My garden displays wild colors now in its' final summer glory.
Since the weather has been 117 degrees on a few days, a couple trees
dropped all their foliage and produce wilted.
I chopped up the vegetables and grilled many to enjoy a
feast before the bunnies, deer or heat gets them.
Marinaded Vegetables Grilled
Recipe: Prepare marinade in a bowl
Divide marinade in half and put sliced veggies mixed in a bowl with half
3 bell peppers, 1 eggplant, 2 squash, 6 green onions all sliced to same thickness These vegetables cook in about 4 minutes. Add what you have in the garden. Don't move them around only turn once to get some char marks and nice roasted flavor. Add mushrooms, hot peppers, asparagus or whatever you have fresh. Cooking time is brief. Keep an eye on everyone. Getting outside in to grill keeps the house cooler and allows enjoyment of summer sunsets. Prep time: 2 minutes Cook grill time: 4 minutes Nutrition facts: Rich in Vitamin A, Thiamin, Niacin, Phosphorus and Copper, and a very good source of Dietary Fiber, Vitamin C, Vitamin K, Riboflavin,Vitamin B6, Folate, Magnesium, Potassium and Manganese. 1/2 cup serving 260 calories cuisine: vegan healthy author: Caroline Gerardo
peppers from my garden
smoker in the yard
My grill is a very large drum sized smoker.
This is a safe way for me to cook outdoors
as in California fire danger is a concern.
Video above of deer sneaking during daylight on my hill,
"Hey what's for dinner lady?" she says
I like to grow lots of hot peppers. I use them to surround the garden in the spring, this keeps the bunnies away
yellow neck bumpy squash I got these seeds a long time ago
Williams Pride Green and blush apples from my garden
Dessert also made on the grill
I have Williams Pride apples which are
sour but yummy after baked
Cut the core out
add a tablespoon of sugar, sprinkle of cinnamon, a dab of butter,
and raisins if you like inside.
Wrap in foil, place on metal baking dish on
the grill away from flames spurting.
Leave on grill while you have dinner.
In 30 minutes (more it large apples)
take off heat and keep wrapped until you are
ready to add a scoop of vanilla greek yogurt
or just enjoy warm
The TILA-RESPA Integrated
Disclosure Rule became effective on October 3, 2015, and has determined how estimated and actual loan costs are disclosed in
transactions for closed-end mortgages that are secured by real property (12
C.F.R. §1026.19(e)(1)(i)).
The types of transactions that are subject to the rule include:
·Conventional
closed-end home purchase loans
·Conventional
closed-end refinances
·Non-conventional
closed-end home purchase loans, including FHA loans and VA loans
·Non-conventional
closed-end refinances
·Closed-end home equity
loans
The TRID Rule
does not apply to:
·Open-end mortgages,
such as open-end home equity lines of credit
·Reverse mortgages
The goals of the TRID Rule are to:
·Provide consumers with
more reliable estimates of loan and closing costs
·Offer estimates within
a timeframe that allows borrowers to make informed decisions regarding mortgage
debt
·Encourage borrowers to
shop for settlement services
·Eliminate the surprise
of unanticipated cost increases at the closing table
The first step towards TRID Rule compliance is to understand the
definitions that the rule provides for the following terms:
·Application
·Business day
·Consummation
Understanding these terms is important because they determine
when disclosure deadlines begin to run and how they are calculated.
Application: the three-business-day deadline for
providing a Loan Estimate begins to run after a creditor receives an
“application” for a mortgage. By definition, a complete application consists of
the submission of the following six pieces of information:
·Loan applicant’s name
·Loan applicant’s
Social Security number
·Loan applicant’s
income
·Address of the
property that will secure the mortgage
·Estimated value of the
property
·Loan amount sought
(12 C.F.R. §1026.2(a)(3)(ii))
Even if a loan applicant fails to complete a Uniform Residential
Loan Application (URLA) by providing information on his/her employment, assets,
and liabilities, a creditor is deemed to have received an application when it
has the six pieces of information listed above (12 C.F.R. §1026.19(e)(1)(iii)).
Business day: Regulation Z provides two definitions
for “business day.”
Under the first definition, “business day” means any day on
which the creditor’s offices are open to the public for carrying out substantially
all business functions. This definition is used for purposes of determining:
·The three-business-day
deadline for providing a Loan Estimate after receiving a consumer’s application
for a mortgage
·The three-business-day
deadline for providing a revised Loan Estimate after receiving information that
requires or permits a revised estimate
·The ten-business-day
expiration period for a Loan Estimate
Under the second definition, “business day” means all calendar
days except Sundays and legal public holidays, which include New Year’s Day,
Martin Luther King’s birthday, George Washington’s birthday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran’s Day, Thanksgiving, and
Christmas (12 C.F.R. §1026.2(a)(6)). This definition is used for purposes of
calculating:
·The seven-business-day
waiting period that must elapse between the date that a creditor mails or
otherwise delivers a Loan Estimate and the date of consummation
·The three business
days that are assumed to elapse between the mailing of a disclosure and a loan
applicant’s receipt of it
·The four-business-day
waiting period between a consumer’s receipt of a revised Loan Estimate and
consummation
·The three-business-day
waiting period that must elapse between a consumer’s receipt of a Closing
Disclosure and consummation
There is an easy way to
remember the distinction between these two definitions. When counting the
number of days that a creditor has to prepare a Loan Estimate or a revised Loan
Estimate, it is logical to count only those days when an originator is in the
office to perform the work required to complete the disclosure of estimated
costs. For example, creditors are required to provide a Loan Estimate
within three business days of receipt of a loan application, and Saturdays are
not counted if an originator’s office is not open on that day. The second
definition of “business day” is related to the delivery of a disclosure and
corresponds with the days that the U.S. Postal Service is open for normal mail
processing and delivery.
Consummation: the time that a consumer becomes
contractually obligated on a credit transaction (12 C.F.R. §1026.2(a)(13)).
State law determines when a consumer is subject to the contractual obligations
under a lending agreement. Often, the closing date and the date of consummation
are the same. Identifying the
consummation date is of critical importance when determining:
·Whether the three- or
four-business-day waiting periods prior to consummation have elapsed, and
·When the 30- or 60-day
deadlines begin to run for post-consummation disclosures
·Throughout the course,
the terms “loan applicant” and “consumer” are used synonymously. “Consumer” is
the term that the TRID Rule uses to refer to individuals who are applying for
mortgage credit. Despite the use of this term in the regulations, the
model forms make use of the term “borrower” to refer to loan applicants.
·
·The ultimate goal of
the TRID Rule is to ensure that creditors provide loan applicants with reliable
or “good faith” estimates of the costs associated with a mortgage. Estimated
costs are made in good faith when charges paid by or imposed on a consumer do
not exceed the amounts disclosed on the Loan Estimate (12 C.F.R.
§1026.19(e)(3)(i)). Although this regulation seems to prohibit an increase in
estimated costs, variances between some estimated and actual costs are
permitted.
·The TRID Rule
establishes three tolerance levels for variances between estimated and actual
charges.
Generally, no variances are permitted for fees controlled by or
known to the creditor. For example, no variance is permitted for fees charged
by a creditor or one of its affiliates. Other fees that are subject to a zero
tolerance include, but are not limited to:
·Fees paid to a
provider of settlement services if the loan applicant is not allowed to shop
for settlement services
·Fees paid to a
mortgage broker
·Fees paid for transfer
taxes
(Official Interpretations, 1026.19(e)(3)(i)(1.))
Increases in estimated charges for third-party settlement
services are permitted when:
·The aggregate amount
for third-party services does not exceed estimated aggregate charges by more
than 10%
·The charges for
third-party services are not paid to a creditor or to one of its affiliates, and
·The creditor allows
the consumer to shop for third-party settlement services
(12 C.F.R. §1026.19(e)(3)(ii))
Variances between the
estimated and actual cost of certain charges are permitted if the estimated
charge was based on “the best information reasonably available” to the creditor
at the time the estimate was made (12 C.F.R. §1026.19(e)(3)(iii)). The
exercise of due diligence is required in order for a creditor to demonstrate
that an estimate was based on the best information reasonably available. The
particular charges that are not subject to a tolerance limit include the
following.
Prepaid interest: these are charges that borrowers pay at
closing for interest that accrues between the closing date and the end of the
month when the closing takes place. In order for this charge to fall within the
category of fees that is subject to an unlimited tolerance, the creditor must
base the calculation for prepaid interest on the scheduled closing date. For
example, if a closing is scheduled for October 15, the prepaid interest must be
calculated from that day and not from a later date, such as October 20.
Premiums for property
insurance: this cost falls
within the unlimited tolerance category when the need for insurance is not
certain. For example, if a home is located in an area where floods occur but is
not located in a flood zone where flood insurance is required, the omission of
an estimate for flood insurance premiums is not a violation of the requirement
to offer a good faith estimate of closing costs.
