing Disclosure varies depending on whether or not the borrower selected a provider from the lender’s shopping list. If the borrower selects a provider from your list, the service will move to section B, Services You Did Not Shop For, in the Loan Costs section of the Closing Disclosure.

Question: Regulatory requirements regarding appraisals obviously prohibit the borrower from choosing a preferred appraiser. Appraisal fees now move up into the “zero” tolerance category since it is a fee paid to an unaffiliated third party and the borrower cannot “shop”…..correct? However, if a changed circumstance occurs, we still have the opportunity to provide a revised Loan Estimate right and redisclose the increased fee, correct?

Answer: You are correct, the appraisal fees are now located in the zero percent tolerance area. Regarding increasing the fee, as long as one of the changed circumstance events occur that affect the appraisal fee, you would be able to issue a revised Loan Estimate to update that fee. If you just underestimated the appraisal fee and don’t have a valid changed circumstance, you would not be allowed to increase this fee by issuing a revised Loan Estimate. Again, the revised Loan Estimate would need to be issued within three business days of knowledge of this change and because the appraisal fee is subject to the zero tolerance category, a changed circumstance resulting in a cost increase of any amount, will trigger a revised Loan Estimate and “reset” the tolerance threshold.

Question: We have heard that prepaid taxes fall into the zero tolerance category if they are due within 60 days of closing. Can you confirm?

Answer: That is not correct. Taxes are not subject to a tolerance level at all (can change from the Loan Estimate to Closing Disclosure in any amount) provided the estimate on the Loan Estimate is provided in good faith.

Question: If the LO compensation in section A is paid by others, does the 0% tolerance apply?

Answer: Loan Originator (LO) compensation, whether paid to the creditor or third party LO is always subject to the 0% tolerance threshold, meaning it cannot increase from what is disclosed on the Loan Estimate.

Closing Disclosure Delivery

Question: We have two consumers who are joint borrowers on a TRID loan. One consumer lives close to the bank and the other lives outside of Iowa. Are we required to provide a copy of the Closing Disclosure (CD) to both borrowers?

Answer: Section 1026.17 of Reg. Z (general disclosure requirements) states that when there are two consumers who are joint obligors with primary liability on the loan, the CD may be provided to either consumer, provided the consumer is primarily liable for the transaction. If a consumer is a surety or guarantor, the disclosure must be provided to the principal debtor. If the loan is rescindable, separate copies of the CD must be provided to each consumer who has the right to rescind the loan.

Question: We were recently criticized during an external audit for failing to provide an “accurate” Closing Disclosure three business days prior to consummation. What is the bank’s obligation related to providing the CD three days prior to closing? Our understanding was the final CD provided at consummation had to be accurate – but the CD given in advance of consummation could include estimates.

Answer: Reg. Z requires the consumer receive the disclosures required by §1026.19 (f) (1)(i) – the Closing Disclosure – no later than three business days before consummation. In addition, § 1026.38 requires that the CD received three business days before consummation reflect the actual terms of the legal obligation between the parties, and the actual costs associated with the settlement of the transaction. This same section does say creditors and settlement agents may estimate disclosures when the actual term or cost is unknown at the time the disclosures are made provided creditor has acted in good faith and exercised due diligence in obtaining the information. As a result, banks should work with third party vendors in an attempt to ensure that the terms of the transaction and settlement costs are accurate on the CD provided three business days prior to consummation.

Common examples of exceptions noted in recent IBA compliance reviews include situations in which the bank is routinely disclosing amounts that are not final and verified for hazard insurance premium amounts and property taxes on the CD issued three business days prior to consummation. Banks often refer to a “preliminary or first” and “final or second” CD for loan closings when the creditor has not performed its due diligence to obtain final, verified costs. Creditors should not routinely be issuing more than one CD for an applicable transaction for the sole purpose of replacing estimated hazard insurance and tax amounts with final verified amounts. These costs are typically available at the time the CD is issued three days prior to consummation with a little due diligence. Creditors are required to work with third party vendors ahead of time to verify the final numbers on the CD before it is issued to the consumer.

Question: What day does the Closing Disclosure need to be dated?

Answer: The Closing Disclosure should be dated the date it is prepared and sent to the customer. If a revised Closing Disclosure is required to be received three business days before consummation, it also would be dated the date is it is prepared and sent to the customer. If a revised Closing Disclosure is required to be received at or before consummation, it can be dated the date of consummation.

Question: What are the allowable ways to deliver the Closing Disclosure three business days ahead of consummation?

Answer: The rule does not specifically describe “allowable” and “unallowable” methods of delivery. Virtually any delivery method could be used including delivery in person, by US mail, electronically, by courier or any other reasonable means. Keep in mind if the disclosure is delivered by any method other than in person, the creditor must apply the three business-day mailbox rule, including electronic delivery. Also, if disclosures are delivered electronically, E-SIGN Act requirements apply; the consumer must first go through the E-SIGN Act affirmative consent process before electronic delivery occurs.

Question: If the bank is waiting for a closing statement from a realtor, should we issue a Closing Disclosure prior to the realtor providing the closing statement? Then upon receiving the realtor’s closing statement provide a revised Closing Disclosure?

Answer: When the bank issues a Closing Disclosure, it must be based on the best and most accurate information at the time. You are allowed to use estimates if you don’t have final figures but you would be required to deliver a revised Closing Disclosure to the borrowers at or before consummation (assuming the changes do not trigger a new three day waiting period).

Question: Is the three-day waiting period a minimum? Can it be longer?

Answer: Regulation Z requires a minimum of three business days between the receipt of the Closing Disclosure and consummation. The bank can always issue the Closing Disclosure earlier than that as long as it does not issue it the same day as the Loan Estimate. But remember, the earlier it is issued, the more likely a change in fees affecting the borrower (and possibly the seller) may occur requiring a revised Closing Disclosure to be issued.

Question: If the bank is the settlement agent do we need to have the seller go through the E-SIGN Act’s affirmative consent process to deliver the Closing Disclosure electronically to the seller? Do we need proof of delivery?

Answer: Regulation Z requires that if the Closing Disclosure is delivered electronically to any consumer (borrower or seller), that the delivery be done in compliance with the E-SIGN Act requirements or it is as if the disclosure was never sent.

Issuing a Revised Closing Disclosure

Question: If APR goes down by more than .125%, do we need to reissue the Closing Disclosure and wait three another days to close?

Answer: If the APR decreases because the finance charges were overstated causing the APR originally disclosed to be overstated, then re-disclosure is required but there is no additional waiting period required because in this situation, Regulation Z states the APR is still considered “accurate.”

Question: If a change is made to the seller’s side of the Closing Disclosure, does the three-day mail box rule apply to the seller?

Answer: Per section 1026.19(f)(4), the settlement agent must provide the Closing Disclosure to the seller no later than the day of consummation. The seller does not have to receive the Closing Disclosure in advance of consummation so the revised disclosure could be provided at consummation without further delay.

Question: Regarding Product Changes triggering a new three-day wait for Closing Disclosure, wouldn’t a product change trigger a new Loan Estimate, therefore adding additional delivery/waiting days to the examples provided?

Answer: If the product was changed after the Closing Disclosure was issued, the bank is not able to issue a revised Loan Estimate. Therefore, they can only issue a revised Closing Disclosure and wait an additional three business days for consummation.

Question: If we need to revise a Closing Disclosure due to a fee change, is the borrower/seller required to sign and return that new disclosure for our files?

Answer: There is no requirement to obtain a signature from the borrower or seller for the Loan Estimate or the Closing Disclosure. The bank just needs to evidence date of delivery and receipt.

Question: If we undercharge on the Closing Disclosure in the 10% tolerance area, can we redisclose and ask for the additional fee from the customer? Or, if we eat the extra fee, do we need to re-disclose and send?

Answer: If the amount on the Closing Disclosure is less than the actual charge, and the bank wishes to obtain the additional amount from the borrower, first they need to determine if the additional amount is still within the tolerance rules limitations. If it does, the bank can issue a revised Closing Disclosure and request the borrower pay the increase. If the bank chooses to cover the increased fee, the bank is not required to send an updated Closing Disclosure.

Question: Are banks required to provide a revised Closing Disclosure when there is a change to the loan amount that does not change the loan product, or add a prepayment penalty, or cause the APR to become inaccurate? If so, does this restart the three-day waiting period?

Answer: Banks are required to redisclose if any cost or term disclosed on the Closing Disclosure becomes inaccurate. However, under the circumstances described here, there would not be a new waiting period. A change in loan amount that does not cause the APR to be inaccurate (as defined by the regulation) and occurs in the period after a Closing Disclosure has been provided to the consumer but prior to consummation, requires a corrected Closing Disclosure at or before consummation. It does not however, require a new waiting period.

Question: If you change your product from a fixed to variable rate after the Closing Disclosure has been given, what do you do about your ARM Program Disclosure and CHARM booklet? Is it acceptable to give those two pieces at the same time as the corrected Closing Disclosure? And, new early disclosures do not need to be given again with the ARM information, correct?

Answer: Once the creditor issues the Closing Disclosure, it is not able to issue a revised Loan Estimate. Therefore, if the product type changes after the Closing Disclosure is issued, only a revised Closing Disclosure is required. The requirements for the ARM Program Disclosure and CHARM booklet have not changed. These are “at application” requirements. “Application” in this situation is the date the customer requested a different loan product. The bank is allowed to issue/mail/email the program disclosure, CHARM booklet and revised Closing Disclosure together.

Question: Is a change in the loan term (e.g., change from 15 to 30 year term) a “product change” that would require a revised Closing Disclosure and an additional three-business day waiting period if the change occurred after the initial Closing Disclosure was provided to the consumer?

Answer. While regulatory text is not completely clear, we believe a change in loan term would be considered a “product change” if interpreting the regulation in a conservative manner and in the spirit of the regulation. See comment #1(ii) to 1026.19(f)(2)(ii):

Example—loan product changes. Assume consummation is scheduled for Thursday, June 11 and the disclosures provided under § 1026.19(f)(1)(i) disclose a product required to be disclosed as a “Fixed Rate” that contains no features that may change the periodic payment.
See also the preamble discussion to the final rule, found in Federal Register, Vol. 78, 79875-76:
CHANGES REQUIRING A NEW THREE-BUSINESS-DAY WAITING PERIOD BEFORE CONSUMMATION. In light of the potentially serious consequences of delayed closings for all parties to a transaction and the market generally, the Bureau believes a mandatory redisclosure waiting period should be limited to situations that have the potential to impose significant, long-term financial impacts on consumers. Unlike one-time costs paid at settlement, these changes can impose costs that can carry significant, long-term consequences for consumers, such as higher interest rates, an adjustable rate feature for which consumers may be unprepared, or a prepayment penalty that could preclude refinancing. [240] In addition, because changes to the loan product and the addition of a prepayment penalty involve complex decisions that affect consumers over the life of the loan, the Bureau believes consumers will benefit from having sufficient time to consider whether to accept such changes.

Because a change in the loan term will change the periodic payment and would likely have long-term financial impacts on the consumer, the consumer is best served by receiving additional time to consider such impacts.

Question: Can you go over the APR requirements that trigger a new Closing Disclosure and waiting period? Is it only when the APR changes by more than .125?

Answer: Z section 1026.19(2)(ii) state there are three situations that would require a new Closing Disclosure and three business day waiting period prior to consummation. Those include when

The annual percentage rate (APR) becomes inaccurate,
The loan product has changed, or
A prepayment penalty was added to the loan.

In general, the APR is considered accurate under section 1026.22 if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate determined in accordance with Regulation Z. For irregular transactions, such as loans with a multiple advance feature, irregular payment periods or irregular payment amounts (e.g. construction loans or loans where payments vary due to seasonal income), the APR is considered accurate if it is not more than ¼ of 1 percentage point above or below the APR determined in accordance with Regulation Z. The commentary to the regulation states that an adjustable rate loan is not an irregular transaction as the initial disclosure is based on a regular amortization schedule over the life of the loan, therefore ARM loans are subject to the 1/8 of 1% tolerance (.125%).

Question: If we have to redisclose and deliver the revised Closing Disclosure to the consumer via email or overnight mail (a faster means than U.S. Postal Service), do we still have to wait the three-day mailing period before the redisclosure is considered to be “received” by the borrower?

Answer: If the creditor places the revised Closing Disclosure in the mail, it is considered to be received by the borrower three business days after it is mailed. The preamble to the final rule states that creditors who elect to use faster, alternative delivery methods (such as overnight mail or electronic delivery of disclosures consistent with the E-Sign Act) may instead rely on “actual proof of receipt” of the disclosures to begin counting the additional three-day waiting period. Such proof may be a signed receipt by an overnight delivery service or read receipts from email.

Question: If we have to provide a revised Closing Disclosure, do we have to label it “revised” or point out what is different on this disclosure from the first one we provided?

Answer: You do not have label the corrected Closing Disclosure as “corrected,” “revised,” or highlight what has changed. Z at section 1026.17(f) simply requires that the corrected Closing Disclosure itemize any or all changed terms. In addition, you will want to ensure the date on which it was delivered is clearly indicated as well as how it was delivered so you can evidence compliance with the timing rules.

Rescindable Loans

Question: If transaction is rescindable, do all parties with the right to rescind the loan need to receive the Closing Disclosure, even if they are not an obligor?

Answer: If the transaction is rescindable, each party to the transaction with rescission rights (borrowers and property owners) must evidence receipt of the Closing Disclosure. If the transaction is not rescindable, only one of the borrowers needs to evidence receipt.

Question: If a non-borrower must sign the Mortgage and Right of Rescission, must they also get a copy of the Closing Disclosure, even if they are not obligated on the note?

Answer: Yes. Regulation Z at 1026.23(a) provides the consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice, or delivery of all material disclosures, whichever occurs last. Since the material disclosures are now all on the Closing Disclosure, non-borrowers with the right to rescind will need to receive a copy of the Closing Disclosure three days prior to closing just like the borrower(s).

