This blog post is the last in a series discussing some important changes to the regulatory landscape that will affect your business in the years to come. This post covers the changes in the CFPB’s TRID 2.0 amendment rule and its recent Black Hole final rule, which come into play this year. The upcoming live Q&A will dive in deeper on the topics I outline in this and my prior posts.
While many in the industry have been successfully operating under TRID since 2015, there have been issues that many have asked the CFPB to address. These issues were identified and brought to the CFPB’s attention as early as 2013, when TRID was originally issued. In response to the industry’s requests, the CFPB issued a major amendment in the summer of 2017 to help clarify the concerns that had been voiced.
Because of the breadth and quantity of the changes, many have referred to these amendments as “TRID 2.0.”
However, TRID 2.0 did not solve all of the industry’s problems with the original rule. While the CFPB did provide clarity on some issues, it only added more confusion with regard to others. Some issues weren’t even addressed at all, including the infamous “Black Hole” issue. The CFPB ultimately fixed that in a subsequent ruling, but other important issues remain outstanding.
Since the CFPB has allowed for optional compliance with the TRID 2.0 rule starting October 10, 2017 and the Black Hole amendment went into effect on June 1, 2018, you may have already encountered some challenges with the new amendments. If you haven’t yet encountered these issues, know that you surely will, because lenders must comply with TRID 2.0 starting October 1, 2018.
What does the TRID 2.0 rule leave untouched?
The rule does not address the issue of how title insurance premiums are disclosed under TRID when both lender’s and owner’s policies are issued. The special disclosure of these costs under TRID remains intact. In addition, the question of whether a private right of action applies to certain violations under the rule is left unanswered. It is unclear which violations of the rule may be subject to borrower lawsuits, resulting in some very cautious interpretations by investors. There is a limited ability to cure violations of the rule, and while the industry had requested changes to this, the rule does not expand that ability. This means violations of the TRID rule will continue to be risky business.
What changes in TRID 2.0 may cause confusion?
The CFPB attempted to clarify the level of itemization required on the Loan Estimate (“LE”) and the accompanying Written List of Service Providers (“WLSP”) for third party services for which the consumer may shop and select the provider. In TRID 2.0, the CFPB stated that lenders have to itemize those services on the LE and the WLSP, which seems clear enough. But the CFPB “clarified” in the preamble to the rule that in their interpretation, this means the lender is “not required…to provide a detailed breakdown of all related fees that are not themselves required by the creditor but that may be charged.” According to the CFPB, while the lender’s title insurance premium should be disclosed, the “notary fee, title search fee, or other ancillary and administrative services” needed to provide title insurance do not have to be separately itemized.
This guidance may cause confusion for lenders and title insurance companies regarding what level of itemization to provide in their cost estimates, because it is not how many had interpreted the TRID rule. Now, there are unanswered questions that flow from this preamble: should the costs of those “ancillary” services be aggregated into the lender’s title insurance premium line item (which may actually conflict with other parts of the rule)? Or should they be disclosed under the “Other” subcategory, as the CFPB considers them to be non-required services? This will no doubt affect how some lenders and investors expect the title-related charges to be disclosed on the LE. But could it also affect how lenders want these charges disclosed on the Closing Disclosure?
Another potential area for confusion is the CFPB’s new requirement for closing costs to be included in the “unlimited tolerance” category, which shows charges that are not subject to limitations on how much they can increase from the original LE (the other categories limit closing costs from increasing at all, or to increases of 10%). The CFPB amended the rule to require that the charges must be “bona fide” to be included in this “unlimited tolerance” category. The CFPB defined “bona fide” as “lawful and for services that are actually performed,” which may mean the lender needs to document that the charge was allowable under state law and that the service was actually provided. This can affect the treatment of title-related charges under the rule, because the category includes charges even if the borrower shopped for and selected their own provider. As a result, this may represent an additional compliance burden that ends up affecting title companies.
What about the Black Hole?
The CFPB also issued a rule earlier this year that addressed the infamous “Black Hole” period, during which lenders cannot use the Closing Disclosure to disclose legitimate cost increases to consumers and must absorb them. With this rule, the CFPB completely eliminated the Black Hole, allowing lenders to impose all legitimate cost increases when they are at the stage of providing a CD. But without fear of the “Black Hole,” lenders may start sending out the initial CD very early in the transaction. Then, to avoid any questions about the accuracy of an early initial CD, lenders may start pressuring title companies to match their charges to those on the lender’s initial CD.
While TRID 2.0 and the Black Hole rule changes as a whole provide some helpful clarity to the industry, there are some potential areas of confusion and challenges for the title industry. Title companies may already be feeling the impact of these changes, but if not, they will almost certainly have to deal with them in the coming months.
About the Author: Richard Horn is a former CFPB Senior Counsel & Special Advisor who led the rule integrating the mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act (the TILA-RESPA integrated disclosures, also known as “TRID”).