Amounts paid into an
escrow account: although escrow
amounts are listed as costs subject to unlimited tolerance, creditors must
complete due diligence before estimating the cost of escrowed items, such as
premiums for homeowner’s insurance and property taxes. Appropriate due
diligence would include contacting insurance providers for estimates for the
cost of a policy and contacting the local tax office to determine current
property taxes.
Charges for
consumer-selected third-party providers: if a consumer chooses a third-party settlement service
provider that is not on the creditor’s list of recommended providers, the fees
for that provider are not subject to tolerance limits.
Charges for optional
products and services: fees
paid to third-party providers for services and products not required by the
creditor are not subject to tolerance limits. For example, consumers are not
required to purchase title insurance for their own protection, but when
choosing to do so, the estimated and actual costs of this insurance may differ.
The remainder of the course sections pertaining to TRID will
review provisions of the TRID Rule that are relevant to closed-end transactions
for fixed-rate mortgages, and will do so within the context of a scenario that
describes a fictitious transaction between client and Mortgage Company. When
reviewing the scenario, assume that:
·Mortgage Company is
not open for business on Saturday, therefore, Saturdays are not “business days”
and are not counted when calculating deadlines for providing Loan Estimates and
revised Loan Estimates
·The transaction is
taking place in a state where the closing date and consummation of the loan
occur on the same day
·The four-business-day
waiting period may turn into a wait of seven business days when a revised
disclosure is mailed, and this is because a consumer is deemed to receive a
revised Loan Estimate three business days (including Saturdays) after a
creditor mails the revised estimate.Content
·When creditors deliver
initial or revised Loan Estimates by other means, such as direct delivery or
email, they may begin calculating the four-business-day waiting period on the
day that direct delivery is made or on the day they receive an email confirming
receipt of an electronically-transmitted disclosure. For example, the CFPB
states in its official commentary that if a creditor emails a Loan Estimate on
a Tuesday at 1:00 p.m. and the consumer acknowledges receipt of it at 5:00
p.m., the creditor can demonstrate that the consumer received the disclosure on
the date of the same day that it was transmitted (Official Interpretations,
1026.19(e)(1)(iv)(2.)).
As a good faith estimate of closing costs, an
official Loan Estimate must meet accuracy tolerances that limit variances
between estimated and actual costs. However, loan originators may face
circumstances, such as those described in the scenario, in which too little
information is available to offer an estimate that can meet these standards for
accuracy. The regulations do not prohibit the use of an unofficial
estimate if the originator makes it clear that a potential loan applicant should
not rely on it as an accurate reflection of available loan terms and settlement
costs.
The TRID Rule establishes the following
specific requirements for an unofficial estimate:
·It must include a
clear and conspicuous written statement on the first page in at least 12-point
font that states, “Your actual rate, payment, and costs could be higher. Get
an official Loan Estimate before choosing a loan.”
·The headings, format,
and content of an unofficial disclosure cannot resemble those found on an
official Loan Estimate
(12 C.F.R. §1026.19(e)(2)(ii))
The facts in the scenario do not indicate
whether the unofficial estimate that I provided satisfied each of these requirements.
She cautioned client that the disclosure was an unofficial one, but simply
telling a consumer that an estimate is unofficial is not sufficient to show
compliance with the TRID Rule. The regulations clearly establish that warnings
related to the limitations of an unofficial estimate must be in writing.
The
circumstances described illustrate how a creditor’s obligation to provide a
Loan Estimate is triggered. I complied with the TRID Rule by sending
client an official Loan Estimate within three business days of her receipt of
the six pieces of information that constitute an “application,” as that term is
defined in Regulation Z. Despite the fact that client’s URLA was
incomplete, I received an “application” from him when he indicated the amount
that he needed to borrow and submitted his name, income, Social Security
number, the address of the property he wanted to purchase, and its estimated
value (12 C.F.R. §1026.19(e)(1)(iii)).
Today, it is common to offer disclosures via email, and this
practice is legal as long as a consumer provides prior consent electronically.
However, in order to demonstrate the additional timing considerations
that come with placing disclosures in the mail, the scenario describes use of
the USPS in the early stages of client’s transaction. As the scenario
unfolds, “facts” related to the close timing for client’s closing date will
show the requirements related to the electronic delivery of disclosures.
Determining whether a
Loan Estimate is made in good faith involves comparing the costs disclosed on
the Loan Estimate and on the Closing Disclosure and calculating differences
between the estimated and actual charges (Official Interpretations,
1026.19(e)(3)(iv)(1.)). Loan costs can vary with market changes, and the
regulations protect creditors from hesitation and delay on the part of
consumers by creating a ten-business-day expiration for Loan
Estimates (12 C.F.R. §1026.19(e)(3)(iv)(E)). A creditor may offer to extend the
expiration date since there are no regulations that preclude the negotiation of
this point between loan applicants and creditors.
If a creditor and a consumer do not agree on a longer expiration
period and a consumer indicates an intent to proceed with a transaction more
than ten business days after a creditor provides an official Loan Estimate, the
creditor:
·May issue a revised
disclosure
·Is not required to
document reasons for higher costs than those listed on the original Loan
Estimate, and
·Should include a
document in the loan file stating that it issued a revised disclosure at the
end of the ten-business-day expiration period
·When providing a revised
disclosure in response to a consumer’s delayed notice of his/her intent to
proceed, the original Loan Estimate is not relevant when determining whether
the creditor offered a good faith estimate of closing costs. Instead, the
revised estimate and the Closing Disclosure are compared.
·When calculating the
ten-business-day expiration period, business days include those days that a
creditor’s offices are open to the public to perform substantially all business
functions (12 C.F.R. §1026.2(a)(6)).
·On the afternoon of
Thursday, August 10, I had legitimate reasons for putting aside her other
responsibilities to prepare an SSP list for client. The requirement to provide
a written list of service providers is subject to the same three-business-day
deadline that applies to the Loan Estimate, meaning I needed to send out the
list on August 10 in order to remain in compliance.
When a consumer is allowed to shop for settlement services, the
following tolerances apply:
·10%
tolerance: the permissible
variance between estimated and actual charges is 10% when a creditor allows a
consumer to shop for settlement services and the consumer selects a settlement
service provider from the SSP list
·Unlimited
tolerance: if a creditor
allows a consumer to shop for settlement services and the consumer chooses a
provider that is not on the SSP list, no limits apply to the variance between
estimated and actual charges
When a creditor does
not allow a consumer to shop for settlement services, the tolerance for
variances between estimated and actual costs is zero. Therefore, if
I failed to provide the SSP list in a timely manner, no variances would be
allowed between the estimated and actual costs for settlement services
(Official Interpretations, 1026.19(e)(3)(iii)(3.)).
I’s separate delivery of the Loan Estimate and
SSP list was not a violation of the TRID Rule. In fact, the rule actually
requires creditors to provide the SSP list separately from the Loan Estimate,
and prohibits creditors from including information about service providers on
the Loan Estimate (12 C.F.R. §1026.19(e)(1)(vi)(C)).
I satisfied another regulatory requirement
when she mailed an Affiliated Business Arrangement Disclosure with the SSP
list. Creditors are allowed to include affiliates on the list of recommended service
providers, but including an affiliated provider’s name on the list constitutes
a referral that is subject to the disclosure requirements of RESPA (Official
Interpretations, 1026.19(e)(1)(vi)(7.)).
The Appendix to Regulation Z includes a number
of model forms that are intended to facilitate compliance with the TRID Rule,
and these include form H-27 for the SSP list. Although use of most model
disclosure forms is required, use of form H-27 is optional. Creditors, such as
the fictitious LL Mortgage Company, may create their own form as long as the
substance and clarity of the disclosure is not affected.
Additional requirements related to the SSP list include:
·Providing
recommendations for providers who are actually in business and able to provide
services in the area where the consumer or his/her property is located
·Disclosing sufficient
contact information to allow the consumer to reach recommended service
providers
·Limiting qualification
requirements for service providers that consumers find on their own to those
that are “reasonable,” such as requirements for licensing in the jurisdiction
where the services will be performed
(12 C.F.R. §1026.19(e)(1)(vi)(C); Official Interpretations,
1026.19(e
Until a consumer confirms that he/she wishes to proceed with
a transaction, the TRID Rule prohibits the collection of any fee other than a
fee for obtaining a credit report (12 C.F.R. §1026.19(e)(2)(i)(A)). I complied
with the TRID Rule by waiting to ask for an application fee until Client stated
his intent to move forward. Collecting a $35 fee to run a credit check during
her second meeting with Client was not in violation of the law since the fee
was bona fide and reasonable. The regulations
do not include particular requirements for establishing a consumer’s intent to
proceed with a transaction. In fact, this confirmation may be oral as long as
the creditor documents it. I acted in compliance with the TRID Rule by
confirming Client’s intent and documenting it with the placement of a note in
his loan file.