Question: Must both borrowers confirm receipt of the Closing Disclosure if provided via email?

Answer: Only if the transaction is rescindable.

Question: With the implementation of the TRID disclosures, how do we satisfy the requirement to give a non-borrowing spouse the material disclosures for rescission purposes?

Answer: This answer lies in RegulationZ, § 1026.17, which describes the general closed-end disclosure requirements. It indicates when two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. However, in rescindable transactions, the disclosures required by § 1026.19(f) (the Closing Disclosure) must be given separately to each consumer who has the right to rescind. So you would provide the non-borrowing spouse with their own Closing Disclosure at least three business days prior to consummation as well as their own rescission notice.

Post Consummation Requirements

Question: Regarding post consummation changes, does it matter if the amount paid by the borrower is more or less? Or is it any change?

Answer: If the change affects the amount the borrower or seller pays, then a revised Closing Disclosure is required regardless of whether the amount paid went up or down.

Question: If we realize after consummation the actual recording fee was more than disclosed but the bank covers the additional fee, do we still have to redisclose to the consumer?

Answer: In your example, if the bank covers an increased fee, this does not change the amount required to be paid by the borrower. Therefore, since the change in fees does not affect the amount the borrower or seller have to pay, there is no requirement to send a revised Closing Disclosure.

Question: If fees change after closing, like recording fees, must ALL parties re-sign the Closing Disclosure?

Answer: No. There is no requirement to obtain a signature on the original or any revised Closing Disclosure. The bank just needs to evidence that the revised Closing Disclosure was issued timely to the impacted parties.

Question: What happens if we don’t learn of a post-consummation change until after the 30-day time frame after consummation? For example, we don’t get the abstracting bill until 56 days after consummation? Do we redisclose?

Answer: As the rule is written now, it only provides instructions for changes in fees discovered within the first 30-days that result in a change in the amount paid by the borrower or seller. However, keep in mind, the rules states the creditor is not to disclose and collect more from the borrower than is paid to the service provider (the “actual charge” for the service). Therefore, we believe in keeping with the spirit of the regulation, if an event occurs causing the Closing Disclosure to become inaccurate more than 30-days after consummation, and the bank over-collected at consummation, the excess amount should be refunded to the borrower as soon as possible. The regulation doesn’t require a corrected Closing Disclosure in this situation so whether or not a revised Closing Disclosure is provided would be a bank procedural matter.

Question: If we discover we need to refund the borrower after closing because the bill came in lower than anticipated (i.e.: abstract), are we required to send a new Closing Disclosure along with the refund?

Answer: Yes, if you discovered within 30 days of consummation that the amount you charged the borrower was incorrect, you would be required to send a revised Closing Disclosure along with a refund check. If you discover the overcharge more than 30 days after consummation, to meet the good faith requirements of the regulation, we believe you will still be required to refund the overage to the customer. The regulation doesn’t require a corrected Closing Disclosure in this situation so whether or not a revised Closing Disclosure is provided would be a bank procedural matter.

Average Charge Pricing

Question: Is it acceptable for the lender to set a flat appraisal fee for third party appraisers providing the service? For instance, if they are on our approved list they accept all orders for a set fee.

Answer: If the settlement service provider sets a flat fee for their service, the bank clearly can charge that flat fee. However, the bank is required to disclose the actual fee for the service provided unless they are using average charge pricing. Average charge pricing should only be used if the price varies due to an event such as volume. In the case of an appraisal, using average charge pricing would not be acceptable. Therefore, the bank must charge the actual charge and not a flat appraisal fee that is not indicative of the actual cost of that service.

Question: Would you review the “average charge” information on the Closing Disclosure?

Answer: Average charge pricing may be used if the following conditions are satisfied:

The average charge is no more than the average amount paid for that service by or on behalf of all consumers and sellers for a class of transactions;
The creditor or settlement service provider defines the class of transactions based on an appropriate period of time, geographic area, and type of loan;
The creditor or settlement service provider uses the same average charge for every transaction within the defined class; and
The creditor or settlement service provider does not use an average charge for any type of insurance; any charge based on the loan amount or property value; or if doing so is otherwise prohibited by law.

If the creditor develops representative samples of specific settlement costs for a particular class of transactions, the creditor may charge the average cost for that settlement service instead of the actual cost for such transactions. The key is the average-charge program may not be used in a way that inflates the cost for settlement services overall. So the creditor needs to periodically go back and analyze the actual number of reports ordered, total cost and recalculate the average charge, taking into consideration if the actual cost was more or less than the amount collected for the time period it must adjust the average cost for the next timeframe accordingly. The Official Staff Commentary to 1026.19(f)(3)(ii) provides examples of how to calculate average charge pricing as well as guidance on adjusting the average charge price based on actual numbers.

Home Loan Toolkit

Question: If a creditor makes the Toolkit available on its website, does that satisfy the rule’s delivery requirement?

Answer: During its May 26, 2015 webinar the CFPB indicated that a creditor would NOT satisfy this requirement by simply making special information booklet (i.e. the Toolkit) available on its website. Section 1026.19(g)(1)(i) requires that the creditor “deliver or place in the mail” the special information booklet not later than three business days after the consumer’s application is received. Thus, the creditor could “deliver” the Toolkit electronically to consumers along with the Loan Estimate and other application disclosures (in compliance with the E-SIGN Act), but just providing the website link would not constitute “delivery.” (Keep in mind, if the creditor denies the consumer’s application before the end of the three-business-day period, the creditor need not provide the booklet.)

General Rules regarding Loan Estimate Completion

Question: Our bank is considering a promotion for a “no cost” home equity closed-end loan. Since we are covering the closing costs (typically credit report, lien search, property valuation and recording fees) do we even need to disclose these fees on the Loan Estimate and Closing Disclosure?

Answer: The Consumer Financial Protection Bureau has provided some valuable guidance on the topic of “absorbed fees” in their TRID FAQ related to Lender Credits. The FAQ states, The TRID Rule does not require disclosure of a closing cost and a related lender credit on the LE if the creditor incurs a cost, but will not charge the consumer for that cost (i.e., the creditor will “absorb” the cost). The FAQ then goes on to state the lender has options related to closing costs it intends to “absorb.” Thus, the lender can:

Not disclose the closing costs at all on the LE since the borrower will not incur the fee; or
May disclose the fees as normal on the LE and then provide an offsetting Lender Credit in the Cash to Close table.

However, the TRID rule requires that the CD include all costs incurred in connection with the transaction. As a result, the lender must disclose on the CD a closing cost it incurs even if the consumer will not be charged for the closing cost (i.e., the creditor will “absorb” the cost). If a lender absorbs a cost incurred in connection with the transaction, the lender must disclose such cost on the CD in the “Paid by Others” column in the Loan Costs or Other Costs table, as applicable, and may include “(L)” to the left of the amount to designate the charge was paid by the creditor.

Question: When completing the Loan Estimate, if a particular disclosure does not apply to the loan product being offered or if no value is to be disclosed for a particular item, can the designation “N/A” (not applicable) be used?

Answer: No. the designation “N/A” cannot be used where no value is to be disclosed or the loan does not contain a particular loan feature. As comment 37-1 makes clear, the term “N/A” may not be used on the Loan Estimate. In general, when a disclosure is not applicable, that disclosure is either omitted from the Loan Estimate, or left blank.

Question: Is there a required naming convention or required terminology for identifying charges on the Loan Estimate?

Answer: No, the TRID rule does not prescribe a uniform naming convention outside of the general label set forth in the rule, for example, taxes and other government fees, prepaids, etc. The CFPB also did not create a standard or prescribed list of fee names. However, when applying these rules one should read each provision carefully, because there are some specific types of charges that must be identified in a prescribed manner. For example, Section 1026.37(f)(2) and (f)(3) require the description “Title – “ to precede any title related services. So careful review of the rule is recommended.

Loan Estimate Completion – Page 1

Question: We are doing a mortgage loan for a consumer to pay off a Real Estate Contract to purchase their current principal dwelling. For TRID disclosure purposes, is the Loan Purpose “Purchase” or “Refinance?” Also, is this loan subject to the right of rescission?

Answer: Consumer-purpose, closed-end credit transactions secured by real property where the borrower is a natural person (or trust for estate or tax purposes), are covered by Reg. Z, and subject to TRID disclosure requirements. Under TRID, if any of the loan proceeds are used to purchase real property, the loan purpose is “Purchase.” Because the property is likely still titled in the name of the seller, title will be transferred to the buyer upon payoff of the contract with the loan proceeds, making the TRID loan purpose “Purchase.”

Typically, borrowers do not have a right to rescind a purchase money transaction. The commentary to Reg. Z, 1026.2(a)(24)(5), however, states that the term “Residential Mortgage Transaction” does not include a transaction involving a consumer’s principal dwelling if the consumer has previously purchased and acquired some interest in the dwelling, even though the consumer had not acquired full legal title. An example provided in the commentary is the payoff of a balloon payment due under a land sale contract. In that section, it expressly states that rescission does apply to these transactions. As stated earlier, in the case of contract payoffs, the collateral property is the buyer’s current principal dwelling, and they have been making payments on the property, thus at the very least they have an equitable ownership interest in the property through the payments they have made on the contract, even if they don’t have full legal title to the property. Therefore, in this situation, rescission does apply.

Question: We are terming out a customer’s open-end real estate secured Home Equity Line of Credit (HELOC) with a closed-end real estate loan. Since TRID now applies to the closed-end real estate loan, what Loan Purpose should be shown on the Loan Estimate (LE) and Closing Disclosure (CD)?

Answer: First, let’s look at the possible TRID Loan Purposes. Section 1026.37 of Reg. Z provides the instructions for completing the LE, with Section 1026.37(a)(9) addressing the “Purpose” field.

Section 1026.37(a)(9) instructs the consumer’s intended use for the credit, labeled as “Purpose,” should be completed using one of the following terms:

(i) Purchase. If the credit is to finance the acquisition of the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Purchase.”

(ii) Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, and if the credit will be used to refinance an existing obligation, as defined in § 1026.20(a) (but without regard to whether the creditor is the original creditor or a holder or servicer of the original obligation), that is secured by the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Refinance.”

(iii) Construction. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) or (ii) of this section and the credit will be used to finance the initial construction of a dwelling on the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for “Construction.”

(iv) Home equity loan. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) through (iii) of this section, the creditor shall disclose that the loan is a “Home Equity Loan.”

Since this new closed-end loan will pay off the real estate secured HELOC, the Loan Purpose clearly would not be “Purchase” or “Construction”. Let’s look closer at refinance and home equity. The refinance definition explicitly states: “A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.” The “subpart” referred to here is Subpart C of Reg. Z, which pertains only to closed-end credit transactions.

This means when a closed-end real estate credit transaction is satisfied and replaced with another closed-end real estate transaction, the Loan Purpose would be “refinance”. In your case, an open-end real estate HELOC will be satisfied and replaced with a closed-end real estate transaction. Thus, the appropriate TRID Loan Purpose is not “Refinance,” but rather would be “Home Equity.”

Question: Is it acceptable to leave the loan # ID blank if we do not assign a loan number at application or utilize any other numbering system?

Answer: No. The rule requires a number to be included in the Loan ID field. This can be an application number versus the loan number but should follow the loan through closing.

Question: The TRID rule indicates the Loan ID number needs to be the same on the Loan Estimate and Closing Disclosure. My question is, do you have to put a Loan ID number on the Loan Estimate and Closing Disclosure if you normally assign loan #’s after closing?

Answer: The instructions for the Loan Estimate and Closing Disclosure require a loan ID number be assigned at the time the Loan Estimate is provided to the consumer. You will have to adjust your procedures to assign an ID number earlier in the process.

Question: Can the loan ID number on the TRID disclosures change at closing, as we assign the loan number?

Answer: No, the same loan ID number must be used on the Loan Estimate and Closing Disclosure. See the Official Staff Commentary for completing the Closing Disclosure:

38(a)(5)(v) – 1. Same identification number as Loan Estimate. The loan identification number disclosed pursuant to § 1026.38(a)(5)(v) must be one that enables the creditor, consumer, and other parties to identify the transaction as the same transaction disclosed on the Loan Estimate. The loan identification number may contain any alpha-numeric characters. If a creditor uses the same loan identification number on several revised Loan Estimates to the consumer, but adds after such number a hyphen and a number to denote the number of revised Loan Estimates in sequence, the creditor must disclose the loan identification number before such hyphen on the Closing Disclosure to identify the transaction as the same for which the initial and revised Loan Estimates were provided.

However, the creditor can use a separate ID number for the Note if it wishes or assign a different ID number after consummation.

Question: For a TRID loan, the borrower requested an increase in the loan amount. Our origination fee is based on the loan amount, resulting in an increase in the origination fee. We want redisclose to increase in the origination fee to reflect the increased loan amount. We are not prepared to issue the Closing Disclosure, so we are showing the changes on a revised Loan Estimate. The borrower has provided their intent to proceed. In the Rate Lock section on the revised Loan Estimate, how do we disclose the date that all other estimated closing costs expire?

Answer: Actually, the date and time are to be left blank. The commentary to section 1026.37(a)(13) states that if the consumer provides their intent to proceed within the stated date and time, the date and time are left blank for subsequent revised Loan Estimates. (August 2020)

Question: If we are making a loan secured by Property A to purchase Property B, which address should we detail on the Loan Estimate?

Answer: The Official Staff Commentary to 1026.37(a)(6) requires disclosure of the address including the zip code of the property that secures or will secure the transaction. In the example you provide, the property address that should be detailed on the Loan Estimate is Property A, the collateral property.

Where more than one property secures the credit transaction, the creditor must disclose all property addresses. So if this loan were secured by both properties, you would be required to detail both addresses on the Loan Estimate. If the addresses of all properties securing the transaction do not fit in the space allocated on the Loan Estimate, an additional page with that information may be appended to the end of the Loan Estimate.

Question: Will lot loans use the purchase/refinance loan purpose descriptors?

