A creditor’s inability to reset fee tolerances with a revised Closing Disclosure more than four business days before closing has been one of the more adverse unintended consequences of the TILA-RESPA Integrated Disclosure (“TRID”) regulations that became effective in October 2015. However, a fix is on the horizon. On Thursday, April 26, 2018, the Consumer Financial Protection Bureau (“CFPB”) announced final amendments to TRID to eliminate the timing restrictions that have plagued creditors and, in certain cases, increased creditors’ costs to originate residential mortgage loans. With an effective date 30 days after the final amendments are published in the Federal Register, this change is a welcome relief to mortgage lenders.
Informally termed the “black hole,” once the Closing Disclosure has been provided under current regulations, timing restrictions in the current regulations allow a revised Closing Disclosure to be used to reset tolerances on increased closing costs only if the disclosure is provided within three business days of the valid change in circumstance and within four business days of consummation. The result is that any increased costs to the consumer above and beyond permitted fee tolerances that occur from changes six business days or more before consummation are costs the creditor must absorb in the transaction – either because the creditor pays the increased fees without any changes to the final Closing Disclosure or the creditor refunds the overage to the consumer on the final Closing Disclosure as a tolerance cure. Creditors have absorbed thousands of dollars per month in fees under those current restrictions. For example, when consummation is delayed and a rate lock extension is required, unless the delay is minimal and the rate lock extension occurs within mere days of the new consummation date, creditors have found themselves absorbing the rate lock extension fee that consumers would otherwise pay to obtain the mortgage loan.
Under the new amended regulations, the CFPB removes the four-business-day limit on using a Closing Disclosure to increase closing costs subject to tolerances and, thereby, permits creditors to reset tolerances with either an initial or revised Closing Disclosure regardless of the number of days that remain before consummation. Notwithstanding concerns that removing the timing restriction may result in creditors providing an initial Closing Disclosure very early in the origination process, the CFPB concluded that these concerns were outweighed by the negative impacts to both creditors and consumers created by the four-business-day limit.
Specifically, the amendments revise Section 1026.19(e)(4)(i) to state that if a creditor uses a revised fee estimate for purposes of determining good faith under Section 1026.19(e)(3)(i) or (ii), the creditor must provide a revised version of the Loan Estimate or Closing Disclosure (including any corrected Closing Disclosure) reflecting the revised estimate within three business days of receiving information sufficient to establish that a valid changed circumstance has occurred. However, under Section 1026.19(e)(4)(ii), once the creditor has issued the initial Closing Disclosure, the creditor may no longer use a revised Loan Estimate to reset fee tolerances.
The final amendments also add to the Official Interpretations of Section 1026.19(e)(4)(ii) to provide five examples of how creditors must issue revised disclosures to reset tolerances relative to the time when an initial Closing Disclosure has been issued, the occurrence of a change that increases costs, and the date of consummation. One of these examples states:
Consummation is originally scheduled for Wednesday, June 10. The creditor hand delivers [the initial Closing Disclosure] on Friday, June 5. On Monday, June 8, the consumer reschedules consummation for Wednesday, June 17. Also on Monday, June 8, the consumer requests a rate lock extension that would result in revised disclosures pursuant to Section 1026.19(e)(3)(iv)(C),¹ but would not require a new waiting period pursuant to Section 1026.19(f)(2)(ii). The creditor complies with the requirements of Section 1026.19(e)(4) by delivering or placing in the mail [a revised Closing Disclosure] reflecting the consumer-requested changes on Thursday, June 11. Under Section 1026.19(f)(2)(i), the creditor is required to provide corrected disclosures reflecting any changed terms to the consumer so that the consumer receives the corrected disclosures at or before consummation. The creditor complies with [this section] by hand delivering the disclosures on Thursday, June 11. Alternatively, the creditor complies with [this section] by providing the disclosures to the consumer by mail, including by electronic mail, on Thursday, June 11, because the consumer is considered to have received the corrected disclosures on Monday, June 15 (unless the creditor relies on evidence that the consumer received the corrected disclosures earlier).
This example clearly suggests that so long as the creditor provides a revised Closing Disclosure within three business days of the consumer’s request for a change, as well as at or before consummation, there is no restriction on the creditor’s ability to pass through a rate-lock extension fee to be paid by the consumer at closing.
Ultimately, no mortgage loan transaction is the same, and with last-minute changes a common occurrence, creditors will soon gain the flexibility they need to revise the Closing Disclosure and add or increase legitimate fees to the transaction. As suggested by the CFPB in the final amendments, this flexibility to issue revised disclosures should benefit both the creditor and the consumer and avoid increased prices to obtain mortgage loans. Voilà, no more “black hole!”
¹This section permits creditors in certain circumstances to use revised estimates of charges, rather than the amount originally disclosed, for purposes of determining the creditor’s compliance with disclosing closing costs in good faith.