The TRID Rule encourages creditors to provide reliable Loan
Estimates by limiting the circumstances in which they can revise an initial
estimate and offer a revised Loan Estimate. There is only one
circumstance in which a revised estimate is required, and that is when a
rate-lock occurs after an initial Loan Estimate is delivered to a consumer.
For example, if a loan applicant pays for a rate-lock after receiving an
initial Loan Estimate, the creditor must provide a revised disclosure that
lists the new interest rate and any other rate-dependent charges and terms.
The revised Loan Estimate is due within three
business days of the date that the interest rate is
locked (12 C.F.R. §1026.19(e)(3)(iv)(D)).
In the following circumstances, revised Loan Estimates are
permitted, but not required:
·Changed
circumstances that affect settlement charges:if changed circumstances cause the amounts stated on the Loan
Estimate to increase, or cause the aggregate amount of estimated charges and
recording fees that are subject to the 10% tolerance to increase by more than
10%, the creditor may issue a revised Loan Estimate. This may include:
oExtraordinary or unexpected events: these may include war or a natural
disaster. They may also include other unexpected events that are less
catastrophic. In its official commentary, the CFPB gives the example of a
creditor that prepared a Loan Estimate using costs for title services from a
title company that goes out of business during the underwriting stage of a transaction.
In this circumstance, a revised Loan Estimate is permitted.
oInaccurate information: a changed circumstance may include a
determination that information relied on by the creditor is inaccurate. The
CFPB cites the example of a consumer who states earnings of $90,000 on a loan
application when his salary is actually $80,000. When underwriting discovers
this inaccuracy in information that the creditor relied on when providing the
Loan Estimate, a changed circumstance has occurred and a revised Loan Estimate
is permitted.
oNew information: even if not relied on by the creditor,
new information may justify a revised Loan Estimate. The rules do not define
the meaning of “new information,” but in its official commentary, the CFPB uses
the example of a boundary dispute with a neighbor that arises when a home
seller puts his/her house on the market.
·Changed
circumstance affecting eligibility: changed circumstances affecting eligibility may include
events that impact a consumer’s eligibility for a mortgage, such as loss of
employment. They may also include circumstances related to the suitability of a
home as security for a loan. For example, if damage to a home occurs during the
underwriting process, a changed circumstance has occurred.
·Revisions
requested by the consumer: a
changed circumstance occurs if a loan applicant asks for changes to the loan
terms or settlement, and these requested changes result in an increase in an
estimated charge.
·Expiration
of offer: as noted
earlier, a Loan Estimate expires if a consumer waits more than ten business
days to state an intent to proceed, and a revised disclosure may be provided.
·Delays
related to construction loans: if the creditor reasonably expects settlement to occur
more than 60 days after providing the applicant with a Loan Estimate, a revised
disclosure can be provided, so long as the original Loan Estimate clearly and
conspicuously states that the creditor may issue revised disclosures at any
time prior to 60 days before consummation.
(12 C.F.R. §1026.19(e)(3)(iv))
If a creditor has the option of revising a Loan Estimate, it
must provide the revised disclosure within three
business days of obtaining information that will permit
the use of a revised disclosure (12 C.F.R. §1026.19(e)(4)(i)). In
addition, the revised disclosure must be received by the consumer no later
than four business days prior to
consummation (12 C.F.R. §1026.19(e)(4)(ii)). If the revised Loan Estimate
is mailed, the consumer is considered to have received it three business days
after the disclosure is placed in the mail (12 C.F.R. §1026.19(e)(1)(iv)).
$$$
The TRID Rule permits no variances between the estimated and
actual costs for transfer taxes (Official Interpretations,
1026.19(e)(3)(i)(1.)). Fees for transfer taxes are calculated as a percentage
of the sales price of a home, and the percentage that is charged varies greatly
in different states and counties. The original Loan Estimate that I
provided showed that Client did not have to contribute to the cost of transfer
taxes. Assume that the cost of transfer taxes in Client’s transaction is
1.25% of $200,000, or $2,500. Client’s agreement to pay 60% of this
amount ($1,500) is a significant increase in the cost of the transaction.
If LL Mortgage Company failed to revise the Loan Estimate to
reflect Client’s contribution of $1,500 in transfer taxes, the zero tolerance
for variances between estimated and actual costs for this fee would mean that
the lender would have to pay Client a refund of the difference between the
actual cost of $1,500 and the estimated cost of $0 (12 C.F.R.
§1026.19(f)(2)(v)). If LL Mortgage Company failed to pay this refund, it would
be liable for violating its obligation to provide Client with a good faith
estimate of his loan costs.
The revised Loan Estimate is due three business days after I
learns, on Friday, that Client must pay a portion of the transfer taxes. Since
Saturday, Sunday, and Labor Day are not business days, I satisfied the requirements
of the TRID Rule when she mailed the revised Loan Estimate on Thursday,
September 7.
The TRID Rule permits revisions to a Loan Estimate when a
change in circumstances impacts a loan applicant’s eligibility for mortgage
credit. If Client is not eligible for a loan without PMI and his
appraisal shows that a prior calculation for the cost of it was based on an
inaccurate LTV ratio, then the rules permit I to prepare a revised Loan
Estimate. Since LL Mortgage Company is not permitting Client to shop for a
provider of PMI and will require him to purchase it from an affiliate, the
tolerance for variances between estimated and accurate costs is zero, and the
need to disclose the new cost is necessary for purposes of offering a good
faith estimate.
When I sent Client an initial Loan Estimate on August 10 and
mailed revised estimates to him on September 7 and 12, the fees that she
included for property taxes were based on the best information that was
reasonably available to her at the time. Property taxes are one of the
fees for which variances between estimated and actual costs are allowed as long
as the estimated taxes are based on the best information reasonably available.
Therefore, I does not have to send Client a revised Loan Estimate in
order to ensure that the fees listed for property taxes were provided in good
faith.
While reviewing these rules, recall that Client’s transaction is
taking place in a state where a loan’s closing and consummation are deemed to
occur at the same time:
·With
a rate change, a revised Loan Estimate is mandatory: the single circumstance in which a
revised Loan Estimate is required is when a consumer and creditor enter a
rate-lock agreement after delivery of the initial Loan Estimate (12 C.F.R.
§1026.19(e)(3)(iv)(D)).
·The
revised Loan Estimate is due within three business days after the rate is
locked: since Client
locked his interest rate on Tuesday, October 3, I must mail or otherwise
deliver a revised Loan Estimate no later than Friday, October 6 (12 C.F.R.
§1026.19(e)(3)(iv)(D)).
·Receipt
of a revised Loan Estimate must occur four business days prior to closing: Client must receive his Loan Estimate
four business days prior to closing. If I mails the revised estimate on
Tuesday, it is assumed that Client will receive it three business days later,
on Friday October 6, leaving insufficient time for the mandatory
four-business-day waiting period that must elapse prior to a closing on
Tuesday, October 10. In fact, if the revised estimate is mailed, the closing
could not occur until Thursday, October 12 (recall that the applicable
definition of “business day” used in calculating the four-business-day period
would count Saturday, but not Sunday or Monday which is Columbus Day, a legal
public holiday). Hand-delivering or emailing the disclosure and obtaining a
confirmation of receipt is an option that will enable the requisite waiting
period to occur (12 C.F.R. §1026.19(e)(4)(ii)).
·Same-day
delivery of a revised Loan Estimate and Closing Disclosure is prohibited: the TRID Rule prohibits delivery of a
revised Loan Estimate “on or after the date” that a creditor delivers a Closing
Disclosure (12 C.F.R. §1026.19(e)(4)(ii); Official Interpretations,
1026.19(e)(4)(ii)(1.)).
·Receipt
of the Closing Disclosure must occur three business days prior to closing: if the closing is to take place on
Tuesday, October 10, LL Mortgage Company faces timing constraints for the
mandatory three-business-day waiting period that must elapse between Client’s
receipt of the Closing Disclosure and the closing. If I mails the revised Loan
Estimate on Wednesday, October 4, the soonest that she can send the Closing
Disclosure is Thursday, October 5, and Client would be deemed to receive it on
Tuesday, October 10. In these circumstances, the mandatory three-business-day
waiting period would mean that the closing could not occur until Friday,
October 13. As with delivery of the revised Loan Estimate, direct delivery or
email delivery and Client’s same-day acknowledgment of receipt are options that
I may pursue if she wants the closing to occur on October 10 (12 C.F.R.
§1026.19(f)(1)(ii)(A)).