Answer: Yes, if the loan is closed-end, consumer-purpose and secured by real property, it is subject to the TRID rules. Therefore, the Loan Estimate and Closing Disclosure must use the Loan Purpose descriptors as described in the rule: purchase, refinance, construction or home equity.

Question: If you have lot loan that is refinanced to add funds to construct the borrower’s residence using the lot as collateral on both loans, is the purpose on the disclosure a refinance or construction?

Answer: If the lot is used for collateral on both loans, the new loan would be considered a “refinance” even though its purpose is to construct the residence because one loan is satisfying and replacing another loan secured by the collateral property and “refinance” is higher on the loan purpose hierarchy than “construction.”

Question: We received an application to build a home on a lot the applicant already owns. The vast majority of the funds will be used to build the home. There is a small loan against the lot that will paid off with the first advance from the new loan. What is the TRID Loan Purpose when funds are used for multiple purposes like this — refinance and construction?

Answer: The correct Loan Purpose in this case is “Refinance.” The TRID rule establishes a “hierarchy” for determining the loan purpose for multipurpose loans in §1026.37(a)(9) based on the loan purpose related to the property securing the loan. The hierarchy, in order, is:

Purchase
Refinance
Construction
Home Equity

To help determine Loan Purpose, first identify the loan collateral, then how the loan proceeds are used in connection to the collateral. If any portion of the funds are used to buy the collateral property, then the Loan Purpose is “Purchase.” If no funds are used to buy the property, then determine if any funds are used to pay off existing debt secured by the collateral property. If yes, then the Loan Purpose is “Refinance;” if no, determine if any funds are used for the initial construction of a dwelling. If yes, then the Loan Purpose is “Construction”; if no, the only remaining option is “Home Equity.” The Home Equity Loan Purpose is possible even if there is no dwelling, or home, on the collateral property since TRID only requires a collateral interest in dirt, not necessarily a dwelling. Home Equity is the appropriate Loan Purpose if none of the other loan purposes fit the situation.

Back to your loan, your borrower already owns the lot on which his new home will be built, so no funds are being used to buy the property that secures the loan. Some funds will be used to refinance an existing debt secured by the collateral property, so the Loan Purpose is “Refinance.” If there was no loan to refinance, the appropriate Loan Purpose would be “Construction.” (January 2020)

Question: The rules for completing the Loan Estimate require a lender to enter the date, time and time zone for when the rate lock and estimate of closing costs will expire. When the time changes from Standard Time to Daylight Savings Time do we need to change the time shown on the Loan Estimate from Standard Time to Daylight Savings Time?

Answer: Yes, the creditor must change the time shown on the initial Loan Estimate if they are located in an area that observes Daylight Savings Time. Section 1026.37(a)(13) in Regulation Z states that the Loan Estimate must provide the date, time and applicable time zone. The commentary to this section of the regulation states that creditor must provide the applicable time zone where the creditor is located for all times provided. For example, if the creditor is located in the state of New York, the time of expiration is 5:00 p.m. and standard time is in effect, then the time must include a reference to Eastern Standard Time. So the time would be shown as “5:00 p.m. EST.” The Rate Lock is marked “Yes” and the date, time and time zone are provided only if the creditor has a written rate lock agreement with borrower.

Question: Does that mean we have to change our loan software settings every time the switch is made from Standard to Daylight Savings Time and back again? What if the time changes from Daylight Savings Time to Standard Time midway through the rate lock period and the ten-day period the estimates on the Loan Estimate are in effect?

Answer: Yes, the creditor must use the time in effect when the initial Loan Estimate is produced. There might be some instances that the time will change during the period the rate lock or loan costs are locked. The Loan Estimate could be produced when Daylight Savings Time is in effect, but the rate and cost estimate will expire when Standard Time is in effect. The time when the rate or loan costs expire must be shown using Standard Time. The time will change to Standard Time on the first Sunday in November. (April 2016 Disclosure)

Question: Are MI (mortgage insurance) loans going to be considered a “Conventional” loan type?

Answer: Yes. Most loans are conventional unless they are VA, FHA, RHS, or USDA. The addition of mortgage insurance does not change the loan type.

Question: Is an ARM loan with an initial rate that is based on index and margin in effect at the time of rate lock considered an ARM with “no introductory period”? For example, the ARM loan has adjustments every 3 years with first adjustment occurring after 36 months, with initial rate that is based on index plus margin in effect at the time the rate is locked (is not a premium or discount rate).

Answer: In your example, you bring up two terms that are important to understand. The first is an “introductory rate” and the second is an “introductory period”. Both are important when determining how to disclose the Product. Regulation Z does not define “introductory rate.” CFPB interpretation is if the initial rate is not calculated in the same manner that subsequent rates are calculated, the rate is considered to be “introductory.” So in your example, the rate is equal to the index plus the margin. This is the same manner that future rates will be calculated so you do not have an introductory rate. If the index plus the margin is less than the floor, therefore the floor rate is the initial rate, this also would not be considered an introductory rate as the initial rate was set by the legal terms of the loan agreement (the floor). If the initial rate is a discounted rated or premium rate, the rate is considered “introductory.” Or if initial rate is based on index plus 1% but later adjustments are based on index plus 2% (or any amount other than 1%) then, the rate is considered to be “introductory.”

A bank may not offer a product with an introductory rate, but that same loan may have an introductory period. If the initial rate is in effect for a different period of time than subsequent rates, it is considered an “introductory period.” For example, if the initial rate is in effect for a period of three years, but subsequent rates are only in effect one year, the initial period would be considered “introductory.” In your example, the rate adjusts every 3 years (all rate adjustment periods are the same), therefore you do not have an introductory period. So even though your product is considered a 3/3 ARM, for TRID purposes you would disclose a 0/3 Adjustable rate since you have no introductory period or introductory rate.

37(a)(10) Product. 1. No introductory period. If the loan product is an adjustable rate with no introductory rate, the creditor should disclose “0” where the introductory rate period would ordinarily be disclosed. For example, if the loan product is an adjustable rate that adjusts every three years with no introductory period, the disclosure required by § 1026.37(a)(10) is “0/3 Adjustable Rate.”

By contrast, if your product was a 3/1 ARM where the rate was fixed for the first three years then adjusted every year after, while your product does not have an introductory rate, you would have an introductory period since the period of time for the initial rate is in effect is different than the period used for later adjustments. So you would disclose this as a 3/1 ARM for TRID purposes.

Basically, the only time your Product would start with “0” for an ARM product is if you have an initial rate that is determined solely by the index plus margin and all rate adjustment timeframes are on the same.

Question: Our bank offers an 11 month, interest-only bridge loan with a balloon payment of principal and accrued interest due on the 12^th month. How would I disclose this loan in the “Product” field of the Loan Estimate since it has both an interest-only and balloon payment feature?

Answer: Section 1026.37(a)(10)(iii) states “The disclosure of a loan feature under paragraph (a)(10)(ii) of this section shall precede the disclosure of the loan product under paragraph (a)(10)(i) of this section. If a transaction has more than one of the loan features described in paragraph (a)(10)(ii) of this section, the creditor shall disclose only the first applicable feature in the order the features are listed in paragraph (a)(10)(ii) of this section.”

This section goes on to state the creditor should disclose the features that may change the periodic payment such as Negative Amortization, Interest-Only, Step Payment, Balloon Payment, or Seasonal Payment (in that order). Therefore, since this product includes two of those features, the bank would only disclose the Interest-Only feature in the Product field but would reflect the balloon payment in the Loan Terms section of the Loan Estimate. This product would be disclosed as “11-mo. Interest-Only, Fixed Rate” in the Product field.

Loan Estimate Completion – Page 1 – Projected Payment Table

Question: We have an application for a closed-end, consumer purpose, home equity loan. The real estate taxes and homeowner’s insurance are paid through a first-lien mortgage on the property. Page one of the Loan Estimate, under Projected Payments, has a section titled, “Estimated Taxes, Insurance and Assessments.” Since the taxes and insurance are paid through the first mortgage, should we disclose the taxes and insurance for this property in this section or leave it blank?

Answer: The bank is required to disclose the taxes and insurance for the property that secures the loan in the Projected Payments table, “Estimated Taxes, Insurance and Assessments” line. Section 1026.37(c)(4) of Regulation Z is where we find the requirement to disclose the estimated taxes, insurance and assessments on the Loan Estimate. This section requires the estimated taxes, homeowner’s insurance and assessments be disclosed for all transactions. There is no exception for subordinate lien loans or loans that do not have an escrow for these items. If you are not escrowing for these amounts on the current loan, indicate “No” to the “In Escrow?” question. (August 2020)

Question: Can the amount disclosed on the Projected Payment table for estimated taxes, insurance and assessments be for a time period of other than monthly?

Answer: Yes, the amount disclosed for estimated taxes, insurance and assessments can be for a time period other than monthly if the transaction’s legal terms provide for other than monthly periodic payments. Section 1026.37(c)(4) provides that estimated taxes, insurance and assessments is disclosed as a monthly amount. However, § 1026.37(o)(5) provides that wherever the word “monthly” is used to describe the frequency of any payments, the creditor should substitute the appropriate term to reflect the fact that the transaction’s legal terms provide for other than monthly periodic payments. For example, if the transaction’s terms call for biweekly payments, the estimated taxes, insurance and assessments should be disclosed as a biweekly payment amount.

Question: In regard to the Projected Payment table, if mortgage insurance will automatically terminate in the time period that would be included in the fourth column, how would a creditor indicate that mortgage insurance will terminate before the end of the loan? In other words, how does a creditor disclose the automatic termination of mortgage insurance if changes to the periodic principal and interest payments have already taken up all four available columns?

Answer: Section 1026.37(c)(1)(ii) states that the Projected Payments table cannot contain more than four separate periodic payments or ranges of payments, so in this situation the automatic termination of mortgage insurance would not be disclosed on the table. Generally, the creditor discloses the first four separate periodic payments or ranges of payments that occur during the loan term.

However, § 1026.37(c)(1)(ii)(b) provides a special rule for the disclosure of the automatic termination of mortgage insurance. That section says that the automatic termination of mortgage insurance is only disclosed if there are no more than three other separate periodic payments or ranges of payments. If there are more than three other separate periodic payments or ranges of payments, meaning the four available columns are already used up to show changes to periodic principal and interest payments, regardless of when those changes occurred during the loan term, the creditor would not disclose the automatic termination of mortgage insurance on the Projected Payments table.

Question: If our bank does not escrow, do we have to complete the section for “Estimated Taxes, Insurance and Assessments” within the “Projected Payments” table on page one of the Loan Estimate and the Closing Disclosure?

Answer: Yes, regardless if your Bank escrows for taxes, insurance or other costs, the regulation requires this section to be completed and further reference in this same section as to whether or not that cost will be “in escrow” or not. At the time the Loan Estimate is generated these figures can be “estimated;” however, when generating the Closing Disclosure these figures should be final accurate figures derived from third party documents evidenced in the loan file.

Question: The projected payments table on the Loan Estimate requires the itemization of the amount payable into the escrow account to pay some or all the property costs as well as total property costs in the field labeled “Estimated Taxes, Insurance & Assessments.” On what should we base these estimates – current valuation, fully-taxed valuation, etc.? And what amounts should be include in the “Estimated Taxes, Insurance & Assessments” total?

Answer: Section 1026.37(c)(5)(i) indicates for purposes of estimated escrow payment and “Estimated Taxes, Insurance & Assessments” field, estimated property taxes and homeowner’s insurance should reflect:

The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes; and
The replacement costs of the property during the initial year after the transaction, for premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property.

The “Taxes, Insurance & Assessments” total is the sum (expressed as a monthly amount) of:

Property taxes;
Premiums and similar charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction or for insurance against loss of or damage to property that are required by the creditor;
Premiums against liability arising out of the ownership or use of property, written in connection with a credit transaction that are required by the creditor;
Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction that are required by the creditor;
Fees and special assessments imposed by a condominium, cooperative, or homeowners association;
Ground rent; and
Leasehold payments.

These amounts are included in the total even if no escrow account for the payment of some or any of such charges will be established.

Loan Estimate Completion – Page 2 – Loan Costs & Other Costs

Question: We heard something about a recent change to realtor compensation practices. Can you tell me more about that? How does this affect our disclosure requirements under TRID?

Answer: In March 2024, the National Association of Realtors (NAR) reached a settlement in an antitrust lawsuit related to how commissions were assessed. A provision in this settlement requires realtors to provide a disclosure of their commission and get signed acknowledgement from the potential client prior to showing them any properties. The idea is to help promote transparency in real estate transactions, so potential buyers can compare pricing between realtors and make an informed decision before beginning the process of looking at properties with that realtor.

In response to the NAR settlement, the Iowa Legislature passed the Iowa Real Estate Transparency Act, which became effective July 1, 2024. Under the Act, a prospective buyer must sign an agreement with his/her real estate agent prior to being shown a property. Among other things, this agreement must establish the amount of compensation the buyer has agreed to pay his/her agent in connection with the purchase transaction. While the realtor and buyer must execute an agreement regarding the realtor’s commission, the buyer may still negotiate with the seller regarding the payment of the fee. Thus, the purchase agreement may reflect a provision which states the seller agrees to pay all or part of the buyer’s realtor fees.

This may affect how banks complete their TRID disclosures. The Loan Estimate (LE) and Closing Disclosure (CD) should be created with the best information available at the time the disclosure is created. If the bank knows before issuing the LE that the buyer signed an agreement with their realtor and agreed to pay a percentage of the purchase price or a flat fee, that amount should be included on the initial LE. However, if the bank does not have this information for the specific borrower/transaction before the LE is issued, it should not automatically assume the buyer will pay a 3% fee to their realtor, as compensation may vary from transaction to transaction. While the bank can request a copy of the purchase agreement and compensation agreement, it cannot require receipt of the documents as a condition for providing the LE.

