Overview The purpose of this session is to provide an overview of the TILA-RESPA Integrated Disclosure Rule, “TRID”, from a Secondary Market Perspective. This session will discuss the implications that TRID has had on the secondary market and some of the unintended consequences related to its implementation. Topics include Investors Considerations, TRID Assignee Liability, Compliance Issues, and Cures/Remediation of Errors. Presenter: Scott McNulla SVP Regulatory Compliance American Mortgage Consultants, “AMC” AMC is a leading nationwide due diligence and consulting services provider with offices in New York, Chicago, Denver, Dallas, and Tampa. AMC does not provide legal advice or issue legal opinions. Please contact your legal counsel for legal advice 1
Table of Contents 1. TRID Background 2. Investor Concerns (Secondary Market Considerations) 3. TRID Assignee Liability 4. Current TRID Compliance 5. Cures / Remediations 6. CFPB Proposed TRID Rule Clarifications 2
Background For over 30 years, lenders were required to provide 3 disclosures to consumers applying for a mortgage. The Good Faith Estimate (GFE) the Truth in Lending (TIL) disclosure and the HUD-1 Settlement Statement The forms were required under 2 different statutes, Real Estate Settlement Procedures Act (RESPA), and Truth in Lending Act (TILA), and the forms contained overlapping information with inconsistent language The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) directed the Consumer Financial Protection Bureau (CFPB) to integrate the 2 disclosures (both at application and closing) into 1 more meaningful and consumer-friendly form. The CFPB’s new rule was introduced as the TILA -RESPA Integrated Disclosures Rule, or “TRID” also referred to as Know Before you Owe, or “KBYO”. 3
Background Timeline July 21, 2010 - Dodd-Frank Wall Street Reform and Consumer Protection Act July 9, 2012 - Proposal of the new rule November 6, 2012 - The Comment period on the proposed rule closes November 20, 2013 - The final rule is published January 20, 2015 - Amendments to the rule are issued July 21, 2015 - New Effective Date Announced July 28, 2016 - Proposal of Amendments to the rule October 18, 2016 - Comment period closes TBD - Amendments to the rule have not yet been issued 4
Investor Concerns Secondary Market Considerations Impact TRID had on the Secondary Market • Increased Timelines for Loan Closings • Warehouse Line Impacts • Pricing Considerations for Loans with TRID Defects • Uncertainty of Execution by Originating Lenders • Uncertainty of Execution by Aggregators/Issuers • Third Party Review Firms Uncertainty (AMC, Clayton, Opus, IngletBlair, etc) • Rating Uncertainty (Fitch, Kroll, DBRS, Moodys, S&P, & Morningstar) o Historically, RAs required TPR firms to rate anything with Assignee Liability as an EV3-C, which would not be included in a Rated Deal 5
Investor Concerns 2016 – Secondary Market Considerations SFIG RMBS 3.0 Work Group • The Industry Recognized the Problem • One key concern was the need for scope alignment • Structured Finance Industry Group, “SFIG”, RMBS 3.0 Work Group • TPR Firms and Outside Counsel focused on areas of Risk • Rating Agencies were Engaged and Accepted Approach • SFIG adopted the 3.0 TRID Review Scope - June 2016 6
Investor Concerns 2016 – Secondary Market Considerations SFIG Scope Adoption • Implementation of SFIG Grading Scheme • Implementation of SFIG Remediation Methodologies • Rating Agency Remediation timing and Corresponding Grades • Market Acceptance • Rated Deals with TRID Exceptions • Current TRID Scope exceeds prior testing performed under TILA and RESPA • Upcoming Refinements to Scope 7
Assignee Liability When a third party, usually a successor in interest, is responsible for the wrongdoing of another party Usually this is found in a situation where an investor in residential mortgage loans is responsible for the actions of the lender, mortgage broker, or mortgage servicer There are two primary types of assignee liability: • Assignee liability that is specifically delineated in a regulation such as HOEPA or certain specific state anti-predatory lending and/or high cost home loan statutes; or • Assignee liability that stems from a doctrine in the Truth-in-Lending Act known as “obvious on the face of the documents” For example obvious under-disclosure of the APR or Finance Charges outside of applicable tolerances 8