·Using
a Closing Disclosure in lieu of a revised Loan Estimate is sometimes permitted: recognizing that some circumstances may
require a creditor to provide a revised Loan Estimate when there are fewer than
four business days between the date that a creditor must provide a revised
estimate and consummation, the CFPB has stated that in these circumstances, the
creditor may use a Closing Disclosure to provide information that it would
otherwise include in a revised Loan Estimate (Official Interpretations,
1026.19(e)(4)(ii)).
·Waiting
periods may be counted from the date of in-person delivery: multiple provisions of the TRID Rule and
numerous Official Interpretations state that the calculation of a waiting
period may begin on the date that a creditor delivers a disclosure to a loan
applicant “in person” (12 C.F.R. §§1026.19(e)(1)(iv); (e)(4)(ii); (f)(1)(iii)).
·Waiting
periods begin to run when a consumer sends an email confirmation of receipt of
a disclosure: use of
electronic transmittals can expedite disclosure delivery and receipt and the
start date for waiting periods (Official Interpretations,
1026.19(f)(1)(iii)(2.)).
The TRID Rule allows consumers to waive the three- and four-business-day
waiting periods for bona fide personal financial emergencies. The
requirement for obtaining a waiver involves a consumer’s written description of
the emergency that includes an express waiver of the waiting periods. The
signatures of all individuals who will be liable for the debt are also required
(12 C.F.R. §§1026.19(e)(1)(v); (f)(1)(iv)). The use of a printed form to
obtain a waiver is prohibited. The example of a bona fide financial
emergency that the CFPB cites in its official commentary is the need for loan
funds to prevent a foreclosure.
I’s question about
placing the final round of estimates on a Closing Disclosure instead of
offering Client a revised Loan Estimate is one that many mortgage professionals
have asked. The CFPB’s commentary on the topic states that if there are
less than four business days between the date that a revised Loan Estimate is
required to be provided and the consummation of a loan, creditors may comply
with the requirement to provide a revised estimate by including the new
information in the Closing Disclosure (Official Interpretations,
1026.19(e)(4)(ii)).
A close reading of the CFPB’s official commentary shows that the
attorney at LL Mortgage Company may have interpreted the comment too strictly. Client’s
rate-lock on Tuesday triggered the need to offer him a revised Loan Estimate,
which was not “required to be provided” until Friday. Clearly, there are less
than four business days between Friday and Tuesday. Therefore, the facts
described in the scenario illustrate circumstances in which use of a Closing
Disclosure in lieu of a revised estimate may be acceptable.
Of course, another point of concern is the TRID Rule’s mandate
for creditors to offer a revised Loan Estimate after a consumer locks the
interest rate. The rule states that the creditor must provide a revised Loan
Estimate, which is due no later than three business days after the date the
interest rate is locked (12 C.F.R. §1026.19(e)(3)(iv)(D)). If the changes
related to Client’s transaction did not involve a rate-lock, LL Mortgage
Company’s attorney and lending manager would probably have been more willing to
give I approval to provide the updated information in a Closing Disclosure
instead of offering it through a revised Loan Estimate.
Regardless of how the official commentary is interpreted, it is
safe to say that the CFPB will not condone a creditor’s unmerited reliance on
it to avoid issuing revised Loan Estimates. During a review of loan files, CFPB
examiners will be able to identify transactions in which the absence of a
revised Loan Estimate appears to be a compliance failure. With the aid of an
attorney skilled in TRID Rule compliance, mortgage lenders should develop
policies that identify circumstances in which their loan originators may bypass
the preparation of a revised Loan Estimate to offer final estimates on a
Closing Disclosure.
The Loan Estimate is meant to provide loan
applicants with a manageable amount of comprehensible information in a
well-organized format. Although simplicity is one of the primary goals of
this disclosure, the TRID Rule includes complex rules for completing the Loan
Estimate.
In addition to the specific rules on completion of the Loan
Estimate, there are general rules that include requirements to:
·Use model form H-24,
without making any deletions or other alterations, even for disclosures that
are inapplicable to a particular transaction
·Leave blank spaces
next to inapplicable disclosures on the model form, rather than using the
phrase “not applicable” or the designation “N/A,” which are prohibited
(Supplement I to 1026.37(1.))
·Use estimated costs
that are rounded to the nearest whole dollar, with exceptions for:
oThe amount of prepaid interest that is due at
closing
oThe monthly payments for homeowner’s
insurance, mortgage insurance, and property taxes that are used to compute a
rounded estimate for the initial escrow payment at closing
oThe loan amount, although a loan amount that
is a whole number must be “truncated at the decimal point” (Official
Interpretations, 1026.37(o)(4)(i)(B))
oThe estimated monthly principal and interest
payment
·Disclose percentage
amounts using up to three decimal places
·Ensure that any logo
or administrative information added to the disclosure does not cover or alter the
information shown on the model form
(12 C.F.R. §1026.37(o))
Loan applicants can look at page 1 of the Loan Estimate for an
overview of the immediate costs of securing a loan and to see the future costs
of repaying the debt and meeting other mortgage-related expenses, such as those
for property taxes and insurance. This information is organized in three
subparts:
·Loan Terms
·Projected Payments
·Costs at Closing
General information on the Loan Estimate includes
descriptions of the loan term, its purpose (purchase, refinance, construction,
or closed-end home equity), the product type, and a loan identification number.
Loan identification numbers are determined by creditors and may contain
any alpha-numeric characters (Official Interpretations, 1026.37(a)(12)).
The Loan Estimate must include a heading that advises consumers to “Save this
Loan Estimate to compare with your Closing Disclosure” (12 C.F.R. §1026.37(a)(2)). The general information
also includes a warning to loan applicants that the interest rate, points, and
lender credits may change when the interest rate is not locked.
If a transaction involves a rate-lock, creditors are required to
indicate the time of day that the rate-lock expires. They must also indicate
the time zone that is used to determine when the rate-lock period expires (12
C.F.R. §1026.37(a)(13)).
The August 24, 2017 date that Sofia added for the expiration of
“all other closing costs” is related to the ten-business-day expiration period
that began to run when Sofia sent Allen his original Loan Estimate on August
10. The August 24 expiration date was calculated by counting those days that LL
Mortgage Company was open for business. Allen prevented the expiration of these
estimated closing costs by indicating an intent to proceed with the transaction
on August 14, which was well within the ten-business-day expiration period.
Loan terms include the loan amount, interest rate, and
monthly principal and interest payments. When disclosing the interest
rate and loan amounts, creditors must indicate, with a “Yes” or a “No,” whether
future increases will occur. Increases in the loan amount will occur if a
mortgage has a negative amortization feature, allowing unpaid interest to be
added to the principal balance. Changes in interest rates will occur when
a mortgage has an adjustable rate. Either of these changes will, of
course, impact monthly principal and interest payments. In transactions for
fixed-rate amortizing loans, such as Allen’s fictitious transaction with LL
Mortgage Company, no increases are expected.
The loan amount is not written as $170,000.00 because the
TRID Rule and the CFPB’s official commentary state that loan amounts must be
disclosed as a whole number and truncated at the decimal point. However, the
rules require the disclosure of estimated monthly principal and interest
payments in dollars and cents.
Projected payments are likely to change over the course of a
loan’s term and may do so for a number of reasons. For example, if a loan
has an adjustable rate, payment amounts will increase when rate adjustments
occur, and if a borrower is required to pay PMI, mortgage payments will
decrease when PMI is cancelled or terminated, as required by the Homeowners
Protection Act. Creditors must use the “Projected Payments” section of
the Loan Estimate to disclose future changes in payment amounts.
While requiring creditors to show how projected payments may
change over time, the Loan Estimate is intended to be a concise disclosure.
Therefore, the table of projected payments may not disclose more than four
separate periodic payments or ranges of payments (12 C.F.R.
§1026.37(c)(1)(ii)). Since there are limits to the amount of information
disclosed, the following rules help to determine which disclosures take
priority over others:
·Payment
changes due to a rate
adjustment must be disclosed
·A
balloon payment that is
scheduled as the final payment must always be disclosed as a separate periodic
payment and should be labeled as “Final Payment.” Disclosure of a balloon
payment must include the maximum amount of the balloon payment and the date
that it is due.
·The
termination of PMI must be
disclosed, but only if more critical disclosures, such as those related to rate
adjustments and balloon payments leave room for the disclosure of lower
payments following the termination of PMI
(12 C.F.R.
§1026.37(c)(1))
This hierarchy for the disclosure of information is intended to prevent
defaults by drawing loan applicants’ attention to the more expensive payments
that will come with rate adjustments and balloon payments. Lower payments, such
as those that result from the termination of PMI, do not create the potential
for default and are, therefore, a less critical disclosure.
Because lenders have no control over the costs that borrowers
will pay per month for property taxes and homeowner’s insurance, these
estimated amounts are disclosed separately with a warning that they may
increase over time.