After the LE is issued and the intent to proceed is received, your bank would most likely need this information for underwriting to ensure the buyer has sufficient cash to close. If the bank receives the commission information after an LE has been issued, include the fee on the next LE/CD issued. Adding the commission would not constitute a changed circumstance triggering a new LE as it is related to the purchase transaction – not the loan. In all cases, this fee should be disclosed in Section H. Other of the LE and CD.

Question: After I provided the Loan Estimate for the purchase of a dwelling, the consumer brought in their purchase agreement. The purchase agreement states that the buyer agreed to pay an “administrative fee” to the realtor. The LE does not include the realtor fee because I didn’t know about it at the time the LE was issued. Now that I know about this fee, do I have to provide a revised LE to include it? Where should this fee disclosed on the LE?

Answer: This fee is often referred to as “compliance fee” or “documentation fee’ in addition to an “administrative fee”. The fee paid to the realtor should be disclosed in section H, Other. This section is for fees the borrower has agreed to pay to third parties for services not required by the creditor as a condition of the loan. Regulation Z, § 1026.37(g)(4) describes the fees shown in section H, Other:

(4) Other. Under the subheading “Other,” an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.

Because the realtor’s fee is not a fee associated with the loan, the TRID rule does not require a revised LE be issued for the sole purpose of adding the fee. If a revised LE is issued for another purpose, the fee must be added at that time, as each disclosure must be based upon the best information available. If a revised LE is not issued, the fee must be included on the Closing Disclosure at consummation. (June 2021)

Question: Since I did not show the realtor fee on the initial LE, is this a changed circumstance? Is the fee subject to the 10% or 0% tolerance?

Answer: Changed circumstance and the fee tolerances only apply to fees required by the creditor as a condition of the loan. Since the creditor does not require the fee charged by the realtor, the addition of the fee is not a changed circumstance and the fee is not subject to a tolerance limit. (June 2021)

Question: We have a question related to itemization of fees on the Loan Estimate and Closing Disclosure. We were of the understanding that if you don’t allow the applicant to shop, or you do permit shopping and provide the written list of service providers and the borrower chooses a provider from your list, the bank is then required to specifically know the provider’s fee. We are having problems with the fact that some of those providers (especially abstractors and attorneys) will send an itemized bill splitting out courier fees, file retention fees, etc. that are not itemized on the Loan Estimate. So, for example, the Loan Estimate states the abstracting fee is $300. We receive the final bill which itemizes the abstracting fee as $250 for abstracting, a $25 courier fee, and a $25 file retention fee. So total bill is still $300, but when we itemize those three amounts on the Closing Disclosure, our software indicates we have to cure the two $25 charges because they weren’t itemized on the Loan Estimate. Management is wanting us to aggregate the bill on the Closing Disclosure and disclose $300 payable to the abstractor, not itemize the abstracting, courier fee and file retention fees. Is that permitted?

Answer: You are correct that you are required to know what your required providers and providers included on your shopping list charge, but you are not required to itemize the various components of their fee on the Loan Estimate. See the CFPB discussion in their Small Entity Guide:

The itemization of the settlement service providers need not include all settlement services that may be charged to the consumer, but must include at least those settlement services required by the creditor for which the consumer may shop.

For example, if the creditor requires lender’s title insurance and permits the consumer to shop, the creditor must disclose the service (i.e., lender title’s insurance) and the fee for the service on the Loan Estimate, and at least one available provider of the service on the written list of service providers. However, the creditor is not required under the written list of service provider requirements to provide a detailed breakdown of all related fees that are not explicitly required by the creditor but that may be charged to the consumer, such as a notary fee, title search fee, or other ancillary and administrative services needed to perform or provide the settlement service required by the creditor.

The preamble to the 2017 final rule amending the TRID rule further explains:

…Thus, the provisions under § 1026.19(e)(1)(vi) require the creditor to identify, on the Loan Estimate and the written list of providers, the settlement services required by the creditor for which a consumer is permitted to shop. … However, the creditor is not required by the provisions under § 1026.19(e)(1)(vi) to provide a detailed breakdown of all related fees that are not themselves required by the creditor but that may be charged to the consumer such as a notary fee, title search fee, or other ancillary and administrative services needed to perform or provide the settlement service required by the creditor. The same principle is true for the disclosure of settlement services under § 1026.37(f)(3). This is consistent with the Bureau’s concern, noted in the TILA–RESPA Final Rule, that a complete breakdown of all settlement services payable by the consumer could lead to information overload for the consumer and thereby hinder the consumer’s ability to shop.

The instructions for the Closing Disclosure, found in § 1026.38(h)(4), then indicate the Closing Disclosure should be completed in the same manner as the Loan Estimate:

1026.38(h)(4) The services and costs disclosed pursuant to paragraphs (f) and (g) of this section on the Closing Disclosure shall be labeled using terminology that describes the item disclosed, in a manner that is consistent with the descriptions or prescribed labels, as applicable, used for such items on the Loan Estimate pursuant to § 1026.37.

This means if you disclosed $300 in abstracting costs on the Loan Estimate and the final bill from your abstractor was actually $300 (itemized as $250 for abstracting, $25 courier fee and $25 file retention fee) the Closing Disclosure should reflect the final amount paid to the abstractor as $300, disclosed in a consistent manner with the description provided on the Loan Estimate. (February 2020)

Question: Occasionally the bank will conduct an in-house appraisal/evaluation for which the appraisal fee collected is retained by the bank. When disclosing this fee on the Loan Estimate and Closing Disclosure, should the fee be placed in Section A. Origination Charges or Section B. Services You Cannot Shop For?

Answer: When preparing an in-house appraisal/evaluation where the fee will be paid to and retained by the bank, the fee should be placed in Section A. Origination Charges. Only third party fees can be disclosed in Section B. Services You Cannot Shop For on the Loan Estimate and Closing Disclosure. Also keep in mind, appraisal fees, whether paid to the lender or a third party, are specifically excluded from Regulation Z’s definition of a finance charge so would not have to be included when calculating the APR. (February 2019)

Question: We don’t currently charge the borrower for the credit report or flood determination fee. Must these services and fees still be listed in Section A of the Loan Estimate?

Answer: The Loan Estimate is only to include charges that will be imposed on the consumer. If the Lender considers costs such as credit report fees, flood determination fees, overnight mail fees, etc. as fees associated with the cost of doing business or administrative expenses and does not directly pass the cost on to the consumer, the fees do not have to be included on the Loan Estimate.

Question: If a creditor charges an origination fee that is a percentage of the loan amount, but it is not a “point paid to the creditor to reduce the interest rate,” may the creditor identify it as a point in some way to preserve its tax deductibility for the consumer?

Answer: No. Section 1026.37(f)(1)(i) provides that only points paid to the creditor to reduce the interest rate may be labeled as “Points.” The Loan Estimate form is meant to provide accurate disclosures to consumers of loan costs, not to document eligibility for tax benefits or other purposes.

Question: We offer a variety of closed-end fixed rate mortgage loan products. We charge an origination fee and we charge the borrower a $20 Wire Fee to wire the funds to the Settlement Agent at time of disbursement. Since the wire fee is collected and retained by us, the lender, we have disclosed it as an Origination Charge. Is this correct…it’s not really a typical “origination fee?”

Answer: Yes. Origination Charges are items the consumer will pay to the creditor for originating and extending credit. (See 12 CFR 1026.37(f)(1)). Note the rule requires you to describe this charge using terminology that clearly and conspicuously describes the service that is disclosed. The law does not prescribe labels for charges, but presumably, you will describe the charge as “wire transfer fee” or something to that effect. (See section 1026. 37(f)(1), comment 3.)

Question: Where do we place a courier fee such as UPS?

Answer: It depends on whether the fee is required. If this is a fee that is required by the creditor and the provider is selected by the creditor, but will be paid by the borrower, it should be disclosed in the “Services You Cannot Shop For” section (Section B) of the Loan Estimate since the fee is paid to a party other than the originator or affiliate. If this is a service requested by the borrower for their convenience (e.g. to overnight mail the abstract back to the borrower upon completion of the final title work), then it would go in Section H – Other.

Question: Where do we show the wire fee?

Answer: If this is a fee retained by the creditor, the fee should be listed in Section A – Origination Charges.

Question: If we have an in-house appraiser and charge the borrower a $200 appraisal fee, under the TRID rules will this be disclosed in Section A or Section B?

Answer: Since the fee is paid to the bank, the fee would be listed in Section A under “Origination Charges”. Section A fees are items the consumer will pay to each creditor or loan originator for originating credit. Fees in Section B are fees for services the creditor requires and requires use of a provider other than the creditor, loan originator or mortgage broker.

Question: If the abstracting office is an affiliate, does the abstract update fee go in Section A?

Answer: Yes, if the creditor does not permit the borrower to shop and the fee is paid to the creditor or their affiliate, it must be listed in Section A – Origination Charges.

Question: What section on the Loan Estimate should the Work Number Verification (VOE) be listed?

Answer: If the creditor requires the borrower to pay the fee and the fee is charged by the borrower’s employer, this would be listed in Section B – Services You Cannot Shop For. If the fee is paid to the bank, this would be listed in Section A – Origination Charges.

Question: Should the Title Guaranty be placed in services the borrower CAN or CANNOT shop for?

Answer: Under the new TRID rules, the CFPB has repeatedly indicated if you provide the consumer with a shopping list and you allow the consumer to select a qualified provider that does not appear on your list, the fee is “shoppable” and should be disclosed as such on the Loan Estimate. The challenge with Title Guaranty is that there is only one authorized provider – the state of Iowa. So while a creditor could include Title Guaranty on its shopping list, it would not permit the borrower to select a provider off the list. For this reason Title Guaranty becomes a “service the borrower cannot shop for.”

Now, if you permitted the borrower to purchase title insurance instead of title guaranty AND included at least one title insurance provider on your shopping list AND permitted your borrower to use a title insurance provider that was not on your list, then you could list title insurance as a “service the borrower can shop for.”

Question: Do we still need to disclose the fee for owner’s title insurance on the Loan Estimate if we don’t require it?

Answer: If the purchase of Owner’s Title Insurance is optional, the creditor is NOT required to include it on the Loan Estimate. If the creditor wants to inform the consumer of the availability of Owner’s Title Insurance, it can be included in the Other Costs, Section H – Other Costs with the term “(Optional)” following the name of the service if the purchase is truly optional.

Question: Transfer taxes are typically paid by the seller in Iowa so should they be listed on the Loan Estimate?

Answer: No – You only include charges to be paid by the consumer on the Loan Estimate. So transfer taxes on Iowa properties will generally not be included on the Loan Estimate since state law generally requires the payment by the seller (unless a special contractual agreement is made between the buyer and seller otherwise).

Question: On a refinance or home equity loan, do you show insurance premium and property taxes in Section F prepaid?

Answer: Only if you require such items to be paid at or before closing. Items to be paid in advance of the first payment date are disclosed in Section F of Other Cost. Prepaid items include homeowner’s insurance premiums, mortgage insurance premiums, prepaid interest, and property taxes. If no premium/amount is due at or before closing, then you are not required to disclose hazard insurance or property taxes on the Loan Estimate or Closing Disclosure.

Question: Our borrower will receive a first time homebuyer grant for their home purchase. How should this be disclosed on the Loan Estimate?

Answer: On the Loan Estimate, a grant is disclosed in the Calculating Cash to Close table, on the Adjustments and Other Credits row. The Official Staff Commentary clarifies that “[f]unds that are provided to the consumer from the proceeds of subordinate financing, local or State housing assistance grants, or other similar sources are included in the amount disclosed under §1026.37(h)(1)(vii).”

Loan Estimate Completion – Page 2 – Lender Credits & Lender Paid items

Question: If we plan to offer a Lender Credit, is it permissible to prepare the Loan Estimate as usual with all of the expected fees but not include a Lender Credit or show a Lender Credit of $0.00 (basically, showing that the borrower will pay all the fees), and then on the Closing Disclosure include a Lender Credit for the exact amount of the all the closing costs showing the creditor is paying for?

Answer: No – if the creditor prices the loan such that it will provide a Lender Credit, the amount of that credit should be estimated on the Loan Estimate. If the Lender Credit is tied to the interest rate and the interest rate has not been locked in at the time the initial Loan Estimate is provided, the creditor should estimate the credit amount, and then can adjust the credit at the time is interest rate is locked to reflect the current interest rate price.

Question: Are we required to disclose third party fees for services (such as credit reports, flood determinations or overnight mail fees, etc.) that we do not intend to pass on the consumer? We consider these fees a cost of doing business and absorb the cost rather than directly pass it on.

Answer: Per CFPB oral guidance, the Loan Estimate should only include costs the creditor will require the borrower to pay as a condition of the loan. If the creditor intends to cover specific costs, such as the credit report, flood determination, appraisal and title fees, and the borrower is not legally obligated for the cost of these services, the services and accompanying costs do NOT have to be detailed on the Loan Estimate. Example: creditor never charges for these services and absorbs the costs.

Conversely, if the creditor only intends to cover costs up to a certain dollar amount or if the creditor will only cover certain costs under certain conditions (e.g., the loan closes or the loan amount is above a certain threshold), then the cost of the settlement service should be disclosed on the Loan Estimate. If, at the time of consummation, the borrower has met the lender’s requirements, and thus the lender paid for the service, the fee should be detailed as being Lender paid in the “Paid by Others” column on the applicable line on the Closing Disclosure.

Question: How is premium pricing credit disclosed?

Answer: If the bank is issuing a premium pricing credit to the borrower to offset fees, a Lender Credit should be disclosed (as a negative amount) on page two under Section J – Total Closing Costs. The credit should be disclosed on the Lender Credit line.

Question: Regarding lender credits, if the consumer indicates they wish to lock in a rate at a premium price and use the Yield Spread Premium (YSP) to offset closing costs, but the consumer has not locked in the interest rate at the time the initial Loan Estimate is issued, should the creditor estimate the lender credit on the Loan Estimate based on the current rate environment? If the creditor did provide an estimated lender credit, at the time the consumer locks in their interest rate, can the lender credit be adjusted (reduced) if the actual YSP is less than estimated?

