CFPB Clarifies Liability Concerns for Investors Buying TRID Mortgages in Letter to the MBA | Wolters Kluwer Financial Services
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  • CFPB Clarifies Liability Concerns for Investors Buying TRID Mortgages in Letter to the MBA

    Published January 07, 2016

    The CFPB recently responded to a Mortgage Bankers Association (MBA) letter in an attempt to assuage investor concerns over liability for minor errors on the TRID documents. Often communications from the CFPB provide informal guidance or regulatory interpretations. This letter's purpose is to reassure the secondary market that acquiring TRID loans that contain minor errors presents only a negligible risk.

    Overly strict investor TRID standards threaten mortgage market liquidity

    The 'Know Before you Owe' mortgage disclosure rule went into effect last October. Since then lenders have expressed difficulty placing their TRID loans in the secondary market because of investor concern over potential liability for minor formatting errors. While the CFPB has repeatedly stated that their enforcement efforts are "squarely focused" on whether lenders are making good faith efforts to comply with new rules, these investors counter that they are also concerned about private liability, particularly class actions.

    Lenders are also concerned that after the grace period, the GSEs and HUD will implement conservative interpretations of TRID compliance and will refuse to purchase loans. If originators are unable to sell their TRID loans because the document contains a minor error, they will not have the capital to originate new ones. Overly conservative document standards are a significant threat to the liquidity of mortgage market.

    The MBA relayed these concerns from its members and formally requested speedy action from the CFPB on December 21st. The CFPB responded in writing on December 30th.

    The CFPB's Letter to the MBA

    The CFPB response letter begins by acknowledging the serious efforts and substantial resources the mortgage industry has made to understand the rules, adapt systems, and train personnel to comply with the rules saying that with any "change of this scale despite the best efforts, there inevitably will be inadvertent errors in the early days." The Bureau reports it has been working with the FHFA, the GSEs , and the FHA to ensure that implementation will not disrupt the secondary market, asserting that these groups will not conduct routine post-purchase reviews for technical compliance and that they do not intend to exercise contractual remedies for non-compliance provided the lender is making a good faith effort to comply.

    The CFPB letter also discussed cure provisions. The TRID rule allows a lender to issue an updated Closing Disclosure to correct non-numerical clerical errors or to cure violations of tolerance limits. Remember that lenders must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30-calendar-day period after consummation that causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer from what was previously disclosed. This corrected disclosure must be delivered or placed in the mail not later than 30 calendar days after receiving information sufficient to establish that such an event has occurred. Furthermore, lenders must provide a revised Closing Disclosure to correct non-numerical clerical errors and document refunds for tolerance violations no later than 60 calendar days after consummation.

    The letter continues stating that generally, liability for statutory and class action damages is determined by examining the final Closing Disclosure; a corrected Closing Disclosure, even if sent after consummation, "could, in many cases, forestall any such private liability." The Truth in Lending Act contains a provision for the correcting of errors. A creditor can cure violations provided the borrower is notified of the error and appropriate adjustments are made before the creditor receives notice of the violation by the borrower. Likewise, there is a limited exception for liability for unintentional errors.

    Assignee Liability under TILA

    While it often seems like a law in and of itself, the Bureau reminds that the TRID rule does not alter the basic principles of liability under either TILA or RESPA.

    "Therefore, for non-high-cost mortgages:

    • There is no general TILA assignee liability unless the violation is apparent on the face of the disclosure documents and the assignment is voluntary. 15 U.S.C. 1641(e).
    • By statute, TILA limits statutory damages for mortgage disclosures, in both individual and class actions to failure to provide a closed-set of disclosures. 15 U.S.C. 1640(a).
    • Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class action damages in 15 U.S.C. 1640(a).
    • The listed disclosures in 15 U.S.C. 1640(a) that give rise to statutory and class action damages do not include either the RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage."

    The letter concludes by stating that the Bureau, other regulators, and the GSEs "believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like." Lenders will want to monitor and audit for Closing Disclosure errors and tolerance violations and ensure that corrected disclosures are provided within the regulatory time frames.

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