There is a note at the bottom of the Loan Estimate directing
consumers to the CFPB website for information and tools. This referral to
the CFPB’s online resources is mandatory (12 C.F.R. §1026.37(e)). The
“tools” provided on the website include the CFPB’s guide to shopping for a
mortgage, which is entitled Your Home Loan Toolkit: A
Step-by-Step Guide. This 25-page guide provides an overview of
many of the costs associated with a transaction for a mortgage and an
explanation of the information offered in Closing Disclosures. Loan
originators should encourage all loan applicants, and especially first-time
homebuyers, to review this information.
Page 2 of the Loan Estimate gives loan applicants a breakdown of
the costs of a transaction for a mortgage and shows how the “Costs at Closing”
disclosed on page 1 were calculated. The TRID Rule outlines the steps that
creditors must follow when providing “Closing Cost Details” and provides the
calculations that they must complete to determine specific costs. This page is
divided into two sections.
“Loan Costs” are located on the left side of the
page, and they include:
·Fees paid to the
creditor, including origination charges
·Fees paid to
third-party settlement service providers
The itemized amounts of these fees are disclosed in subsections
A-C, and the total amount is shown in subsection D.
“Other Costs” are itemized on the right side of the
page, and they include:
·Taxes
·Recording fees
·Prepaid amounts for
insurance, interest, and taxes that are due at closing
·Initial escrow
payments for property taxes, homeowner’s insurance, and PMI
The itemized amounts of these fees are disclosed in subsections
E-I, and the total amount is shown in subsection J.
The first cost details provided on page 2 of the Loan Estimate
are those related to origination charges, which are the amounts paid by a
consumer to a creditor and loan originator for originating and extending credit
(12 C.F.R. §1026.19(f)(1)). In its official commentary, the CFPB states that
origination charges include amounts paid to creditors and originators
regardless of how such fees are denominated (Official Interpretations,
1026.37(f)(1)(1.)).
Although the TRID Rule does not offer a checklist of origination
charges, the official commentary cites application fees, origination fees,
underwriting fees, processing fees, verification fees, and rate-lock fees as
examples of origination charges (Official Interpretations, 1026.37(f)(1)(3.)).
Presentation of origination charges on the Loan Estimate is
subject to the following requirements:
·List
discount points first: if
a consumer pays points to reduce the interest rate, this must be the first
origination charge included on the disclosure. The language for disclosing this
amount is printed on the model form: “ % of Loan Amount (Points).”
·Itemize
charges alphabetically: charges
other than points must be itemized and presented in alphabetical order
·Limit
itemized charges: the Loan
Estimate may include no more than 13 itemized charges, including the disclosure
of points
·Use
of addenda prohibited: if
all the origination charges do not fit within the designated space, the remaining
charges must be disclosed in an aggregated amount and labeled as “additional
charges”
·Use
rounded numbers: origination
charges must be rounded to the nearest whole number
·Use
of exact percentages: amounts
expressed as a percentage, such as those for discount points, must be stated as
an exact number using up to three decimal places
(12 C.F.R. §1026.37(f)(1), (6))
The additional information shown on the “Loan Costs” side of
page 2 is the cost of third-party settlement services. The disclosure
form divides the cost of settlement services into two sections: those for which
the loan applicant cannot shop, and those for which the applicant can shop.
As discussed earlier, allowing consumers to shop for settlement services
is a factor that determines whether a variance is allowed between estimated and
actual closing fees.
Like origination charges, the presentation of fees for
settlement services must meet regulatory requirements. When loan originators
put this information on a Loan Estimate, they must:
·Alphabetically
itemize charges: fees for
settlement services must be listed in alphabetical order
·Limit
itemized charges: the number of
services for which loan applicants cannot shop is limited to
13, and the number of services for which loan applicants can shop
is limited to 14
·Restrict
the use of addenda:
oAddenda prohibited: if the fees for settlement services that
the loan applicant cannot shop for do not fit within the
designated space, the remaining charges must be disclosed in an aggregated
amount and labeled as “additional charges”
oAddenda permitted: if all the fees for settlement services
that the loan applicant can shop for do not fit within the
designated space, the last line may reference an addendum where the remaining
charges may be listed
·Label
title insurance: fees that are
related to title insurance must be labeled as “Title,” followed by a more
specific description, such as “Lender’s Title Policy”
(12 C.F.R. §1026.37(f)(2),(3), (6))
Consumers are not likely to be familiar with the fees
typically charged in a transaction to finance a home purchase. A loan
originator’s ability to provide straightforward explanations helps to dispel
consumers’ concerns about potentially bogus charges. For example, fees on
Allen’s Loan Estimate that would be unfamiliar to most consumers include the
flood determination, tax monitoring, and verification services fees.
Assume that Allen asks about these fees. Sofia should be prepared
to provide a basic explanation of them.
Flood determination
fee: flood hazard
determination services enable creditors to decide whether a borrower needs to
purchase flood insurance. Using Federal Emergency Management Agency (FEMA)
data, providers of these services determine whether a property that will secure
a mortgage is located in a flood zone.
Tax monitoring fee: liens for unpaid property taxes have
priority over other liens on a home, including a lender’s first mortgage. If a
homeowner fails to pay property taxes, or if a loan servicer makes a mistake
and fails to pay property taxes from an escrow account, the government agency
that imposed the tax may initiate an action known as a tax sale, which is
similar to a foreclosure. Unpaid taxes that a borrower owes to a government
entity are paid from the proceeds of a tax sale before other lienholders, such
as mortgage lenders, are paid. Since unpaid property taxes can compromise the
ability of lenders to recover the full amount that they have invested in a
mortgage, some choose to pay for a service that monitors the payment of
property taxes.
Verification services
fee: lenders may rely
on providers of verification services to confirm the validity of information
provided by consumers on a loan application. The information verified may
include the consumer’s Social Security number, employment, and income.
Consumers may perceive certain fees, such as those for
verification services and tax monitoring, as duplicative charges. For example,
a loan applicant may ask why he/she is paying for verification services when
the lender is receiving documents to verify employment, income, and assets. Tax
monitoring fees may also appear to be redundant, particularly in those
transactions in which a borrower is required to place funds in an escrow
account in order to ensure that property taxes are paid. Loan originators
should anticipate these questions by asking their lending managers for an
explanation of the reason behind imposing particular charges.
Considerations of cost
and efficiency are likely to be the reasons that a lender will impose fees for
verification and tax monitoring services. For example, Equifax offers
verification services, and because it can verify income and employment very
quickly, a lender that uses this service can make a faster decision on a loan
application.[1] As for tax monitoring services, lenders may justify this
one-time fee on the basis of the critical information that the service
produces. Even if funds for property taxes are held in escrow, the failure of a
lender or servicer to pay the taxes can occur, and unpaid property taxes create
the risk of a tax sale. A tax monitoring service can alert the lender of unpaid
taxes before an action is initiated by a governmental entity. Savvy borrowers
may ask their lenders to reduce or waive these fees, and loan originators
should know the extent to which these fees are negotiable.
A loan applicant may also ask why he/she is not allowed to
choose the provider for a particular service. For example, borrowers are rarely
allowed to shop for the appraiser offering the valuation that a lender will use
to make a credit decision. If a consumer asks why he/she is not allowed to make
this choice, the originator can explain that lenders order their own appraisals
to protect their investment in a mortgage. The appraisal provides assurance
that the home used as security for a mortgage has sufficient value to support
the loan amount. Consumers are free to order their own appraisals at an
additional expense. This cost is one that they may decide to incur if the
lender’s appraisal deviates significantly from a home’s anticipated market
value.
Although a title search is intended to identify any defects in a
real estate title, a title abstractor or examiner may fail to uncover a defect.
A lender’s title insurance policy protects its interests if future claims arise
based on existing rights or claims that a title examiner failed to find.
Lenders always require the purchase of a title insurance policy, and its cost
is paid by the borrower with a single premium that is due when the closing
takes place.
There are numerous provisions in the TRID Rule commentary on the
disclosure of the cost of title insurance. Use of a special formula, which is
discussed in a subsequent course section, is required when calculating the cost
of title insurance for homeowners. The cost of a lender’s policy is disclosed
without the adjustments that apply to cost calculations for an owner’s policy
(Official Interpretations, 1026.37(f)(2)(4.)).
The lending manager at LL Mortgage Company is correct.
Despite the fact that Sofia did not intend to violate the TRID Rule, her
oversight meant that she failed to offer Allen a good faith estimate of closing
costs, and she cannot correct her mistake with a revised Loan Estimate. Some
circumstances justify revisions to Loan Estimates, but Sofia’s unintentional
failure to include attorney’s fees in the estimated closing costs did not
create an opportunity for her to prepare a revised Loan Estimate and to rely on
it as a good faith estimate.