Answer: Locking in an interest rate is a valid changed circumstance and if the pricing for the interest rate has changed since the time the original Loan Estimate was issued, would constitute a valid changed circumstance permitting the lender to increase or decrease the lender credit, as applicable. Again, file documentation supporting the change in the interest rate pricing will be important.

Question: Are creditors able to offer a “flat fee” loan – or must all third party costs incurred be disclosed on the Loan Estimate? For example, the creditor offers a subordinate lien product that only has one fee which is charged to the consumer – $500 commitment fee. The consumer pays a $500 commitment fee to the creditor. From the $500 payment, the creditor covers the third party recording fee, flood determination fee and title search fee and retains the balance of the $500 as income. May the creditor disclose the entire $500 fee as an “origination charge” in Section A of the Loan Costs section on the Loan Estimate and Closing Disclosure with no further itemization of the recording fee, flood determination fee and title search cost required since those fees are not being directly passed on to the consumer?

Answer: The creditor may offer a “flat fee” loan product and charge one fee and then pay all expenses from this amount. As stated above, the creditor is only required to disclose on the Loan Estimate those fees the consumer will be directly obligated to pay as a condition of the loan. Just keep in mind that this fee is an origination charge and would be included in the APR and be considered “Points and Fees” for HPML and QM purpose, whereas if the creditor separately disclosed the fees, some of the costs are not included in the APR calculation.

Loan Estimate Completion – Page 3

Question: At the top of page three of the Loan Estimate, we are to disclose the Lender, Loan Officer and Mortgage Broker and Loan Officer NMLS ID number. When identifying the Loan Officer, should we use the same person’s identification number [NMLSR] that will be identified on the note and other documents?

Answer: The creditor should disclose the NMLSR ID of the person who is the primary contact for the consumer at the time the disclosure is issued. At the time the Loan Estimate is issued, that is likely the person taking the application. If the person with primary responsibility for the transaction changes from the time of application to consummation, the contact information will change from the Loan Estimate to the Closing Disclosure. Also keep in mind § 1026.36(g) (the mortgage loan originator rules) requires that the NMLSR ID number of the person with primary responsibility for the loan be included on specific loan documents, including the note, security agreement and application.

Question: Does the appraisal notice on page three of the Loan Estimate in the “Other Considerations” table satisfy the requirements of Regulation B, as we commonly refer to the ECOA Valuation Rule, or does the creditor need to provide a separate disclosure for that requirement?

Answer: In general, Reg. B requires creditors to do two things: first, they have to provide applicants with a notice in writing of the applicant’s right to receive a copy of all written appraisals developed in connection with the application. And second, creditors must provide the applicant with those copies of all written appraisals promptly after they are completed. Regulation Z § 1026.37(m)(1) requires creditors to include the notice required by Reg. B on the Loan Estimate. As a result, for loans that are subject to Reg. B, creditors can satisfy their ECOA notice requirement with the Loan Estimate. Also keep in mind, Regulation Z also contains a provision in the HPML (higher priced mortgage loan) rules in 1026.35(c)(5) requiring creditors to provide a similar notice to HPML borrowers. The inclusion of the appraisal notice on the Loan Estimate satisfies the Regulation Z HPML appraisal notice requirement as well. (Separately, creditors will still be subject to the Regulation B and Regulation Z requirement to provide the copies of the appraisals once they are completed.)

Question: In the “Comparisons” box on page three of the Loan Estimate, it lists “loan costs” as part of the total that you will have paid “In Five years.” If loan costs are paid before closing by the consumer instead of at closing and are NOT financed, should they be still included in this figure?

Answer: The disclosure contained in the “In Five Years” comparison table pursuant section 1026.37(1) does not distinguish between loan costs paid before closing and not financed. So, yes, loan costs paid before closing and not financed should be included in the five year calculation. The loan costs that must be disclosed as a part of the comparison table are those disclosed pursuant to §1026.37(f)(1)(i). The purpose of the comparison table is really to provide yet another way for consumers to compare and shop for loan products. The goal is here is to simply identify the loan costs that will be a part of the transaction – not to identify how those costs are paid. The Closing Disclosure will contain more detailed information on which party pays loan costs and when they are paid.

Question: How is the “In 5 years” disclosure on the Loan Estimate calculated for short-term construction loans?

Answer: In transactions with a scheduled loan term of less than 60 months, the creditor provides the “In 5 years” disclosure using the amounts paid through the end of the loan term. The instructions do not address changing the title of the disclosure. So the title remains “In 5 years,” but the amount disclosed is reflective of the entire time loan term which may be much shorter. (November 2019)

Question: Is the servicing disclosure on the Loan Estimate (page three under “Other Disclosures”) only applicable to first lien loans?

Answer: No. Section 1026.37(m)(6) requires the creditor to disclose whether it intends to service the loan directly or transfer servicing to another servicer after consummation for any transaction for which the Loan Estimate must be provided. A creditor complies with this requirement if the disclosure reflects the creditor’s intent at the time the Loan Estimate is issued. There are no exemptions in the rule for this disclosure.

Question: Why is the “Liability after Foreclosure” notice on the Loan Estimate only applicable to refinances but the disclosure on the Closing Disclosure applicable to all covered loans?

Answer: Actually the purpose of the “Liability After Foreclosure” notices on the Loan Estimate and Closing Disclosure differ slightly. Section 1026.37(m)(7) limits the Loan Estimate disclosure to refinances because the intent of the notice is to warn a consumer refinancing a purchase money interest in their home that certain foreclosure protections provided under state law to purchase money borrowers may be lost if the consumer refinances that purchase money transaction. The language provided on the CFPB’s sample notices reads: “Taking this loan could end any state law protection you may currently have against liability for unpaid debt if your lender forecloses on your home. If you lose this protection, you may have to pay any debt remaining even after foreclosure. You may want to consult a lawyer for more information.”

Whereas, § 1026.38(p)(3) requires the creditor to disclose to all covered consumer borrowers whether, and the conditions under which, the consumer may be responsible for any deficiency after foreclosure under applicable state law. The provision also requires a brief statement that certain protections may be lost if the consumer refinances or incurs additional debt on the property, and the statement that the consumer should consult an attorney for additional information. The form carries out this provision by requiring creditors to state, “If your lender forecloses on this property and the foreclosure does not cover the amount of unpaid balance on this loan,” then check one of two boxes:

The first says state law may protect the consumer from liability for the unpaid balance, and provide some additional language informing the consumer that protections may be lost if the consumer refinances or takes on additional debt, and a statement advising the consumer to consult a lawyer for more information; or
The second statement provides that state law does not protect the consumer from liability for the unpaid balance.

The preamble to the final rule describes the disclosure as “generalized” and “high level” explaining that creditors are not required to provide legal advice to consumers as to the reach of state anti-deficiency protections, but rather are required to alert consumers in states where any deficiency laws may apply for the need to consult a lawyer for more specific information about those state anti-deficiency protections.

Question: We take applications electronically through Mortgagebot POS and their initial disclosures are given automatically. So on page three where the loan officer name is listed, can that name change once the loan is assigned to a specific loan officer?

Answer: If the loan officer is not designated at the time the Loan Estimate is issued, the creditor need only list the NMLSR ID of the creditor. Once the Loan Officer is assigned, that Loan Officer’s name and NMLSR ID should be disclosed on all other Loan Estimates and Closing Disclosures issued from that point forward.

Completing the Closing Disclosure – General Information

Question: What should creditors do if the information required to be disclosed on the Closing Disclosure does not fit in the space allotted on the form?

Answer: The CFPB has acknowledged in several places the information required to be included on the Closing Disclosure may not fit into the allotted space on the form. When this occurs, for those specific items, the additional information that does not fit may be disclosed on a separate page with the Closing Disclosure. However, be careful as this is not a general rule. Creditors must look to each subsection in § 1026.38 to see when the rule permits the information to be provided on the additional page.

Additionally, Section 1026.38(t)(5)(ix) permits an additional page to be added to the disclosure for customary recitals and information used locally in real estate settlements. Examples of such information include a breakdown of payoff figures, a breakdown of the consumer’s total monthly mortgage payments, check disbursements, a statement indicating receipt of funds, applicable special stipulations between buyer and seller, and the date funds are transferred.

Question: If an addendum can be used for information that does not fit on the Closing Disclosure, is a model form provided or are there specific formatting requirements for the addenda?

Answer: The final rule and Official Staff Commentary provide no required addendum form or format. Since there are many possible combinations of additional information that could be included on a Closing Disclosure addendum, there is no sample or model that has been provided in the rule or in other documents. Generally, information that is required or permitted to be disclosed on a separate page with the Closing Disclosure should be formatted similarly to the Closing Disclosure itself. The additional information should be consolidated on as few pages as necessary, so as to minimize the number of additional pages the borrower receives.

Question: Our secondary market investor requires us to provide a final copy of the Closing Disclosure at closing in addition to the one provided three days prior to closing. To ensure consistency we have also implemented this practice for in-house loans as well. If nothing changes from the Closing Disclosure provided three days prior to closing to the one provided at closing, do we need to update the “date issued” on these two disclosures?

Answer: No, if no changes have been made to the Closing Disclosure and the bank is simply having the borrower sign a copy of the same Closing Disclosure issued three days prior to closing, the Closing Disclosure “date issued” need not be updated. The key for compliance purpose is to document in the loan file the method in which the “original” Closing Disclosure was issued to evidence timely delivery. This way if the bank does not require a borrower’s signature on the “original” Closing Disclosure and the only one signed in the file is the one provided at closing, it will be clear to auditors and/or examiners that the “original” disclosure was issued within the required timeframe.

Closing Disclosure Completion – Page 1

Question: Can you please explain who is considered an obligor and listed as a “Borrower” on the Closing Disclosure?

Answer: “Borrowers” include persons to whom the bank is extending credit. Borrowers do not include persons who are NOT obligors, but have rescission rights, such as non-borrowing spouses. (Such persons will need to receive a copy of the Closing Disclosure for rescission purposes, but should not be listed as “Borrowers” on the Closing Disclosure.)

Question: For a closed-end consumer purpose real estate loan with no seller, when the bank uses an evaluation or automated valuation model rather than an appraisal from a licensed appraiser, do we use “Appraised Prop. Value” or “Estimated Prop. Value” on the Closing Disclosure to represent the value the bank used to approve the credit transaction?

Answer: Since evaluations and automated valuation model determinations (whether internal or conducted by a third party) are not “appraisals” that meet USPAP guidelines, the value should be disclosed using the label “Estimated Prop. Value”. See the Official Staff Commentary to 1026. 38(a)(3)(vii) when there is no seller, it states, “If the creditor has not obtained an appraisal, the creditor may disclose the estimated value of the property. Where an estimate is disclosed, rather than an appraisal, the label for the disclosure is changed to Estimated Prop. Value.” The creditor may use the estimate provided by the consumer at application but, if it has performed its own estimate of the property value for purposes of approving the credit transaction by the time the disclosure is provided to the consumer, the creditor must disclose the estimate it used for purposes of approving the credit transaction. For transactions involving construction where there is no seller, the creditor must disclose the value of the property that is used to determine the approval of the credit transaction, including improvements to be made on the property if those improvements are used in determining the approval of the credit transaction.” (August 2019)

Question: How should the “Settlement Agent” field be completed on the new Closing Disclosure if the creditor acts as the settlement agent? Should the field be left blank or should the creditor’s name appear in the “Settlement Agent” field?

Answer: The rule does not appear to differentiate between a creditor or third party acting as the settlement agent. Therefore, if the creditor is acting as both the creditor and settlement agent, the Closing Disclosure should reflect the creditor’s name in both fields on the Closing Disclosure.

Question: When should a new column be added to the Projected Payments table on the Closing Disclosure?

Answer: Remember, the Projected Payments table on the Loan Estimate and Closing Disclosure must be completed in the same manner and are meant to provide the consumer with an estimate of the periodic payments that the consumer will make over the life of the loan. A new column will generally be triggered by any of the following during the loan term:

A potential change in the principal and interest payment (or range) such as for an ARM loan or loan that converts from interest-only payments to principal and interest payments;
A balloon payment;
The automatic termination of mortgage insurance; or,

Keep in mind the maximum number of columns the Periodic Payments table may contain is four. If a loan has more than four triggering events, show a range of payments in the fourth column that reflects all remaining periodic payments not shown in the first three columns (subject to several exception found in the OSC to Section 1026.27(c)(1)).

Closing Disclosure Completion – Page 2

Question: Will all Loan Costs disclosed on the Loan Estimate be located in the same section of the Closing Disclosure as disclosed on the Loan Estimate?

Answer: Not necessarily. The categories are the same in the Loan Costs section on Closing Disclosure as they were on the Loan Estimate (Origination Charges, Services Borrower Did Not Shop For and Services Borrower Did Shop For), but some items can move from one subcategory to another. Items that were listed as a service the consumer cannot shop for on the Loan Estimate will appear in same category on the Closing Disclosure.

However, items that were listed as a service the consumer can shop for on the Loan Estimate will move to the Services Borrower Did Not Shop For category on the Closing Disclosure if the consumer uses a provider on the creditor’s written list. For purposes of this rule, shopping occurs when the consumer chooses a service provider that is not required by the creditor and is not included on the written list provided by the creditor. Therefore a service listed as a service the consumer can shop for on the Loan Estimate will be listed as a service the borrower did not shop for on the Closing Disclosure in that instance.

Items disclosed as a service the consumer can shop for on the Loan Estimate will stay in the category of Services Borrower Did Shop For on the Closing Disclosure if the consumer does not use a provider on the creditor’s written list, or if the provider was not required by the creditor. Again, because shopping occurs only when the consumer did not choose a provider on the written list, only those services provided by third parties not identified by the creditor on the written list will be listed in the Services Borrower Did Shop For category.

Question: How is Loan Originator compensation disclosed on the Loan Estimate and Closing Disclosure? Does the disclosure method vary depending upon whether or not the Loan Originator is a bank employee or third party?

