I’ve had more than a few people remark that when they read the regulations it makes them dizzy and they don’t understand how I can do that all day.
Well, the truth be told, I don’t do it every day! However, when I do have to dissect a regulation and figure out how to apply it to the mortgage workflow, I use a technique that I have found very helpful, especially when it relates to overlapping regulation like TRID (TILA/RESPA Integrated Disclosures)
Not everyone has a big budget to keep attorneys on retainer. When you consider that the leading TILA-RESPA attorneys will charge you $650-$750 an hour for their services, you want to be sure that when you ask for their opinion, you do it quickly and with well-thought-out references.
With TRID, you are dealing with 3 regulations that overlap on one another!
- CFPB TRID Rules
- RESPA-Reg X Section 1024
- TILA-Reg Z Section 1026
Let’s start with a commonly asked question.
Sample Question: If the APR changes, do I need to issue a new closing disclosure and does the three-business-day waiting period apply?
Step One: What does the CFPB Say?
Pg. 68 of their Guide states:
Yes, in some circumstances. The 3-business-day waiting period applies to a corrected Closing Disclosure that is provided when there are:
“Changes to the loan’s APR” – and reference 1026.19(f)(2)(i) and (ii)?
If you only read this, you would make the common mistake of thinking that if the APR changes, a new closing disclosure must be done and a new 3-day waiting period must occur! And, you would be wrong!
You must go to 1026.19(f)(2)(i) and (ii) for detailed information on what makes an APR Accurate.
Step Two: What does 1026.19(f)(2)(i) and (ii) say?
1026.19 Refers to TILA which says:
(ii) If the annual percentage rate disclosed under paragraph (a)(1)(i) of this section becomes inaccurate, as defined in §1026.22, the creditor shall provide corrected disclosures with all changed terms.
Okay, so now we have to figure out the difference between “accurate” and “inaccurate,” because we only need to provide corrected disclosures IF the APR becomes ‘inaccurate’ as defined in 1026.22.
So off to 1026.22 to see what “inaccurate means”:
- 1026.22 Determination of annual percentage rate.
(2) As a general rule, the annual percentage rate shall be considered accurate if it is not more than 1⁄8 of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.
AHA! So it is not inaccurate and therefore does not need to be re-disclosed as long as I am within 1/8th of 1 percentage point above or below the former disclosure. Hooray!!
But, what about if the APR is lower by more than 1/8th? After all, that means the consumer is getting a better deal than they originally thought. Do I have to issue a new closing disclosure? So you keep reading and see item number (5) (below).
(5) the disclosed annual percentage rate shall be considered accurate:
(i) If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section.
From this paragraph you can see that if it is “understated” you do not have to re-disclose and the APR would be considered accurate.
So, now you can cite reference to when an APR needs to have a disclosure re-issued.
I always recommend a final step!
Step Three: Send your thought process (just like I did above) and cite the regulation to your attorney for verification. Do NOT rely on what you hear without your own due diligence and verification. Your examiners will ask you to justify how you got there, and you don’t want to tell them you heard it through the grapevine.
If you follow these three steps, you will save yourself a lot of money in attorney fees and at the same time protect your company from misinterpretation of the regulations.