Even if Sofia offers Allen a revised Loan Estimate that lists a
closing attorney as a service for which he can shop, doing so will not enable
LL Mortgage Company to reset the tolerance for variances between the estimated
and actual costs of Allen’s transaction, and will not prevent the fees for the
closing attorney from being subject to a zero tolerance. With extensive commentary
that supplements the TRID Rule provisions on revising estimated loan costs, the
CFPB has emphasized that the ability to rely on a revised Loan Estimate as a
good faith estimate is limited to situations involving “changed circumstances”
(Official Interpretations, 1026.19(e)(3)(iv)(A)(1.)(iii.)). As discussed
earlier, changed circumstances include extraordinary events, the receipt of new
information, or the discovery that information relied on in the preparation of
a Loan Estimate was inaccurate. Forgetting to include the services of an
attorney on the original estimate of costs does not meet the TRID Rule’s
standards for changed circumstances.
Offering Allen an option to “shop” for an attorney only two days
prior to closing would not be a reasonable option for him and could potentially
damage LL Mortgage Company’s good relationship with Allen since it draws
attention to Sofia’s error. Lenders can select the services for which
consumers can and cannot shop, and with no legal obligation to allow Allen to
choose his own attorney, LL Mortgage Company is free to include the services of
a closing attorney as services for which shopping is not permitted.
The potential legal consequences of Sofia’s error include:
·A private action by
Allen, and
·An enforcement action
by the CFPB
Actions brought by individuals are subject to monetary
penalties of up to $4,000 (15 U.S.C. §1640). An enforcement action by the
CFPB can lead to much more severe penalties because the Dodd-Frank Act has
created three penalty tiers for violations of consumer financial protection
laws and regulations. These include a $5,000 penalty for each day that a
violation continues. Reckless violations are subject to a $25,000 penalty
for each day that a violation continues, and knowing violations are subject to
penalties of up to $1 million per day (12 U.S.C. §5565(c)). With the
potential of incurring such steep penalties, the most prudent option for LL
Mortgage Company is to avoid liability by absorbing the fee that Sofia failed
to disclose.
If compliance managers at LL Mortgage Company discovered
Sofia’s error after Allen’s closing occurred, there would still be an
opportunity to avoid liability for failing to provide a good faith estimate of
costs. The TRID Rule allows creditors to issue refunds for charges that
exceed permitted variances. If a Loan Estimate fails to provide an
accurate estimate of closing costs and a consumer pays an amount that exceeds
the applicable tolerances, the creditor has 60 days from the date of consummation to refund the consumer
for the excess payment. When this refund is made, the creditor is in
compliance with the requirement to provide a good faith estimate of the costs
associated with a lending transaction (12 C.F.R. §1026.19(f)(2)(v)).
The right side of page 2 of the Loan Estimate
discloses “Other Costs,” such as fees and taxes imposed by state and local
governments. Unlike “Loan Costs,” which are fees charged directly or
indirectly by creditors, most of the fees listed as “Other Costs” are not
imposed by creditors.
This distinction
between loan costs and other costs is one that loan originators may want to
point out to consumers who are astounded at the cost of securing a home loan.
This distinction helps them to understand that many of the fees associated with
a mortgage are not going into the pockets of lenders or settlement service
providers. During a review of “Other Costs,” loan originators can explain that
with the exception of charges for prepaid interest or optional credit insurance
products, “…the creditor does not retain any of the amounts or portions of
the amounts disclosed as other costs” (Official Interpretations,
1026.37(g)(1.)).
Government fees and taxes are unavoidable, but
in a transaction involving a buyer and a seller, the loan applicant may be able
to work out an agreement for the seller to assume some of these costs. These
negotiations may also work out in favor of the seller. For example, in Allen’s
fictitious transaction, he has agreed to pay a significant portion of the
charges for transfer taxes even though it is customary in his state for the
seller to cover this cost.
Taxes and other government fees include
recording fees and transfer taxes. Recording fees are costs imposed by
local government agencies to create a public record of the transfer of real
estate from one owner to another. These fees are typically based on the
number of pages in the recorded documents and the types of documents recorded.
Transfer taxes are charges that state and/or
local governments impose when residential property is sold, and the amount is
calculated as a percentage of the sales price or as a percentage of the
property value. The terms used to describe these taxes may differ from
one county or state to another, but regardless of the terminology, creditors
must disclose transfer taxes on the Loan Estimate whenever a consumer is
required to pay them (Official Interpretations, 1026.37(g)(1)(3.), (4.)).
In a transaction involving a buyer and a seller, the transfer taxes are
shown on the Closing Disclosure, and not on the Loan Estimate, if the seller is
paying them.
Prepaid items include costs associated with homeownership
that a creditor may ask a borrower to pay before the first mortgage payment and
other mortgage-related expenses are due (12 C.F.R. §1026.37(g)(2)). At
closing, a borrower will need to cover the cost of prepaid interest, which is
the interest that accrues between consummation and the end of the month that
the closing takes place. In addition to prepaid interest, lenders may ask
borrowers to prepay all or a portion of the annual premiums for homeowner’s
insurance and to make advance payments on property taxes. Certain
transactions, such as those for FHA loans, may require payment of upfront
mortgage insurance premiums.
The regulations are very specific about the order in which
prepaid items must be listed on the Loan Estimate, but compliance with this
detail is easy since the model form includes the prepaid items in the required
order. If certain items are not prepaid, no amount is entered next to the
prepaid items printed on the model disclosure. The regulations prohibit
the removal of any information printed on the Loan Estimate, even if it is not
relevant to a particular transaction. Creditors may add up to three additional
items under the “Prepaids” subheading (12 C.F.R. §1026.37(g)(2)(vi)).
These items could include optional insurance products such as home
warranty insurance or single-premium credit, life, or disability insurance that
is paid in full at the time of closing.
While all transactions will not include prepaid amounts for
homeowner’s insurance and property taxes, most will include prepaid interest.
The amount of prepaid interest that is due at closing is calculated by
multiplying the per diem or per day interest for a mortgage by the number of
days remaining in the month that the closing occurs. The number of days is
measured from the date of consummation. In order to calculate the per diem
interest, loan originators multiply the loan amount by the interest rate. The
product is divided by 365 to determine the per diem interest. This amount is
multiplied by the number of days from the date of closing (counting the closing
date) until the end of the month.
(Loan
Amount) x (Interest Rate) = Z
(Z) ÷ (365) = (Per Diem Interest)
(Per Diem Interest) x (Number of Days from Closing) = (Prepaid Interest)
Lenders typically require the establishment of
an escrow account when a borrower makes a down payment of less than 20%.
Amounts deposited into escrow may include payments for homeowner’s
insurance, PMI, and property taxes. The model disclosure includes each of
these items in alphabetical order.
As with other items printed on the Loan
Estimate that are not relevant to a particular transaction, the removal of
these is prohibited. For example, if Allen made a larger down payment and
lowered his LTV ratio to 70%, LL Mortgage Company would not ask him to purchase
PMI. Furthermore, he might not be asked to make monthly payments into an
escrow account for the costs of property taxes and insurance since he would not
be likely to risk his cash investment of $30,000 by failing to pay these
expenses. Allen’s Loan Estimate would still include these items, which
are printed on the model form, but with no need for PMI or for the
establishment of an escrow account, the disclosure would not show any amounts
next to them.
While creditors may not delete any text printed on the model
disclosure, they may add up to five additional items under the subheading for
“Initial Escrow Payment at Closing” (12 C.F.R. §1026.37(g)(3)(v)).
The items listed beneath the subheadings for “Prepaids” and
“Initial Escrow Payment at Closing” are almost identical; both include
disclosures related to homeowner’s insurance, mortgage insurance, and property
taxes. A loan applicant that takes the time to read his/her Loan Estimate is
likely to ask why amounts related to these charges are included twice. A loan
originator should be prepared to offer an explanation.
Homeowner’s Insurance: payments of homeowner’s insurance that
are disclosed as “Prepaids” and insurance payments that are disclosed under
“Initial Escrow Payment at Closing” are different payments that serve different
objectives. Homeowner’s insurance protects the interests of consumers and
creditors, and premiums are due in advance of the extension of coverage.
Failure to pay the premium will result in the cancellation of coverage, placing
the interests of the borrower and the creditor at risk. A borrower will have an
obligation under a lending contract to maintain insurance, but if he/she allows
coverage to lapse, the creditor or loan servicer will secure force-placed
insurance, which usually costs the borrower more than the lapsed coverage cost.
To ensure that none of these issues arise during the first year of a loan’s
term, creditors may require an advanced payment of amounts ranging from
premiums for two months of coverage to the full cost of coverage for an entire
year.
Payments for homeowner’s insurance that are listed as an “Initial Escrow
Payment at Closing” are not advance payments of insurance premiums. Instead,
these payments are used to create a “cushion” or a reserve that will protect
the interests of the borrower and the creditor in the event that premiums
increase.