Answer: Loan Originator (LO) compensation is only disclosed on the Loan Estimate if the compensation is paid directly by the consumer to a loan originator that is not also the creditor or is not employed by the credit (such as a mortgage broker). Do not disclose compensation to a LO paid indirectly by a creditor through the interest rate on the Loan Estimate.

However, the Closing Disclosure is handled differently. Compensation paid directly by the consumer to a third-party LO (such as a mortgage broker) is designated as Borrower-Paid At Closing or Before Closing on the Closing Disclosure. Compensation from the creditor to a third-party LO is designated as Paid by Others on the Closing Disclosure. A designation of (L) can be listed with the amount to indicate that the creditor pays the compensation at consummation. The amount of compensation from the creditor to the third-party LO is the same as the amount of third-party compensation included in points and fees for purposes of determining the consumer’s ability to pay the loan. Compensation to individual LOs employed by the creditor is not disclosed on the Closing Disclosure.

Question: Where should the mortgage modification fee be placed on the Closing Disclosure?

Answer: Modification fees charged by the originating creditor should be disclosed in Loan Costs, Section A – Origination Charges. Modification fees charged by third-party creditors (E.g., a fee to subordinate a mortgage interest) should be disclosed in Loan Costs, Section B – Services You Cannot Shop For.

Question: If a creditor charges an origination fee that is a percentage of the loan amount, but it is not a “point paid to the creditor to reduce the interest rate,” may the creditor identify it as a “Point” in some way on the Closing Disclosure to preserve its tax deductibility for the consumer?

Answer: No. The creditor may not disclose origination fees as “Points” on the Closing Disclosure. Section 1026.37(f)(1)(i) is clear that only points paid to the creditor to reduce the interest rate and charged as a percentage of the loan amount may be labeled “points” on the Loan Estimate and 1026.38(f)(1) requires charges on the Closing Disclosure be completed as instructed on the Loan Estimate. The CFPB is adamant the Loan Estimate and Closing Disclosure are meant to provide accurate disclosures of loan costs and terms to consumers, not to document eligibility for tax benefits or other purposes.

In one of its webinars, the CFPB referenced comment 37(f)(1)-3, which says, quoting, “[o]ther than for points charged in connection with the transaction to reduce the interest rate, for which specific language must be used, the creditor may use a general label that uses terminology that… clearly and conspicuously describes the service that is disclosed as an origination charge…” This means that only those points charged as a percentage of the loan amount in connection with a reduction in the interest rate may be disclosed with the terminology “point.”

Question: Our bank has initiated the practice of collecting the appraisal fee amount disclosed on the Loan Estimate after the intent to proceed is received for closed-end, consumer-purpose real estate loan. How should the appraisal fee show on the Closing Disclosure if the customer paid more for the appraisal than what was invoiced to the bank? So for example, we disclosed a $495 appraisal fee on the LE and the borrower paid that amount after they provided their intent to proceed. However, when the bank received the invoice for the appraisal, the actual charge was only $465. Should we show a $30 refund on page three of the Closing Disclosure under section L as a “lender credit?”

Answer: The overpayment of the appraisal fee should be disclosed in Section L. However, the overpayment should not be labeled as a “lender credit” since the lender is not providing the borrower with funds. A better description would be “refund of excess appraisal deposit” or something similar since the bank is giving the borrower credit for an amount the borrower already paid.

We recommend banks that collect an amount upfront to cover the cost of a service after the applicants indicate their intent to proceed disclose the deposit as follows:

Disclose all settlement services as normal on the Loan Estimate;
Disclose all settlement services as normal on the Closing Disclosure as borrower paid at closing (provided the cost of the service is paid at consummation); and
Disclose the entire deposit amount the borrower paid to the bank after indicating their intent to proceed as a an “application deposit” or “appraisal deposit” or a similar term, as an adjustment to the amount due from the borrower in Section J of the Closing Disclosure or on the payoffs and payments table on the alternate Closing Disclosure. (August 2020)

Question: If borrower chooses an attorney not on our shopping list, does that fee still go in section C of the Closing Disclosure?

Answer: If the borrower selects a provider not on the bank’s list, the fee will remain in section C – Services Borrower Did Shop For. If the customer selects a provider on the bank’s list, the service and final cost should be disclosed in section B of the Closing Disclosure – Services Borrower Did NOT Shop For.

Question: We provided an invalid selection to the borrower on the Written List of Service Providers (WLSP) – the title company did not provide services in that area – but the borrower did shop and selected their title company of choice. Since we disclosed the fees in section C of the Loan Estimate, should the title company fees remain in section C on the Closing Disclosure since they actually did shop? Are the fees subject to a 10% tolerance or in this case or since we made a mistake on the WLSP are they now subject to a 0% tolerance?

Answer: Effective 10/10/17, to retain the 10% tolerance the borrower must have had the ability to shop. Whether or not the borrower shopped is determined by the facts and circumstances for each loan. Based on your example, you listed the fee on the LE and provided the consumer with a shopping list. The consumer then selected someone not on your list. It would appear, based on this fact pattern, you allowed the borrower to shop. Therefore this service would retain the 10% tolerance. The placement of the fees is not affected by this rule clarification, so if the consumer selected a provider not on your list, you would still leave the provider in Section C on the Closing Disclosure.

Question: When separate disclosures are provided to the borrower and the seller, must seller-paid real estate commissions be included on page two of the borrower’s Closing Disclosure?

Answer: Yes. During its April 2016 TRID Frequently Asked Questions webinar, the Consumer Financial Protection Bureau (CFPB) confirmed that, “seller-paid real estate commissions are one example of seller-paid costs that may not be omitted from and must be included on the borrower’s Closing Disclosure.” The CFPB explained that under comments 38(g)(4)-1 and -4, the costs disclosed under “other” in the “Other Costs” category “include all real estate brokerage fees,” and “the amount of real estate commissions disclosed as Other Costs must be the total amount paid to any real estate brokerage as a commission regardless of the identity of the party holding any earnest money deposit.” The CFPB staff also stated that, “non-commission brokerage or agent charges for services to the seller or consumer are required to be itemized separately with a description of the service and in identification of the person ultimately receiving the payment.”

Question: The instructions for completing the Closing Disclosure indicate we should disclose the full amount of the realtor’s commission on the Closing Disclosure. The realtor wants us to write the check to them for the net amount of the commission (full commission less the earnest money deposit made by the borrower) because they are holding the earnest money. If we write the commission check for the net amount, our checks do not match the Closing Disclosure amounts. How should handle showing the earnest money on the Closing Disclosure and writing the commission check?

Answer: The requirements under TRID for showing the earnest money and commission indicate Section H.- Other of the Closing Disclosure is where the real estate commission is shown. The Official Staff Commentary to 1026.38(g)(4) states that the real estate commissions disclosed must be the total amount paid to any real estate brokerage as a commission, regardless of the identity of the party holding the earnest money deposit. Section 1026.38(k)(2)(ii) states that the “excess deposit” is only shown on the seller’s side of the Closing Disclosure (Due from Seller at Closing) if the deposit has been disbursed to the seller prior to loan closing. If the deposit has been disbursed to the seller prior to loan closing, the amount of the deposit is shown on the line labeled “Excess Deposit” under section “N. Due from Seller at Closing”.

Oftentimes, the real estate broker, or another third party, holds the earnest money and applies it to the commission owed. The settlement agent then writes the commission check for the net amount of the commission. The TRID rule in no way restricts this common practice. However, now that creditors are required to show the whole amount the realtor’s commission on the seller’s side of the Closing Disclosure. If the commission check is written for the net amount of the commission less the earnest money deposit, the check amount will not match the amount shown on the Closing Disclosure.

The CFPB noted in one of its webinars that the purpose of the Closing Disclosure is not to act as a list of checks that should be cut, but rather as a tool to detail the actual costs of the transaction to both parties. The CFPB also noted using the earnest money to offset the commission is a transaction between the seller and realtor and is separate from and outside of the loan. So, the settlement agent can either write the check for the full amount of the commission or the net amount. If the check is written for the full amount of the commission, the checks will match the amounts detailed on the Closing Disclosure and the real estate broker will need to settle separately with the seller by issuing a check to the seller in an amount equal to the earnest money. If the check is written for the net amount, the real estate broker will keep the earnest money, but the checks will not match the amounts detailed on the Closing Disclosure and this is acceptable under the rule provisions.

Question: How do you show the lender credit on a “no closing cost” refinance?

Answer: If you are giving a lump-sum lender credit, you would disclose this on the bottom of page two of the Closing Disclosure under Total Closing Costs, Section J (Borrower-paid) on the line labeled “Lender Credit”. Remember, a lump sum credit to cover closing costs cannot decrease if your closing costs actually change and are less than you anticipated. If you just want to cover the cost of certain fees (e.g., the credit report, flood cert, and appraisal), you would list the fee under Loan Costs, Section B- Services Borrower Did Not Shop For in the Paid by Others column with an (L) indicating these costs were lender paid.

Question: How should creditors disclose ‘cures’ for tolerance (excess charge) violations that are discovered and cured at closing? Where should the cure amount be listed on the Closing Disclosure and what should they be called in order to make sure they are properly identified?

Answer: Cures for tolerance violations should be handled as lender lump-sum credits. Cure amounts are disclosed in two places on the Closing Disclosure. First, the cure amount should be disclosed on the “Lender Credits” line item on page two of the Closing Disclosure. Appendix 2 of the regulation indicates the creditor should include a notation on the line that the Lender Credit “includes $x credit for an increase in Closing Costs above legal limit.”

The Closing Disclosure does not contain a “tolerance comparison” chart (akin to page three of the current HUD-1 form). Instead, the only place where the consumer can ascertain tolerance violations is in the “Calculating Cash to Close” table on page three of the Closing Disclosure, and in the “Total Closing Costs” line item on that table. If final total closing costs are higher than the Loan Estimate costs, and that difference results in a tolerance violation, the regulations instruct creditors to include a statement in the “Did this change?” column, indicating that the increase exceeds the legal limits by a particular dollar amount. This is the second place the cure amount is disclosed. The regulation then instructs the consumer to refer to the Lender Credits on page two.

Question: For a TRID loan, on the Loan Estimate, we disclosed the following services and fees that the borrower can shop:

$200 for abstracting
$250 for title opinion
$300 for closing agent

All of these fee are subject to the 10% tolerance and total $750. On the Closing Disclosure, the fees came in as follows:

$250 for abstracting
$275 for title opinion
$200 for closing agent

Now the fees in the 10% bucket total $725, lower than disclosed on the Loan Estimate. However, the borrower shopped for the closing agent and selected a closing agent who was NOT on our shopping list. The borrower did not shop for the abstracting and title opinion. When the borrower shops for some services and not others, how should the tolerance basis be calculated to ensure our LE amounts were provided in “good faith?”

Answer: To determine if you are within tolerance for services that are subject to the 10% tolerance, add together all of the fees that are subject to the 10% tolerance that are disclosed on the Loan Estimate, then compare that number to the total of fees subject to the 10% tolerance on the Closing Disclosure.

When a borrower shops for a service and selects a provider that is NOT on the creditor’s shopping list, that fee is no longer included in the 10% tolerance category and should not be added into the 10% fee total. In this scenario, the 10% total for the LE is now $450 ($200 abstracting + $250 title opinion fee), and the Closing Disclosure 10% total is now $525 ($250 abstracting + $275 title opinion).

Fees in the 10% tolerance category can increase by 10% from the Loan Estimate to the Closing Disclosure and still be considered to be made in “good faith”. That means the estimated fees for shoppable services on the Loan Estimate can increase by $45 for a total of $495. The actual 10% fees on the Closing Disclosure totaled $525.Therefore, the creditor must provide a lender credit, also called a cure, for $30 ($525 – $495). (September 2020)

Closing Disclosure Completion – Page 3

Question: Should gift funds be disclosed on the Closing Disclosure Cash to Close table?

Answer: If the borrower is not receiving the gift funds until consummation, on the Closing Disclosure, disclose the gift funds on page three in the Summaries of Transactions Table, in section L. Paid Already by or on Behalf of Borrower at Closing in the subsection “Other Credits” as “Gift funds.”

Question: Our borrower will receive a first time homebuyer grant for their home purchase. How should this be disclosed on the Closing Disclosure?

Answer: On the Closing Disclosure, a grant is disclosed on page three in the Summaries of Transactions Table, in section L. Paid Already by or on Behalf of Borrower at Closing in the subsection “Other Credits.” This “Other Credits” section acts as a catch-all for credits paid on behalf of the borrower that were not otherwise disclosed on page two or section K on page three.

Question: Regarding disclosure of earnest money on the Closing Disclosure, if there is no realtor involved and the buyer paid the earnest money directly to the seller (not to a third party), how should this be disclosed on the Closing Disclosure?

Answer: Deposits paid directly to the seller, rather than third party, should be detailed as an “Excess Deposit” in Section N, Due from Seller at Closing, Line 01 of the Closing Disclosure. See 1026.38(k)(2) and its commentary:

(2) Itemization of amounts due from seller. (i) The total amount due from the seller at the real estate closing, calculated as the sum of items required to be disclosed pursuant to paragraphs (k)(2)(ii) through (xiii) of this section, excluding items paid from funds other than closing funds as described in paragraph (k)(4)(i) of this section, labeled “Due from Seller at Closing”;

(ii) The amount of any excess deposit disbursed to the seller prior to the real estate closing, labeled “Excess Deposit”;

Official Staff Commentary to 1026.38(k)(2)(ii).

Distributions of deposit to seller prior to closing. If the deposit or any portion thereof has been disbursed to the seller prior to closing, the amount of the deposit that has been distributed to the seller must be disclosed under § 1026.38(k)(2)(ii).

Question: When would the bank use the standard Cash to Close table versus the Alternative Cash to Close table?

Answer: The standard Cash to Close table must be used for transactions involving a seller, with the exception of subordinate lien purchase money loans in which the all the seller costs are disclosed on the first lien transaction. The Alternative Cash to Close table can be used for transactions NOT involving a seller such as refinances and home equity loans.

