Know Before You Owe (KBYO or TRID)
The new disclosures are effective for applications received on or after October 3, 2015. They apply to all closed-end loans securing real property. The following loans are excluded:
- Reverse Mortgages
- Loans secured by mobile home (not attached to real property)
- Partial exemption for certain junior lien loans associated with housing assistance loans for low/moderate-income consumers*
- Creditors making five or less mortgage loans per year
- The transaction is secured by a subordinate lien;
- The transaction is for the purpose of:
- Down payment, closing costs, or other similar home buyer assistance, such as principal or interest subsidies;
- Property rehabilitation assistance;
- Energy efficiency assistance; or,
- Foreclosure avoidance or prevention.
- The credit contract does not require the payment of interest;
- The credit contract provides that repayment of the amount of credit extended is:
- Forgiven either incrementally or in whole, at a date certain, and subject only to specified ownership and occupancy conditions, such as a requirement that the consumer maintain the property as the consumer’s principal dwelling for five years;
- Deferred for a minimum of 20 years after consummation of the transaction;
- Deferred until sale of the property securing the transaction; or,
- Deferred until the property securing the transaction is no longer the principal dwelling of the consumer.
- The total of costs payable by the consumer in connection with the transaction at consummation is less than one percent of the amount of credit extended and includes no charges other than:
- Fees for recordation of security instruments, deeds, and similar documents;
- A bona fide and reasonable application fee; and,
- A bona fide and reasonable fee for housing counseling services.
- The creditor complies with all other applicable requirements of this part in connection with the transaction, including without limitation the disclosures required by §1026.18.
The Loan Estimate, Closing Disclosure, and other relevant disclosures implemented by the rule are effective on October 3, 2015. They cannot be used until that date since the provisions governing their use are not effective until then.
No, the current provisions providing an exemption under RESPA (§1024.5(b)(1)) for properties of 25 acres or more is eliminated (reserved) under the rule.
It would depend on whether an individual state has any provisions in which a cooperative unit is defined or considered "real property."
The responsibilities for compliance with the disclosure requirements do not affect the property appraiser, nor does the rule contain any revisions to valuation independence.
The Loan Estimate is not required under 1026.19(e)(1)(i) as long as the adverse action occurs prior to the expiration of the three general business day requirement after receipt of the application by the creditor or mortgage broker. If the creditor fails to provide early disclosures and the transaction is later consummated on the terms originally applied for, then the creditor does not comply with §1026.19(e)(1)(i). If, however, the consumer amends the application because of the creditor’s unwillingness to approve it on the terms originally applied for, no violation occurs for not providing disclosures based on those original terms. But the amended application is a new application subject to §1026.19(e)(1)(i).
It depends on the provisions contained within the security instrument for the particular state. In many cases an open-end mortgage is simply a title used for the instrument, but it does not function as an open-end credit instrument defined under Regulation Z (i.e., whether it may only state a maximum indebtedness, etc.). The answer depends on whether the instrument contains provisions that comport to the definition of open-end credit (meaning: the creditor reasonably contemplates repeated transactions; the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and, the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid).
It would certainly be recommended that you not issue both sets of disclosures. Although the provisions under the rule do not specifically address this issue, it would no doubt be confusing to the consumer and not provide the requisite "clear and conspicuous" disclosure standards required. You also run the risk of an unfair, deceptive, or abusive act or practice (UDAAP) violation as well.
Neither the Loan Estimate or the Closing Disclosure mandates an obligation to make a loan. The consumer must continue to qualify for the loan as determined by your approval/commitment to them after the disclosures have been issued.
If the first lien is a closed-end transaction secured by real property, then you would use the Loan Estimate and Closing Disclosure. If the second lien is an exempt transaction (see previous questions above regarding their use on exempt transactions) it does not change compliance with provisions under 1026.19(e), (f) & (g) regarding the first lien mortgage transaction.
It depends on whether the specific transaction falls within the partial exemption provisions established under §1026.3(h) regarding certain mortgage loans that would be specifically exempt from the provisions under §1026.19(e), (f) & (g). See also responses to questions above regarding the use of the Loan Estimate and Closing Disclosure on exempt transactions. This type of question should be discussed this with your compliance experts and counsel.
Exempt meaning not applicable under the requirements of §1026.19(e), (f) & (g) regarding the use of the Loan Estimate and Closing Disclosure. However, the use of the model forms is allowable if properly completed with accurate content and meets the provisions requiring clear and conspicuous and segregation requirements regarding non-federally related mortgage transactions.
In terms of a HELOC loan or Reverse Mortgage specifically, the use of the Loan Estimate and Closing Disclosure would be problematic since the HELOC disclosure requirements under §1026.40(d) and the Reverse Mortgage requirements under §1026.33(b) would not be supported by the use of these forms.
