Preparing for TILA and RESPA Integration (TRID)
The Dodd-Frank Act required the Consumer Financial Protection Bureau (CFPB) to issue a rule integrating the disclosures required under TILA and RESPA. The CFPB issued the ruling in November of 2013, effective August 1, 2015. The rules adopted a final regulation creating new, integrated disclosures for mortgage loans known as the Truth in Lending Act-Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Disclosure Rule (TRID).
TRID consolidates existing disclosure into two forms; the new Loan Estimate (LE) and the Closing Disclosure (CD). The new LE replaces the Good Faith Estimate (GFE) and the initial Truth in Lending disclosure statement (TIL). The CD Disclosure replaces the final TIL and the HUD-1 Settlement Statement (HUD-1). The regulation also changes the definition of application.
Revised Application Definition
The regulation removes the seventh open-ended item form the current definition of an application under regulation X, which is ‘any other information deemed necessary by the loan originator.” The regulation changes the definition of an application as received when the following six data elements are obtained.
3. Social Security number (to obtain a credit report)
4. Property Address
5. Estimate of the value of the property and
6. Mortgage loan amount sought
Once the six items are received, regardless of other information requested, the application is considered received and the creditor must send the LE within three business days.
Loan Estimate (LE)
The LE is provided at application and replaces the initial (early) Truth in Lending (TIL) and the Good Faith Estimate (GFE).
The LE is a three page document that explains in clear language and format the terms, costs, risks of the loan and also includes new disclosures required. Additionally it includes the appraisal notice required under ECOA and the servicing application disclosure required under RESPA. The LE shows closing costs grouped in categories. To make it easier for consumers to compare estimated costs to actual costs at closing, these categories correspond to the categories on the CD and costs are listed in alphabetic order within each category. The LE also includes new information required under the Dodd-Frank Act such as total payments over 5 years, the total interest paid (TIP) over the life of the loan as a percentage of principal amount, and it requires itemization for closing costs.
Providing the Loan Estimate (LE)
The creditor is responsible for delivering the LE to the borrower(s) within three business days of receiving an application and not less than seven business days from consummation.
Providing the LE in Good Faith
The regulation requires creditors to ensure costs stated in the LE are made in "good faith," which means that the LE must be based on the best information reasonably available at the time the LE is disclosed. "Good faith" is determined by whether the charges disclosed exceed the following applicable tolerances set forth in the regulation. Fees fall into one of the following tolerance categories:
- Zero Tolerance Charges: These charges are generally not permitted to increase.
- An example of a zero tolerance fee is origination charges, transfer taxes as well as any charges the consumer is not allowed to shop for, such as appraisal, flood certification and credit report fees.
- 10% Aggregate Tolerance: These charges are generally not permitted to increase more than an aggregate of 10%.
Revised Loan Estimates
- These charges include recording fees and third-party services not paid to the creditor or creditor’s affiliate and for which the consumer is allowed to shop for the service.
- No Tolerance: These charges can increase without limitation but must be disclosed based on best information reasonably available.
- These charges include prepaid interest, property insurance premiums, escrows and third-party services for which the consumer was permitted to shop, but for which the consumer selected a third-party service provider that was not on the creditor’s written list of service providers.
The LE may only be revised due to specific circumstances that are permitted in the regulation. If a revised LE is required under the regulation, the creditor is required to adhere to the timing requirements provided in the regulation. Revision is permitted in the following situations:
- Changed circumstances that occur after the LE is provided to the consumer that causes estimated settlement charges to increase.
- Changed circumstances that occur after the LE is provided to the consumer that affect the consumer’s eligibility for the terms for which the consumer applied or the value of the security for the loan.
- Consumer requested revisions to the credit terms or the settlement.
- The interest rate was not locked when the LE was provided, and locking the rate causes the points or lender credits disclosed on the LE to change.
- The consumer indicates an intent to proceed with the transaction more than 10 business days after the LE was originally provided.
Closing Disclosure (CD)
- The loan is a new construction loan and settlement is delayed by more than 60 calendar days, if the original LE states clearly and conspicuously that at any time prior to 60 calendar days before consummation that the creditor may issue revised disclosures.
The CD replaces the final Truth in Lending (TIL) and the HUD-1 settlement statement (HUD-1). The CD is a 5 page document designed to match the LE, however it includes more detailed disclosures such as the creditor’s partial payment policy, negative amortization information, additional escrow information and others. The CD does not use the current HUD-1 line numbers, instead it uses the same categories of closing costs as the LE. Fees are listed in alphabetic order within each category. Additionally the CD does not contain a comparison chart for the tolerance calculation as page 3 as provided on the current HUD-1.
The regulation makes the creditor responsible for all the information in the CD.
Providing the Closing Disclosure
The regulation requires that the CD is received by the consumer at least 3 business days before consummation, this includes all the information currently provided on the HUD-1.
Revised Closing Disclosures
The regulation requires the creditor to redisclose the CD when certain changes occur to the transaction after the CD was first provided that cause the CD to become inaccurate. There are three categories of changes that require a corrected Closing Disclosure containing all changed terms:
- Changes that occur before consummation that require a new three-business day waiting period. These changes include:
- The APR becomes inaccurate,
- Specific loan product change that causes the product information disclosed on the CD to be inaccurate, or
- Prepayment penalty is added.
- Changes that occur before consummation that do not require a new three-business day waiting period. For changes that do not require a new three-business day waiting period, the revised CD must be provided to the consumer at or before consummation.
- Changes that occur after consummation.
The following resources are available on the Consumer Financial Protection Bureau (CFPB) website:
CFPB Compliance Guide – Guide to new rules in FAQ format
CFPB Readiness Guide – Guidelines to evaluate readiness for compliance with the new rule
Guide to Forms – Detailed, illustrated instructions on completing the LE and CD
Disclosure Timeline – Illustration of the process and timing of the new disclosures
Loan Estimate and Closing Disclosure Samples – Downloadable samples of the new forms.
Recordings and materials from the Federal Reserve System webinars regarding this topic can be found here:
TILA-RESPA Integrated Disclosures, Part 1 - Overview of the Rule
FAQs on the TILA-RESPA Integrated Disclosures, Part 2 - Various Topics
FAQs on the TILA-RESPA Integrated Disclosures Rule, Part 3 - Completing the Loan Estimate
TILA-RESPA Integrated Disclosures, Part 4 - Completing the Closing Disclosure