Closing Disclosure Completion – Page 4

Question: If our loan products do not provide for a negative amortization feature, may we omit this disclosure entirely from the Closing Disclosure?

Answer: No, this is a required disclosure. If the loan product the consumer has applied for does not contain a negative amortization feature, the creditor should check the third box indicating the loan does not have a negative amortization feature.

Question: If our partial payment policy may vary depending on circumstances, is a lender required to choose only one option for the partial payments disclosure or is it possible to check multiple boxes?

Answer: Yes – the lender may check multiple boxes for the partial payments disclosure in some circumstances. The checked boxes allow the lender to disclose whether it accepts partial payments and applies them, accepts partial payments and holds them in a separate account, or does not accept partial payments. If a lender accepts partial payments in some instances and holds them in a suspense account in other situations, it should check the first box indicating that partial payments are accepted and applied, and also check the second box, indicating that partial payments are accepted and held in a separate account.

Note however, that a lender should not check the third box and disclose that it does not accept partial payments, if it accepts partial payments under any circumstance that may be applicable to the consumer’s loan. So, in other words, if the lender checks the third box under the partial payment disclosure indicating that it does not accept partial payment in any circumstance, the lender should not also check either of the first or second boxes under the partial payments disclosure.

Question: If you accept a partial payment, does that mean you accept this amount as the full monthly payment?

Answer: No – the partial payment disclosure in no way alters or amends the contract payment requirements. Rather, the disclosure is meant to educate the borrower on how the creditor will post partial payments that are made by the borrower. The bank has three options for partial payments: 1) accept a partial payment and apply it to the loan; 2) accept a partial payment and place it in a suspense account until the rest of the payment is received then apply it to the loan, or 3) refuse a partial payment and return it to the borrower. How your system handles partial payments is established by bank policy and your processor’s specs.

Question: Our secondary market investor handles the receipt of partial payments differently than we do for in-house loans. We allow for partial payments to be applied as received; however, the secondary market will hold partial payments in a suspense account and then post once the full payment is received. What is the correct way to complete this section of the Closing Disclosure when we close a loan in the bank’s name which will be later sold to the secondary market?

Answer: When the loan closes in the bank’s name, the partial payment policy should be completed consistent with the bank’s policy of accepting partial payments and applying payments immediately to the loans. The secondary market investor will advise the borrower of its partial payment policy after purchasing the loan as required by Regulation Z, § 1026.39(d)(5).

Question: When generating our Closing Disclosures, on page four within the “Escrow Account” section, the calculated amount for property costs over Year 1 is not consistently using a 12-month period but rather in some cases will calculate for 11 months of escrow. Is this okay?

Answer: Yes, the regulation indicates the amount disclosed should be the total amount the consumer will or will not pay into an escrow account over the first year after consummation. The CFPB has clarified the creditor may calculate the first year beginning either with the loan closing date or the first payment date.

Question: Should Mortgage Insurance (PMI) premium payments be included in the Escrow Account table information on page four of the Closing Disclosure if escrow payments are actually paid through the escrow account?

Answer: The CFPB provided in the final rule amendments that Mortgage Insurance can be included in the amounts disclosed in the Escrow Table on page four of the Closing Disclosure (Escrowed Property Costs over Year 1) if the creditor actually deposits the MI payments into the escrow account and makes the payments from the account.

Question: How should Iowa banks complete the “Liability After Foreclosure” disclosure on page four of the Closing Disclosure?

Answer: The preamble to the final rule provides some guidance on the nature of this disclosure, and acknowledges variations may exist regarding state law and any deficiency protections. The preamble described the “Liability after Foreclosure” disclosure as, “generalized” and “high level disclosures.” The preamble further explains that creditors are not required to provide legal advice to consumers as to the reach of state anti-deficiency protections, but rather are required to alert consumers in states where any deficiency laws may apply for the need to consult a lawyer for more specific information about those state anti-deficiency protections.

Because Iowa has significant state foreclosure deficiency protections for both judicial and non-judicial foreclosure processes, Iowa creditors should check the first box indicating state law may protect the consumer from liability for the unpaid balance.

Closing Disclosure Completion – Page 5

Question: How is the TIP (Total Interest Percentage) calculated?

Answer: The TIP rate is the total amount of interest that the consumer will pay over the term of the loan expressed as a percentage of the loan amount. For example, if the loan amount is $100,000 and the total interest paid is $69,361.22, the TIP rate would be 69.36%.

Question: Just to clarify, are we to include or not include the negative prepaid interest in the TIP rate?

Answer: Negative interest amounts should be subtracted when calculating the TIP (Total Interest Percentage) and Total Payments calculation.

Question: What should we do about the appraisal copy notice in the “Other Considerations” section on page five of the Closing Disclosure if we did not obtain a new appraisal in connection with the transaction? Often in case of a refinance or home equity loan we are able use an existing appraisal if we determine it is still a valid reflection of the property value and condition.

Answer: The appraisal copy notice on the Closing Disclosure is only applicable to transactions subject to the HPML appraisal rule and/or the Reg. B (ECOA) appraisal notice and copy requirement. Accordingly, if a transaction is not subject to either or both of these provisions, the appraisal copy notice disclosure required by the Integrated Disclosure rules may be omitted from the both the Loan Estimate and Closing Disclosure as illustrated by form H-24G of appendix H in Regulation Z.

Question: When completing the Liability after Foreclosure disclosure is the box being checked based on where the creditor is located or state of the mortgage being filed? If it’s the latter, we must first seek legal counsel prior to completing the Closing Disclosure to ensure accuracy?

Answer: Foreclosure law would be based upon the location of the collateral property. If you are not familiar with the collateral location’s state law, you will need to seek legal counsel.

Question: Are we now required to gather the Real Estate Broker’s license number for the contact table or is it optional?

Answer: Yes – you are now required to include this information on the Closing Disclosure.

Question: Our bank has hired an attorney as the settlement agent to close a mortgage loan. The settlement agent does not have a NMLS ID. How should the NMLS ID section for the settlement agent to be completed on the Contact Information table on page five of the Closing Disclosure?

Answer: All of the applicable information for the settlement agent (and the other persons involved in the transaction) should be completed. Section 1026.38(r)(5) of Regulation Z states to provide the NMLSR ID, in the field labeled “Contact NMLS ID,” or, if none, instead provide the license number or other unique identifier issued by the applicable jurisdiction or regulating body with which the person is licensed and/or registered, in the field labeled “Contact License ID,” with the abbreviation for the State of the applicable jurisdiction or regulatory body stated before the word “License” in the label, for the natural person identified in this section. If the settlement agent does not have a NMLS ID or License ID, leave that line blank. Complete the “Contact _License ID” line with the abbreviation for the state of the applicable regulatory body and the license number under the column labeled “Settlement Agent.” All attorneys in Iowa need to have a license to practice in Iowa. The bank will need to obtain the license number so have the lender ask the attorney to provide their license number.

Question: What if the same realtor is the broker for both the buyer and seller and is also the settlement agent? How should be Lender complete these contact table columns?

Answer: If the same person is the settlement agent and the broker for the buyer and seller, the columns labeled “Real Estate Broker (B)”,”Real Estate Broker (S)” and “Settlement Agent” would all be completed with the same information. If the buyer has a different broker than the seller, then provide all applicable information for the buyer’s broker. All applicable information that pertains to the lender, mortgage broker, real estate brokers and settlement agent who are involved in the transaction must be completed.

Question: If a mortgage broker is not involved with the transaction, can we omit that column in the “Contact Information” table on page five of the Closing Disclosure?

Answer. Yes. The Official Staff Commentary to § 1026.38(r) indicates columns can be left blank where no such person is participating in the transaction. For example, if there is no mortgage broker involved in the transaction, the column for the mortgage broker is left blank. Conversely, in the event the transaction involves more than one of each such person (e.g., two sellers’ real estate brokers splitting a commission), the space in the contact information table may be altered to accommodate the information for such persons, provided that the information is disclosed on the same page as illustrated by form H-25. Meaning, a creditor or settlement agent may omit a column on the table that is inapplicable or, if necessary, replace an inapplicable column with the contact information for the additional person. In addition, if the space provided on form H-25 does not accommodate the addition of such information, an additional table to accommodate the information may be provided on a separate page, with an appropriate reference to the additional table.

Question: What is the definition of ‘broker’? Offices often have a head broker with numerous agents. Should the person on the disclosure be the actual broker or the customer’s agent?

Answer: If you are asking about the Contact Information section on page five, you first provide the name of the company and its address and then in addition provide the name of the consumer’s primary contact – the actual name of the individual broker(s) involved along with their NMLS ID number and contact information.

Question: Should the same person and their NMLS ID number identified on the note and other documents for Regulation Z Loan Originator rule purposes, also be used as contact person on the Closing Disclosure?

Answer: Yes. Creditors should use the same person’s NMLSR ID that is being identified on the note and other documents, as required by Regulation Z’s Loan Originator rules. Section 1026.36(g) requires that the NMLSR identification number of the person with primary responsibility for the loan at the time disclosure is issued be included on specific loan documents, including the note

The Closing Disclosure instructions, found Section 1026.38(r), require the NMLSR ID of the primary point of contact on the Closing Disclosure. While the wording the two requirements is slightly different, the CFPB advise the two provisions should be read consistently. Therefore the person and ID identified on the Closing Disclosure should be the same that is required under § 1026.36(g) and its commentary, and is included on the credit application, note or loan contract, and the security instrument.

Question: Are we required to obtain the borrower’s signature(s) on the Closing Disclosure?

Answer: No, Regulation Z does not require signatures on the Closing Disclosure. If the creditor includes the optional signature line, the creditor must use the “Confirm Receipt” table and disclose the following above the signature line: “By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form.” If there is more than one consumer who will be obligated in the transaction, the first consumer signs as the applicant and each additional consumer signs as a co-applicant. If there is not enough space under the heading “Confirm Receipt” to provide signature lines for every consumer in the transaction, the creditor may add additional signature pages, as needed, at the end of the form for the remaining consumers’ signatures. However, the creditor is required to disclose the “Confirm Receipt” heading and same statement on the additional page.

If the creditor does not include a line for the consumer’s signature, the creditor must disclose the following statement under the heading “Other Considerations” on page five of the Closing Disclosure: “Loan Acceptance: You do not have to accept this loan because you have received this form or signed a loan application.”

Also, keep in mind, the TRID rule requires the creditor provide the disclosure in a form that the consumer may keep. For example, if you provide the Closing Disclosure electronically, the consumer(s) must be able to print multiple copies, then sign and return a copy, while retaining a copy for their own records in order to meet the requirements of the rule. However, if your bank provides a single copy of the Closing Disclosure in paper form and requires the consumer to sign and return the document, you have not met the rule requirements. So if you deliver these disclosures in paper form, and you require the consumer(s) to sign and return the disclosures, you need to provide two copies for each applicant as

Cash to Close Table

Question: Regarding seller credits, if the seller agrees per the purchase agreement to pay for more than one service, do we have the choice of just entering one number for the seller credit or do we HAVE to split out specific seller credits if detailed that way in the purchase agreement.

Answer: The answer differs depending on whether the question relates to completing the Loan Estimate or the Closing Disclosure. If the Purchase Agreement indicates the Seller is paying for specific buyer costs, (E.g., the purchase agreement says the seller will pay the half of the buyer’s settlement fee) the Seller Credits must be disclosed as specific credits on the Closing Disclosure on the appropriate line in the Loan Costs section of the Closing Disclosure.

You do however have flexibility in how you disclose the specific Seller Credits on the Loan Estimate. The revised rule permits you to either:

Reduce the amount of the fee disclosed on the Loan Estimate by the seller paid amount. E.g., if the seller is paying half the cost of the $500 settlement fee, only $250 is disclosed on the Loan Estimate as being paid by the borrower;
Or, disclose the full amount of the borrower’s settlement fee on the Loan Estimate with a $Seller Credit on the Cash to Close table on the Loan Estimate. g., using the example above, disclose the $500 settlement fee on the LE as well as a $250 seller credit on the Cash to Close table.

Iowa lenders generally see general Seller Credits (the seller agrees to pay up to $1,000 in closing costs), which are just disclosed as lump sum credits on the Cash to Close table and in sections L and N in the Summary of Transactions section, page three of the Closing Disclosure with all costs detailed in the borrower’s column.

Question: What amount should be included on the Cash to Close table line titled “Adjustments and Other Credits”?

Answer: Grant funds, gift money to be received at the closing table, subordinate lien financing and other amounts paid by third parties (other than the seller, lender, or realtor) to reduce the borrower’s costs at closing are included on the “Calculating Cash to Close” table on page two of the Loan Estimate as “Adjustments and other Credits.” All funds are aggregated and the sum amount is disclosed.

Question: If the loan amount is more than sales price because the loan program permits closing costs to be added to the loan amount, do we still disclose we are receiving funds from the borrower on the Cash to Close table even though the loan amount is going to cover those funds needed?

Answer: Section 1026.37(h)(iii)(a) in Regulation Z (TRID) applies to simultaneous second lien loans for a purchase transaction, a purchase transaction that involves improvements to be made on the property, or when the sum of the loan amount and any existing loans assumed or taken subject to the transaction exceed the sale price of the property. In your situation, it appears the creditor is financing the purchase price plus closing costs which does not qualify for this exception to the Downpayment/Funds from Borrower calculation. As such, your bank would perform the calculation by taking the Sale Price and subtracting the Loan Amount. Since there are no funds left over, the bank would disclose $0 in Downpayment/Funds from Borrower. The Cash to Close table would reflect the Total Closing Costs (J) as the total of Loan Costs and Other Costs and the Closing Costs Financed (Paid from your Loan Amount) would indicate the same amount as the Total Closing Costs(J). When calculating the Closing Costs Financed (Paid from your Loan Account), the creditor would take the loan amount and subtract the sales price and disclose the lesser of that calculation or Total Closing Costs (J).