RESPA and Regulation X limit the reserve funds that a creditor
may require borrowers to hold in an escrow account to cover unanticipated
disbursements. The limit is 1/6 of the estimated total annual payments from the
escrow account (12 C.F.R. §1024.17(c)(1)(i)). Since 1/6 of total annual payments
represents the cost of premiums for two months of coverage, it is logical for
creditors to ask borrowers to pay this amount at closing in order to establish
the “cushion” that is permitted by law.
Property Taxes: as
previously discussed, property taxes are a significant concern for mortgage
lenders. A borrower’s failure to pay these taxes may lead to a tax sale, and
the proceeds are used to pay unpaid taxes before any amount is paid for the
borrower’s mortgage debt. A foreclosure will lead to the same result, with
unpaid property taxes paid prior to any payments on mortgage debt, including
amounts owed on a first-lien mortgage. To protect themselves from this risk,
creditors may require borrowers to place funds in an escrow account to cover a
portion of the taxes.
If a creditor requires a borrower to arrive at
closing with funds for placement in an escrow account for property taxes, RESPA
limits the size of the reserve to 1/6 of total annual payments. Like amounts
deposited as a reserve for homeowner’s insurance, the amount for property taxes
will represent the amount owed over the course of two months.
Mortgage Insurance: mortgage insurance includes PMI or
mortgage insurance associated with nonconventional mortgages, such as FHA
loans. If a consumer is applying for an FHA loan, an upfront mortgage
insurance premium is due at closing and should be listed as a prepaid item.
PMI may also be listed as a prepaid item if the borrower decides to
purchase single-premium mortgage insurance instead of making monthly payments
for PMI.
Creditors are likely to require borrowers to
place funds in an escrow account to cover the cost of homeowner’s insurance and
property taxes because these costs may increase over time and become more
difficult to pay. Escrow accounts help to ensure that borrowers allocate funds
each month to cover these costs. While creditors pay PMI from an escrow
account, they are unlikely to demand a reserve because the cost is not subject
to an increase and is eliminated when a borrower’s principal balance reaches
78% of the original value of the home. Some creditors may require a small
reserve to cover renewal premiums. The elimination of MIP for FHA loans is
also possible if the borrower’s LTV ratio at the time of purchasing a home was
90% or less. Since the cost of mortgage insurance is not one that
borrowers must pay throughout a loan’s term, there is a reduced likelihood that
borrowers will fail to make these payments.
The TRID Rule states that the subcategory for “Other” is
reserved for the itemization of any other amounts in connection with the
transaction that a consumer will pay to an entity or individual other than the
creditor or loan originator (12 C.F.R. §1026.37(g)(4)). Creditors are required
to list these charges if they are aware of them when they issue the Loan
Estimate. Fees listed in this subcategory may include:
·Commissions for real
estate brokers
·Charges from
homeowner’s associations or condominium charges related to the transfer of
ownership
·Payments to the seller
for personal property that the borrower will purchase with the home
·Fees for inspections
not required by the creditor
·Optional insurance
products that are not single-premium products, but those for which premiums
will be paid on a monthly basis
·Title insurance for
the borrower
(Official Interpretations, 1026.37(g)(4)(4.))
Any optional insurance products listed in this section of the
Loan Estimate must be followed by a parenthetical notation that the product is
“optional” (12 C.F.R. §1026.37(g)(4)(ii)).
Items listed in subsection H are not subject to tolerance
limits. Therefore, if an actual charge exceeds its estimated cost, a creditor
has not violated its obligation to offer a good faith estimate. When preparing
a Loan Estimate, creditors may not be aware of every optional product or
service that a consumer will purchase, so the failure to list unknown items and
their costs does not mean that a Loan Estimate is not offered in good faith.
Lenders will not require a loan applicant to purchase an owner’s
title insurance policy as a condition for loan approval, but in some
jurisdictions, it is common for sellers to purchase owner’s coverage, although
even if the purchase of title insurance is not required by a lender or offered
by a home seller, homebuyers should secure coverage.
Loan applicants are likely to ask why they should purchase title
insurance for themselves since they are already required to purchase it for
their lender. Originators can respond to this question by explaining that the
lender’s policy will not protect the interests of the borrower if a title
defect is uncovered after closing. Furthermore, title insurance is a good
investment since the policy is purchased with the payment of a single premium,
and coverage lasts for as long as the borrower or his/her heirs have an
interest in the property.
When a loan applicant chooses to purchase an owner’s policy for
title insurance, the originator must label it as “optional” (12 C.F.R.
§1026.37(g)(4)(ii)). The staff commentary to the TRID Rule includes special
requirements for disclosing the price of owner’s title insurance, and these
requirements are related to:
·The consumer’s
purchase of “enhanced” rather than basic coverage, and
·The consumer’s
simultaneous purchase of lender’s and owner’s title insurance
The TRID Rule was written to discourage creditors from
underestimating closing costs, but the rules that determine how to disclose the
cost of enhanced title insurance and simultaneous lender/owner coverage
encourage the use of low estimates. With the use of price-estimation strategies
that underestimate the cost of an owner’s policy, the TRID Rule encourages
consumers to protect themselves with the purchase of title insurance.
As its name suggests, “enhanced” coverage offers benefits in
addition to those offered by basic or standard title insurance. The CFPB
instructs creditors and loan originators to disclose the cost of an owner’s
policy using the premium for basic coverage and not the premium for enhanced
coverage. There is one exception to this rule; when a sales contract
requires the homebuyer to purchase “enhanced” coverage, the Loan Estimate
should include the more expensive premium if the requirement is known to the
creditor when issuing the Loan Estimate (Official Interpretations,
1026.37(g)(4)(1.)).
Title insurance is available to consumers at a discounted rate
when they simultaneously purchase a lender’s and an owner’s policy for the same
property. This discount is usually applied to the cost of the lender’s
coverage, but the CFPB requires the application of the discount to the cost of
the owner’s policy for the purpose of disclosing the cost of coverage. This
rule accomplishes the following two purposes:
·If a borrower decides
not to purchase an owner’s title insurance policy when purchasing a lender’s
policy, he/she will be prepared to pay the full price for the lender’s policy
since this is the price that the Loan Estimate will show
·The borrower will see
that for a relatively small amount of money, he/she can purchase owner’s title
insurance as well as lender’s insurance
When a discount for simultaneous purchases is available, the
costs are disclosed as follows:
·The creditor must
disclose the cost of the lender’s policy based on the full premium rate
·The creditor must
disclose the simultaneous owner/lender premium rate by adding the full
cost of the premium for the owner’s policy to the discounted
cost for the simultaneous lender’s policy and then deducting the full
cost
(Official Interpretations, 1026.37(g)(4)(2.))
This method for cost disclosure helps loan applicants to
understand the incremental cost of purchasing an owner’s policy at the same
time as a lender’s policy. The CFPB was concerned that showing the full premium
for a separately purchased owner’s policy would discourage borrowers from
considering a policy to protect their own interests.
Loan originators must calculate and disclose the “Total
Closing Costs” by adding the “Total Loan Costs,” shown on the left side of page
2 of the disclosure, to the “Total Other Costs” shown on the right side of the page.
In transactions in which lender credits are a factor, the amount of credit is
subtracted from the total amount of closing costs and other costs. If there are
no lender credits, the loan originator must keep the words “Lender Credits” on
the disclosure and leave the space next to this entry blank.
Creditors may offer lender credits to borrowers who do not have
sufficient cash to cover closing costs. A borrower secures this credit by
paying a higher interest rate.
The TRID Rule includes provisions that are intended to ensure
that consumers who opt for lender credits get corresponding reductions in
closing costs. Like other amounts disclosed on the Loan Estimate, lender
credits must be disclosed in good faith. In the case of lender credits, this
means that if a creditor reduces the amount of credits promised on the Loan
Estimate, the reduction has the same effect as increasing a charge that is
subject to a zero tolerance for variances between estimated and actual costs.
Creditors must be careful when offering consumers a lender
credit to pay a specific fee. Using the example of a creditor that
extends a lender credit of $750 to cover the estimated cost of an appraisal,
the CFPB describes how differences between the estimated and actual cost of the
appraisal impacts the lender credit. If the cost of the appraisal
increases to $900, the creditor must increase the lender credit by $150 to
cover the entire cost. If the actual cost of the appraisal is $700
instead of $750, the lender cannot reduce the lender credit to $700 because
this reduction in the credit would constitute a failure to offer a Loan
Estimate in good faith (Official Interpretations, 1026.19(e)(3)(i)(5.)).