In terms of all transactions (such as the partial exemption for certain junior liens), there are too many possible scenarios and potential transaction types to provide a complete answer in this document. We would recommend you have policies based on an analysis of each property type, product type, occupancy, lien position, etc., after consultation with legal counsel or your compliance department. In addition, you will need to ascertain the acceptance of the use of any variance in disclosure forms used with your investors if you sell your mortgage loans in the secondary market.
The new disclosures are effective for applications received on or after 10/3/15. If an application is received prior to this date the transaction would be covered by existing law, which requires the Good Faith Estimate, TIL Disclosure statement, and HUD-1 Settlement Statement. The provisions regarding the new Loan Estimate and Closing Disclosure are not applicable for an application received prior to this date, nor can they be used prior to 10/3/15.
Each creditor is responsible for the Loan Estimate(s) and Closing Disclosure(s) compliance associated with its transactions, regardless of the entity which may actually be providing the specific disclosure.
In terms of exemptions from the requirement of each transaction requiring a HUD-1 Settlement Statement (or Closing Disclosure, as applicable) you should:
- refer to the guidelines provided for each of the housing programs;
- determine whether the specific product and program falls under the provisions of §1026.19(e), (f) & (g) or is exempt for purposes of file record retention (i.e., the appropriate disclosures);
- determine on a transactions-specific basis whether a GFE, TIL, and HUD-1 will be used for an exempt transaction or whether the subordinate creditor can and will use the Loan Estimate and Closing Disclosure (or other acceptable compliant disclosure) again for purposes of file record retention;
- ascertain the acceptability of the decisions above to the loan investor if loans are sold on the secondary market; and,
- establish policies based on consultation with your compliance expert or attorney.
It depends. If the manufactured home is or will be attached to real property and therefore considered "real property" it would be considered a covered loan under the rule. If the manufactured home is not attached to real property the Good Faith Estimate, Truth in Lending Statement, and the HUD-1 Settlement Statement would continue to be used given the CFPB notes in the preamble to the rule that these disclosures would be more appropriate and more beneficial to the consumer than the integrated disclosures under this property type.
There are many issues you should consider for advance preparation prior to October 3, including (but not limited to): service provider oversight of your LOS provider and appropriate testing of the revised LOS and documents for your purposes, remembering you (as a creditor) are responsible for compliance with the rule and oversight of your business partners; the amount of time you will need to dedicate to training the organization on the new requirements and use of the revised LOS; establishment of policies and procedures for your organization for compliance with the rule, and those policies and procedures you may not presently have (such as a partial payment policy); preparation for the amount of coordination that will be required between you the creditor and settlement agents; revisions to auditing and quality control reviews; etc. You should review the Readiness Guide published by the CFPB (starting on page 15 there is a checklist specific to the integrated disclosure rule).
There is not sufficient information to completely answer this question. However, based on the wording of the question it appears as though the concern stems from determining who is considered the actual creditor on the transaction. The answer, given the question, is more subjective than it may seem. You should refer to the CFPB "Policy Guidance on Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning to Mini-Correspondent Lenders," which offers guidance on determination of the true creditor based on the "real source of funding" and the "real interest of the funding lender" for specific clarification in this scenario. That being said, if the loan purchase to the correspondent purchaser is considered a secondary market transaction (the correspondent purchaser is not the "creditor") then the correspondent purchaser does not have assignee liability, but would have record retention requirements as well as compliance by the selling entity with its guidelines, and quality control and third-party service provider oversight, to name a few.
Yes. In this case you would refer to the policies established by your organization regarding such changes. Generally speaking, such a change would most likely trigger an adverse action notice on the original application and a re-origination of the owner-occupied transaction as a new application. Commentary under ¶19(e)(1)(iii)-3 states in part, "If the creditor fails to provide early disclosures and the transaction is later consummated on the terms originally applied for, then the creditor does not comply with §1026.19(e)(1)(i). If, however, the consumer amends the application because of the creditor’s unwillingness to approve it on the terms originally applied for, no violation occurs for not providing disclosures based on those original terms. But the amended application is a new application subject to §1026.19(e)(1)(I)."
Disclaimer: The following information is intended for general information purposes with the goal of assisting ICE Mortgage Technology’s customers in complying with the new KBYO regulations. This information is provided as a courtesy to ICE Mortgage Technology’s customers and ICE Mortgage Technology makes no representation or warranty regarding the accuracy of the information set forth herein, and you may not rely on this information to ensure your company’s compliance with the KBYO regulations. This FAQ should not be construed as legal advice or opinion on any specific facts or circumstances, including the application of the KBYO regulations. You are advised to consult your own compliance staff or attorney regarding your specific residential mortgage lending questions or situation to ensure your compliance with all applicable laws and regulations.