For example, for a transaction where the purchase price of the property is $100,000, total closing costs were $2,500, and the borrower has requested to finance those closing costs, the Loan Amount would then be $102,500. The Downpayment/Funds from Borrower calculation would be $100,000 (sale price) less $102,500 (loan amount) for a negative value of $2,500. Since the result is negative, the rule requires the bank to disclose $0 in the Downpayment/Funds from Borrower field. The Cash to Close table would reflect $2,500 in Total Closing Costs (J). The Closing Costs Financed (Paid from your Loan Amount) would reflect -$2,500 due to taking the loan amount of $102,500 and subtracting the Sale Price of $100,000 for a positive number of $2,500 meaning there are funds left over after paying third parties. Comparing the Total Closing Costs (J) to this calculated amount, you find they are equal. So the creditor would disclose $2,500 in Closing Costs Financed (Paid from your loan amount). Assuming no other entries on the Cash to Close table, the Cash to Close would then reflect $0.

Question: How did the 2017 TRID rule amendments (TRID 2.0) change the Cash to Close table for cash back purchase transactions or purchase transactions with additional funds for home improvements?

Answer: TRID 2.0 altered the calculations for the Down Payment/Funds from Borrower and Funds for Borrower lines of the Cash to Close table in purchase transactions where the loan amount exceeds the sales price. The original TRID rule required in purchase transactions the Cash to Borrower field be disclosed as $0. That changed in TRID 2.0. Even though the loan purpose will be Purchase, the Down Payment/Funds from Borrower and Funds for Borrower lines are calculated the same way as non-purchase transactions.

To clarify, for non-purchase, simultaneous subordinate lien, and purchase transactions where the loan amount exceeds the sales price, the calculation of the Down Payment/Funds from Borrower and Funds for Borrower lines starts with the loan amount and subtracts total debt payoffs from that amount. Total debt payoffs are found in Section K of the Summaries of Transaction table on the Closing Disclosure, excluding the amount of closing costs financed. The following chart details what to disclose based upon the calculation.

If the Loan Amount – Total Debt Payoff results in…	The Down Payment/Funds from Borrower Line should reflect…	Funds for Borrowers line should reflect…
A Positive Amount	$0	The amount resulting from the calculation
A Negative Amount	The amount resulting from the calculation	$0
$0	$0	$0

For example, the borrower has requested a loan amount of $200,000. The total debt payoffs found in Section K is the $150,000 sales price. Thus, the calculation would be loan amount, $200,000, minus the total debt payoffs, $150,000, resulting in a positive $50,000. The $50,000 would be disclosed in the Funds for Borrower line and $0 in the Down Payment/Funds from Borrower line.

Question: How are the Down Payment/Funds from Borrower and Funds for Borrower lines calculated for a normal purchase transaction (where there is no cash back to the borrower)?

Answer: In first lien purchase transaction, where the loan amount is less than the sales price, the Funds for Borrower line will be $0. The Down Payment/Funds from Borrower line is calculated by taking the sales price minus the loan amount and amounts for any loans being assumed or taken subject to. If the result is positive, then that amount is disclosed in the Down Payment/Funds from Borrower line. The logic is that if the sales price is more than the loan amount plus loans being assumed or taken subject to, then money is need from the borrower as a down payment. If the result is negative or $0, then $0 is disclosed. Examples of when the calculation would result in a negative or $0 would be when the bank does one hundred percent financing or does one hundred percent financing and finances the closing costs as well.

Question: Should gift funds be disclosed on the Loan Estimate?

Answer: The disclosure of gift funds is a bit tricky! First, gift funds need only be disclosed to the extent the creditor knows of the funds at the time the Loan Estimate is issued. If the borrower has not yet received the gift funds, the gift funds should be included in the Calculating Cash to Close table, Adjustments and Other Credits line (similar to grants discussed above). If the funds have already been received and deposited into the borrower’s deposit account, they are reported as an asset on the application and not included on the Calculating Cash to Close table.

Construction Loans

Question: Our construction loan has a term of 9 months and is based off the U.S. Prime Rate with a change frequency of daily. What loan product description would we use for this construction product?

Answer: Actually the OSC to 1026.37(a) (10) – comment #3 – addresses how to disclose adjustable rate loans that can change more frequently than monthly:

Periods not in whole years. iii. Adjustments more frequent than monthly. For adjustment periods that change more frequently than monthly, § 1026.37(a)(10) requires disclosure of the applicable unit-period, such as daily, weekly, or bi-weekly. For example, for an adjustable rate construction loan with no introductory fixed rate period where the interest rate adjusts every seven days, the disclosure required by § 1026.37(a)(10) is “0/Weekly Adjustable Rate.”

So if your rate can adjust daily but has no introductory rate or period, it would be disclosed as a “0/Daily Adjustable Rate.”

Question: For construction loans, many times the loan amount is dependent upon the appraisal. Should we go ahead and issue a Loan Estimate based on the loan amount from the borrower and then upon completion of the appraisal, reissue the Loan Estimate based on the new loan amount if needed?

Answer: You must use the requested loan amount on the application and the stated value the applicant provided. You cannot wait to issue the Loan Estimate until you receive an appraisal. When received, should the appraisal come in well below or above the borrower’s estimated value, you would have a valid changed circumstance and be able to issue a revised Loan Estimate based on this new information.

Question: We offer a two-phase construction loan starting with the construction-only loan followed by a separate loan that refinances the construction loan into permanent financing. At application, we issue separate disclosures for the construction and permanent financing phases. Currently we issue the perm phase LE at the same time of the construction Loan Estimate even if the borrower has not applied for permanent financing because that’s what we were advised to do since we are considering the eligibility of the permanent phase financing at the time of underwriting the construction loan. Is there a requirement to issue the permanent phase Loan Estimate at the same time as the construction LE (of course, unless we have a detailed app requesting both the construction and permanent financing)?

Answer: The original proposal for TRID 2.0 suggested a creditor must provide a disclosure for both the construction loan and permanent loan if the creditor typically does the permanent financing or considers the permanent financing in its underwriting of the construction loan. That provision was not included in the final rule. Rather, the final rule focuses on providing disclosures for the loan product for which the consumer applies. Whether or not you consider the borrower’s eligibility for the permanent financing of a construction-only loan application as part of your underwriting process is not the determinant on what disclosures must be provided. (But we must say is a common-place, safety and soundness best practice.)

If the construction-permanent loan is disclosed as two separate transactions, a creditor must provide a Loan Estimate by delivering or placing it in the mail, to a consumer no later than the third business day after receipt of the application for the construction or permanent phase. For example, if a consumer applies for both construction and permanent financing at the same time (on one application or two separate applications), the creditor must provide the Loan Estimate for both the construction and permanent phases within three business days of receipt of the application. Conversely, if the consumer applies for both construction and permanent financing, but on separate days, (perhaps the consumer applies for the permanent phase financing once the construction is almost complete), the creditor must provide the Loan Estimate for the construction phase within three business days of receipt of the application for the construction phase and the Loan Estimate for the permanent phase within three business days of receipt of the application for the permanent phase.

Question: What Loan Product description should we use if our one-close, construction-perm loan has a fixed rate for the one-year construction period and the same fixed rate for the first year of permanent financing phase and then the rate adjusts annually after that first year of repayment based on an external index and margin?

Answer: The Loan Product field on the Loan Estimate and Closing Disclosure is used to disclose two pieces of information about the loan:

Any payment feature that may change the periodic payment, which includes Negative Amortization, Interest Only payments, Step Payments, Balloon Payments, or Seasonal Payments. Additionally, the duration of the relevant payment feature must be disclosed.
Interest rate information, which includes Adjustable Rate, Stepped Rate, or Fixed Rate and the introductory period for the initial rate and frequency of subsequent rate changes.

Assuming your loan calls for interest-only payments during the one-year construction phase, the first part of your Loan Product description would be “1-Year Interest Only.” The second half of the Loan Product must describe interest rate features of your loan. Because the loan interest rate will change after consummation, but the rate is NOT known at consummation, the interest rate feature must be disclosed as an “Adjustable Rate.” You then must detail the “introductory period” of the initial rate and the frequency of subsequent rate changes. Since the same rate will apply for both the one-year construction phase and the first year of repayment, the introductory period is two years. You must also indicate the rate will then change annually after the first year of repayment; so the interest rate feature would be described as “2/1 Adjustable Rate”. Putting it all together, your product would be disclosed as “1-Year Interest-Only, 2/1 Adjustable Rate.”

Question: We offer our borrower’s a two-close construction product. The first loan is a 12 month, interest-only product. We have heard we should disclose the Product as 1-year Interest Only, Fixed Rate. Our system currently discloses our product as 11 mo. Interest only, Fixed Rate because the 12^th monthly payment is the balloon payment of the principal balance plus accrued interest. Is our system showing this correctly?

Answer: Your software is correct. Appendix D to Regulation Z, OSC comment 7(ii) indicates that for a separate construction-only loan disclosure, the time period of the “Interest Only” feature that is disclosed as part of the product is the period during which interest-only payments are actually made and excludes any final balloon payment of principal and interest. In your example, the product disclosure for a fixed rate, interest-only construction loan with a term of 12 months in which there will be 11 monthly interest payments and a final balloon payment of principal and interest is “11 mo. Interest Only, Fixed Rate.”

Question: We offer construction-only type loans that call for monthly interest-only payments plus a balloon payment at maturity. Currently, on our LE, page one under Loan Terms “Does the loan have these features? Balloon Payment” our response is Yes and then goes on to state the fully advanced construction loan principal balance plus the interest that would be due at the end of the terms. Is this correct?

Answer: Your disclosure is correct. If the loan terms call for interest-only payments throughout the loan term with principal balance plus accrued interest due at maturity, the Loan Terms table, Balloon Payment line should reflect “Yes” to the question, “Does the loan have these features?”

Question: We offer a construction-perm loan and provide two separate sets of disclosures (one for the construction-only phase and a second set of disclosures for the permanent financing phase). Should we base the Estimated Tax, Insurance and Assessments amounts on the amounts actually due at consummation, which are based on the property’s current value without taking into consideration the improvements to be made, or the value of the property after the improvements are made? What if the borrower wants a construction-only loan (no permanent financing), do the rules change?

Answer: When disclosing the Estimated Taxes, Insurance, and Assessments for a construction-permanent loan as either one transaction or two separate transactions or a construction-only loan, the amount of estimated taxes, insurance or assessments are disclosed as a monthly amount, even if no escrow account is established. The rules are the same for construction-only and construction-perm loans.

The Loan Estimate instructions tell us the amounts disclosed must reflect the taxable assessed value of the real property or a cooperative unit securing the transaction after consummation. As a result, the amount of the estimated property taxes to be disclosed includes the value of any improvements on the property or to be constructed on the property, if known, regardless of whether the construction will be financed from the proceeds of the loan. And the estimated homeowner’s insurance must reflect the replacement costs during the initial year after the transaction. So, often you will find yourself estimating the amount of taxes and insurance due on the finished property based upon the estimated completed market value and your local tax rates. Clarification provided by the CFPB in this final rule re-emphasizes the creditor must make a good faith effort to provide a reasonable estimate; so you will need to do your research to properly estimate taxes, insurance and other assessment costs for comparable properties in the market area.

However, when completing the Estimated Taxes, Insurance and Assessment amounts on the Projected Payments table on the Closing Disclosure, the instructions in § 1026.38 state if the loan is subject to RESPA, RESPA’s rules for calculating the monthly tax and insurance amounts can be used; which may be considerably less than what was disclosed on the Loan Estimate since RESPA’s rules say to use the amount actually due during the upcoming computation year. Since taxes run a year in arrears in Iowa, your tax amount on the Closing Disclosure will likely only reflect the cost of lot taxes and not the new home your loan proceeds were used to construct.

Question: If we collect construction inspection or construction advance fees AFTER consummation, we do NOT include these costs in our Cash to Close table, correct? But we DO include these amounts in the “In 5 Years” and APR calculations?

Answer: That is the correct. The instructions for the Cash to Close table state if the consumer will pay construction loan advance, construction inspection or similar fees AFTER consummation, the amount of the fees should be disclosed on a separate addenda to the Loan Estimate and Closing Disclosure and NOT be included in the Cash to Close table calculations – because the funds will not actually be collected at the closing table. However, because the amounts are Loan Costs and will be paid by the consumer, such amounts must be included in the “In 5 Years” calculation as well as the APR calculation (because such fees are also finance charges).

Question: Our policy is to hold back construction loan funds at consummation and make advances as work is completed and verified during inspections. Can the Estimated Cash to Close line on the Loan Estimate Calculating Cash to Close table and Cash to Close line on the Closing Disclosure Calculating Cash to Close table disclose a negative amount or are we now required to have a line item that states “Funds held for future advancement” on the Closing Disclosure?

Answer: The revised TRID rule now clarifies that construction costs (whether disbursed at closing or held back in an escrow/reserve account at consummation) are considered “payments to third parties” and should be disclosed in Section K of the Summary of Transactions section on page three of the standard Closing Disclosure or the Payoffs – Payments Table on the alternate Closing Disclosure. When the construction costs or reserve amounts are properly disclosed in this manner, the Cash to Close table will not result in a negative “Cash to Close” amount.

Question: Do you have any information on what disclosures are required at the time we modify a construction loan into permanent financing when a single Loan Estimate and Closing Disclosure are issued initially that reflected only the construction phase financing?

Answer: If the bank’s intent at the time of application is to convert the construction loan to permanent financing, it should issue a Loan Estimate and Closing Disclosure which disclose both phases: the construction only draw period followed by the repayment period. Appendix D to Regulation Z was greatly expanded to provide additional instructions on how to disclose these “one close” construction-perm loans. If the bank, as a practice, routinely modified construction-only loans into permanent financing without providing disclosures related to the permanent financing phase, it’s likely the bank would be criticized not only failing to provide the required Regulation Z disclosures but also for UDAAP.