The requirements related to the disclosure of lender credits are
confusing. For example, as shown in the foregoing paragraph, the use of lender
credits to cover a specific fee can lead to compliance concerns. However, the
Loan Estimate will not indicate the specific fee that a lender credit is
intended to cover because the lender credits that are shown on the estimate are
the sum of “non-specific lender credits” and “specific lender credits”
(Official Interpretations, 1026.19(e)(3)(i)(5.)). Credits for specific fees are
listed on the Closing Disclosure in the table for “Closing Cost Details” where
they are shown as a cost that is “Paid by Others” (Official Interpretations,
1026.38(h)(3)1.)).
The TRID Rule does not contain any time limitations on the
disclosure of lender credits. In fact, creditors may wait until they prepare a
Closing Disclosure to extend a credit. The ability to offer and disclose lender
credits on a Closing Disclosure allows creditors to use lender credits to
offset charges that exceed permitted variances between actual and estimated
charges. Lender credits are even permitted after the closing for a loan occurs
if an excess charge to the consumer is discovered after consummation and a
refund is provided (Official Interpretations, 1026.38(h)(3)(2.)).
The final entries on the second page of the Loan Estimate
include the estimated amount of cash that a consumer will need for closing and
an itemization of the amounts that are used to calculate this total. The
itemized amounts include the following (12 C.F.R. §1026.37(h)).
Total Closing Costs: these are the “Total Loan Costs” + “Total
Other Costs” – “Lender Credits,” the amount of which is disclosed in subsection
J.
Closing Costs
Financed: creditors may
allow consumers who are short on cash to finance a portion of their closing
costs. However, if the loan is for a high-cost mortgage, the financing of
points and fees is illegal under the federal Home Ownership and Equity
Protection Act (HOEPA).
Down Payment/Funds
from Borrower: a down payment
is defined as the difference between the purchase price of the property and the
principal amount of the loan.
Deposit: in purchase transactions, a deposit is
the earnest money that is held in escrow until consummation occurs. When a
deposit is made and held in an escrow account, it is shown as a negative
number. This amount will ultimately be used to cover a portion of the down
payment, which is disclosed as a positive number.
Funds for Borrower: this is an amount that is disclosed in
lending transactions that do not involve the purchase of real estate. For
example, this disclosure would be relevant in a cash-out refinance. In purchase
transactions, such as Allen’s, the amount listed next to “Funds for Borrower”
is $0.
Seller Credits: the seller credits that are disclosed on
the Loan Estimate are those that are “reasonably known” to the creditor at the
time that a Loan Estimate is provided. A loan originator will know about these
credits from a review of the sales contract or from verbal information provided
by the consumer or the real estate agent. If the seller credits are for
specific charges, the loan originator should add them together and show the
aggregate amount of seller credits on the Loan Estimate.
Adjustments and Other
Credits: the amounts
shown here may include funds from individuals who are not parties to the
transaction. For example, loan originators may use this entry to show that a
loan applicant is receiving a gift from a family member or that a home builder
is providing a homebuyer with a credit. Lender credits and seller credits are
not disclosed in this section.
Page 3 of the Loan Estimate is the last page of the
disclosure, and it gives loan applicants information that they can use when
comparing loan options offered by different lenders. It also provides a
series of brief disclosures that become due when a creditor receives a loan
application. The first information that this page includes is contact
information and NMLS licensing numbers for the loan originator and the creditor
or mortgage broker that is providing the Loan Estimate.
One of the goals of offering consumers a simplified and
integrated Loan Estimate is to encourage them to comparison shop for a
mortgage. The “Comparisons” table on page 3 offers four pieces of information
that consumers can use for this purpose.
The first two items on the table offer a snapshot of a loan in
the fifth year (the 60th month) of the loan term by showing:
·The total amount of
principal, interest, mortgage insurance, and loan costs that a consumer will
pay in the first five years of a loan’s term, and
·The amount paid to
reduce the principal during the first five years
Most consumers are surprised to realize what a small percentage
of their monthly payments is used to reduce the principal of their loan during
the early years of a loan’s term.
The third item shown on the comparisons table is the APR, with
language clarifying that the APR is not the same as the interest rate for the
loan.
The fourth and final item shown on the table is the total
interest paid over the full term of a loan, expressed as a percentage of the
loan amount (12 C.F.R. §1026.37(l)(3)). When calculating the “Total Interest
Percentage” (TIP), creditors assume that the consumer will make full and
on-time payments, and will make no additional payments (Official
Interpretations, 1026.37(l)(3)(1.)).
The TIP is usually much greater than many consumers expect it to
be, especially for loans with 30-year terms. The disclosure of TIP, coupled
with the disclosure showing how little a loan’s balance is reduced during the
first five years, can motivate some consumers to consider other products. A
popular option is a 15-year mortgage, which enables borrowers to begin making
larger payments towards principal in the early years of repayment and to reduce
the total amount of interest paid.
For example, assume that Allen is approved for a loan with a
fixed interest rate of 3.5%. With monthly principal and interest payments of
$763.38, his total interest payments at the end of the 30-year loan term would
total $104,816, which represents 38% of his payments. Seeing how much he would
pay towards interest could motivate him to look into a 15-year mortgage, which
would reduce the total amount of interest paid to $48,754.
The Loan Estimate reduces paperwork and facilitates
compliance with other disclosure requirements by incorporating four additional
disclosures required by Regulation Z and one that is required by the Equal
Credit Opportunity Act (ECOA). These are presented on page 3 of the Loan
Estimate as “Other Considerations.” Following is a review of the
information disclosed to consumers in this section of the Loan Estimate (12
C.F.R. §1026.37(m)).
Appraisal: this additional disclosure states that:
·Creditors may charge
loan applicants for an appraisal of the home used to secure a mortgage
·Creditors must
“promptly” provide loan applicants with a copy of the appraisal, even if the
transaction is not completed
·Consumers may pay for
an additional appraisal for their own use
This section of the Loan Estimate satisfies disclosure
requirements that are found in ECOA and Regulation B, as well as provisions
found in Regulation Z that apply to higher-priced mortgage loans. Regulation B
states that, in transactions for first-lien loans secured by a dwelling,
creditors must mail or deliver notice of the right to an appraisal copy to a
loan applicant no later than the third business day after receipt of a loan
application (12 C.F.R. §1002.14(a)(2)). Regulation Z requires delivery of a
similar notice in all transactions for higher-priced mortgage loans, regardless
of the loan’s lien status (12 C.F.R. §1026.35(c)(5)).
Assumption: assumption of a mortgage occurs when a
borrower does not apply for his/her own loan, but assumes the remaining
mortgage payments and other obligations associated with the seller’s mortgage.
Conventional loans are generally not assumable, but non-conventional products
such as FHA loans and VA loans are. The Loan Estimate must indicate whether the
remaining loan balance is assumable.
Homeowner’s Insurance: creditors may remind consumers that they
are required to carry homeowner’s insurance and that they may choose an insurer
that is deemed acceptable by the creditor. This disclosure is at the option of
the creditor and is not required by law.
Late Payment: a simple statement on the Loan Estimate
advises consumers of the number of days past the due date that a late payment
will trigger a late fee and the amount of that fee.
Refinance: the Loan Estimate includes a disclosure
advising consumers that after securing a mortgage, future refinancing will
depend on their eligibility for mortgage credit, valuation of the property
securing the loan, and market conditions.
Servicing: the Loan Estimate must indicate whether
the creditor intends to service the mortgage or transfer servicing rights to
another entity.
Creditors are not required to confirm a loan applicant’s
receipt of a Loan Estimate with a signature, but if they request one, they must
include the following statement 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 a signature is not required, the disclosure must
include a statement under the “Other Considerations” subsection advising
consumers that the receipt of a Loan Estimate does not obligate them to accept a
loan (12 C.F.R. §1026.37(n)).
The heading at the top
of page 1 of the Loan Estimate advises applicants to:
A. Shop
around for the best product
B. Provide
only truthful and accurate information to the loan originator with whom you are
working
C. Do
not sign this Loan Estimate without carefully reviewing it
D. Save
this Loan Estimate to compare with your Closing Disclosure
Which of the following
appraisal-related disclosures appears on page 3 of the Loan Estimate?
A. Creditors
will provide three copies of each appraisal conducted
B. Loan
applicants may pay for an additional appraisal for their own use
C. Loan
applicants will only receive a copy of an appraisal if they request one
D. Creditors
may not charge loan applicants for an appraisal
Which of the following
is not one of the three sections that comprise page 1 of the Loan Estimate?
A. Loan
Terms
B. Projected
Payments
C. Other
Costs
D. Costs
at Closing
The Loan Estimate
divides the cost of settlement services into which two categories?
A. Services
You Cannot Shop For and Services You Can Shop For
B. Costs
Paid Prior To Closing and Costs Paid At Closing
C. Lender-Required
Services and Optional Services
D. Estimated
Costs and Final Costs
When listing
origination charges on the Loan Estimate, which of the following must be listed
first?