Assignee Liability TRID Assignee Liability (A Few Examples) • Statutory Damages o Material Disclosures (APR, Finance Charge, TOP, etc…) o Projected Payments o Adjustable Payment Table and Adjustable Interest Rate Table o Timing Issues (LE 3 day, LE 7 day, LE 4 day, CD 3 day & LE after CD) • Actual Damages o Fee Descriptions, Sort Order, Fee Name Consistency, Title - o Settlement Service Provide List Timing and/or Accuracy o Total Interest Percentage 9
Current TRID Compliance TRID Exception Rate Reductions • Improvements in Lender’s Procedures • Improvements in Loan Origination Systems • Improvements with Document Vendors and Settlement Agents • Timely Remediation for Loans with Issues • CFPB Examinations 10
Cures / Remediations Explicit Cures • 1026.19(f)(2)(iv) Non-Numeric Cure – within 60 days of Consummation • 1026.19(f)(2)(v) Tolerance Cure – within 60 days of Consummation • 130(b) Self Corrective Cure – within 60 days of Discovery Implicit Cures (Good Faith Re-disclosure) • Provide the Consumer with Corrected Disclosures Timing Exceptions – Cannot Obviously be Cured 11
Cures / Remediations Curing TRID Errors: Post Consummation Closing Disclosure and TILA § 130(b) • Under TRID, originators have an affirmative obligation to re-disclose the CD under circumstances where 1) amounts paid by the consumer changed after consummation; 2) a tolerance violation error exists; and 3) there are non-numerical clerical errors. This does not change the legacy TILA cure provision within § 130(b) that permits errors to be remediated within 60 days of identification of the error, but the new TRID re-disclosure obligations effectively creates a duty for creditors to self-identify errors and correct them in a timely manner • Investors are reviewing all attempts at remediating errors to verify the use of the Post Consummation Closing Disclosure ("PC-CD") is accurate, and adequately addressed the error that existed at consummation. Investors still have the ability to see that errors are corrected when they identify them in the ordinary course of due diligence, under § 130(b). 12
CFPB Proposed TRID Rule Clarifications Topics Addressed by the Proposal: • Applying TRID to loans secured by co-ops regardless of whether the co-ops are considered personal or real property under state law • Clarifying that the total of payments disclosure only includes consumer paid charges (excludes charges designated as paid by the seller or others) • Creating a tolerance requirement based on the finance charge tolerance for the total of payments disclosure • Clarifying the rounding rules for percentage disclosures • Clarifying that if an accurate and timely settlement service providers list was not disclosed, related charges will be subject to the 0% tolerance • Addressing the “black hole” by clarifying that a revised Closing Disclosure (CD) can be issued prior to closing for a valid changed circumstance 13
CFPB Proposed TRID Rule Clarifications Topics Addressed by the Proposal – cont’d • Clarifying construction loan disclosure provisions • Clarifying the projected payments table • Clarifying that prepaid interest is included in the total interest percentage disclosure • Clarifying the use of principal curtailments • Disclosing the names of natural persons for right of rescission transactions • Clarifying how gift funds are calculated and disclosed • Clarifying when post-consummation escrow cancellation notices are required — a change that will impact mortgage servicers • Until finalized, these proposed clarifications do not override or clarify similar provisions in the current final TRID Rule 14
CFPB Proposed TRID Rule Clarifications Cure Issues not Addressed within the Proposal • The CFPB, declined to provide additional “cures” that would fill gaps not covered by the cures provided in the current TRID Rule • Many had hoped the CFPB would provide cures for numeric clerical errors, post-consummation cures for disclosures that are only included in the LE, cures for numeric disclosure errors that are not dollar values and cures for disclosure delivery timing errors • The CFPB indicated in the proposal that if it provided additional cures, there would be no incentive for industry to comply with the TRID Rule 15
QUESTIONS? 16
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